PMLA | Official Banking Transactions In Usual Course Of Business Cannot Be Construed As Proceeds Of Crime: Bombay High Court

 "We are unable to comprehend, nor has the learned Special Counsel for the ED been able to explain, how official bank transaction(s) between a Bank and a Corporate entity, carried out in the usual course of business, could be construed as proceeds of crime and thereby constitute the offence of money laundering." Bombay High Court, in a significant ruling dated October 21, 2026, held that regular banking and corporate transactions carried out in the ordinary course of business cannot be termed as "proceeds of crime" under Section 2(u) of the Prevention of Money-Laundering Act, 2002 (PMLA) to attract money laundering charges.

A division bench of Justice A.S. Gadkari and Justice Kamal Khata quashed the provisional attachment of properties belonging to businessman Avinash Bhosale and his family, observing that receipt of investments or loans by an entity from a bank cannot be faulted in law, as accepting the prosecution's theory would absurdly imply that funds held by a commercial bank itself are illicit.

The proceedings arose from cross-appeals challenging an order dated April 1, 2026, passed by the Appellate Tribunal under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA), which had sustained the provisional attachment of two land parcels valued at Rs. 25 Crores in Pune and Nagpur. The Directorate of Enforcement (ED) arraigned Avinash Bhosale and related entities in its third supplementary charge-sheet arising out of ECIR/MBZO-I/03/2020 relating to YES Bank and DHFL, while both Bhosale and the ED approached the High Court against partial relief and release of properties respectively.

The primary question before the court was whether routine financial transactions, loan repayments under pre-existing debenture agreements, consultancy fees, and legitimate business transfers executed prior to or independently of a bank's loan disbursal can be legally classified as proceeds of crime under Section 2(u) of the PMLA. The court was also called upon to determine whether the Appellate Tribunal was justified in continuing the attachment of assets to the extent of Rs. 25 Crores in the absence of any demonstrable criminal nexus.

Scope Of Proceeds Of Crime And Scheduled Offence Under PMLA

The High Court commenced its doctrinal analysis by examining the statutory definitions of "proceeds of crime" under Section 2(u), the offence of money laundering under Section 3, and a "scheduled offence" under Section 2(1)(y) of the PMLA. The bench noted that a bare perusal of the statutory framework establishes that any property sought to be brought under the net of money laundering must have been derived or obtained, directly or indirectly, as a result of criminal activity relatable to a scheduled offence enumerated under Part A, Part B, or Part C of the Schedule.

The court pointed out that the prosecution had failed to establish how legitimate commercial transactions between institutional lenders and corporate entities could metamorphose into proceeds of crime. The bench held that commercial transactions executed in the ordinary course of business cannot automatically be clothed with the character of illicit funds without concrete evidentiary demonstration of criminal origin.

"A simple analysis of the above provisions indicates that, a property must have been derived as a result of criminal activity relating to a scheduled offence specified either in Part A or Part B of the Schedule to the PMLA."

No Proceeds Of Crime Prior To Loan Disbursal

Addressing the ED's claim that Avinash Bhosale's entity, Nibodh Realty, received Rs. 67.85 Crores as proceeds of crime out of Rs. 335.70 Crores repaid under Debenture Subscription Agreements (DSAs) executed between 2014 and 2015, the court rejected the computation as entirely baseless. The bench observed that monies were advanced by Nibodh at an 18% per annum interest rate years prior to the alleged 2018 transactions, and repayments made by Sanjay Chhabria were strictly traceable to contractual covenants dating back to 2014.

The bench reasoned that no link whatsoever was established between the repayments made to Nibodh under the 2014 agreements and the funds disbursed by YES Bank to DHFL in April 2018. The court categorically ruled that there could be no conception of proceeds of crime existing even before the underlying bank disbursement had actually taken place.

Independent Consultancy Agreements Cannot Be Arbitrarily Linked To Crime Proceeds

Examining the consultancy agreements entered into by DHFL with Bhosale's entities involving Rs. 71.82 Crores, the High Court scrutinized the timeline of disbursements. The record revealed that DHFL had disbursed Rs. 47.52 Crores prior to YES Bank sanctioning or granting any loan to DHFL on April 12, 2018, with significant tranches paid between July 2017 and May 2018 pursuant to invoices raised prior to the bank's disbursal.

The judges held that the ED's theory of DHFL diverting loan proceeds to Bhosale under the guise of consultancy agreements was thoroughly erroneous. Since major disbursements and invoices predated the institutional loan disbursement date of April 12, 2018, the payments could not possess any legal nexus to the alleged proceeds of crime originating from YES Bank.

Prior Business Sales Cannot Be Tainted Merely Due To Subsequent Staggered Payments

The bench similarly discarded the ED's allegations regarding Rs. 25 Crores received by ABIL Dairy LLP from Sanjay Chhabria in February 2019. The court highlighted that the underlying agreement for the sale of the dairy business was formally executed in 2016, with an initial 50% consideration paid on January 15, 2016.

The court observed that it was legally untenable to classify a genuine commercial transaction as proceeds of crime simply because the balance consideration was paid after April 12, 2018. Each transaction represented an independent business dealing between distinct corporate entities, devoid of any demonstrable illegality or criminal taint.

"The receipt of these monies by DHFL, whether as an investment or as a loan from YES Bank, cannot be faulted in law. These are official banking transactions and cannot be construed as proceeds of crime. If the contention is to be accepted it would mean that the money held by the bank was illicit and consequently, the transactions are fraudulent and illegal."

Lender's Commercial Wisdom Prevents Routine Loans From Being Branded As Kickbacks

The High Court directly addressed the ED's contention that DHFL's disbursal of an Rs. 600 Crore loan to DOIT Urban Ventures in July 2018 constituted an illegal kickback. The bench held that commercial lending, whether backed by sufficient collateral or extended without adequate security, falls exclusively within the domain of the lender's commercial wisdom and cannot summarily be branded as a kickback without cogent substantiation.

The court remarked that the ED's allegations were rested entirely upon bald assertions in pleadings without any prima facie evidentiary foundation. The bench affirmed that subsequent commercial disbursements by DHFL to third-party corporate entities constituted recognized, lawful transactions, meaning the foundational premise of the agency's investigation proceeded upon a flawed hypothesis.

Attachment Quashed Due To Absence Of Tainted Nexus

Finding that all transactions under challenge were legitimate commercial dealings immune from being classified as proceeds of crime, the bench held that there was no legal warrant for the SAFEMA Appellate Tribunal to sustain the provisional attachment of the two properties. The High Court accordingly allowed Criminal Appeal No. 478 of 2026 filed by Avinash Bhosale and dismissed the cross-appeal preferred by the Directorate of Enforcement.

In synthesis, the High Court firmly established that genuine commercial borrowings, contractual repayments, and legitimate corporate dealings conducted through official banking channels cannot be presumed to be tainted under the PMLA. By quashing the attachment, the judgment underscores that the ED cannot invoke proceeds of crime provisions retrospectively against legitimate commercial receipts without demonstrating a direct criminal nexus to a scheduled offence.

Date of Decision: 21st October, 2026