PMLA Attachment Struck Down for Pre-Offence Transactions: Tribunal Rules Against Retrospective Money Laundering in Yes Bank–DHFL Case
Background and Overview
The Appellate Tribunal under SAFEMA, New Delhi, delivered a significant ruling in Avinash Bhosale Vs Deputy Director, Directorate of Enforcement, partially allowing four consolidated appeals and substantially scaling back the provisional attachment imposed under the Prevention of Money Laundering Act, 2002. Out of a total claimed proceeds of crime amounting to approximately Rs. 164.67 crores, the Tribunal sustained the attachment of only Rs. 25 crores, setting aside the balance.
The case arose from the now well-documented Yes Bank–DHFL loan diversion scandal, where M/s Yes Bank invested Rs. 3700 crores in short-term debentures of M/s DHFL during April to June 2018. In exchange, Kapil Wadhawan of DHFL allegedly paid kickbacks of Rs. 600 crores to the family of Rana Kapoor, who controlled Yes Bank's affairs. A further sum of Rs. 2317 crores was routed to the entities of one Sanjay Chhabria, ostensibly for development of a real estate project known as "Avenue-54" at Santacruz. It is from this downstream flow of funds that the Directorate of Enforcement ("ED") traced alleged layering into the entities of the appellant, Mr. Avinash Bhosale.
Genesis of the FIR and ECIR
The CBI, Economic Offence-I, New Delhi, registered an FIR on 07.03.2020, setting out the core allegations:
- M/s Yes Bank invested Rs. 3700 crores in debentures of M/s DHFL during April–June 2018.
- A kickback of Rs. 600 crores was paid by Kapil Wadhawan to Rana Kapoor's family, routed as a loan to M/s DOIT Urban Ventures (India) Pvt. Ltd., a Rana Kapoor group company.
- The loan was secured against sub-standard mortgaged properties with minimal value.
- Rs. 750 crores was additionally sanctioned to R.K.W. Developers, group companies of Kapil Wadhawan and Dheeraj Wadhawan, again facilitated by Yes Bank.
The ED subsequently recorded an ECIR and conducted investigations under Section 50(2) and Section 50(3) of the Prevention of Money Laundering Act, 2002.
The present appeals, however, do not pertain to the conduct of Yes Bank, Rana Kapoor, or DHFL directly. The focus is on the alleged layering of proceeds of crime through entities associated with Avinash Bhosale, facilitated through Sanjay Chhabria.
The Three Alleged Tranches of Proceeds of Crime
The ED identified three distinct financial channels through which it alleged proceeds of crime were parked with Avinash Bhosale and his entities:
1. Rs. 67.85 Crores — Excess Return from M/s Nibodh Realty LLP Agreement
M/s Nibodh Realty LLP, a beneficially owned entity of Avinash Bhosale, had entered into an agreement with Sanjay Chhabria's entity in December 2014, under which it advanced a principal loan of Rs. 237.50 crores. The agreement provided for:
- Interest at the rate of 18% per annum
- Detachable warrants entitling M/s Nibodh Realty LLP to areas within a real estate project
- An expected total return of approximately Rs. 766.75 crores
A total of Rs. 431.33 crores was eventually received. The ED computed the "actual cost" component — comprising the principal of Rs. 237.50 crores, interest of Rs. 120.61 crores paid to India Bulls HFL, and a processing fee of Rs. 3.37 crores — totalling Rs. 363.48 crores. The residual sum of Rs. 67.85 crores was treated as unexplained excess and thus proceeds of crime.
The ED's reasoning was that:
- A 300% return on an unsecured commercial loan was commercially irrational.
- The repayment of Rs. 267 crores came from April 2018 onwards — coinciding with the tainted DHFL funds received by Sanjay Chhabria.
- This repayment timing pointed to layering of illicit funds.