The case of a mentally ill Toronto man who killed his wife and was awarded a $51,000 payout on her insurance policy has torn his family apart, sparked a public outcry and prompted the Ontario attorney general to take the unusual step of trying to seize the insurance money as the unlawful proceeds of a crime.

In June 2006, Ved Dhingra bludgeoned his wife Kamlesh Dhingra, 58, with a marble statue of the Hindu god Krishna and stabbed her 24 times in the head and neck as she slept. He also stabbed himself in an apparent suicide attempt.

The estranged couple had separated in 1992 but they were living together at the time in Kamlesh Dhingra’s Richmond Hill home. They were found by the couple’s adult son, Paul Dhingra.

Ved Dhingra, now 71, was tried for second-degree murder but was found not criminally responsible because he had suffered for years from schizoaffective disorder, a mental illness characterized by a combination of schizophrenia and mood swings.

He was later granted a conditional discharge and, after spending several years at the former Whitby Psychiatric Hospital, he was eventually released and now lives in Toronto.

Ved Dhingra was a cross-beneficiary with his wife on a $51,000 insurance policy, which Scotia Life agreed to pay out because of the finding that he was not criminally responsible for his wife's death.

However, the son, Paul Dhingra, challenged the insurance company, claiming the money for his mother’s estate, for which he is administrator.

Last June, the Ontario Superior Court of Justice ruled Ved Dhingra wasn’t entitled to the money based on the common law that a person cannot benefit from committing a crime.

"[Dhingra] committed second-degree murder of his ex-wife Kamlesh," Justice Andra Pollak wrote in her judgment. "Even though he was found not criminally responsible, he still physically committed the crime."

Ved Dhingra, supported by his daughter Lina Dhingra, who has unwaveringly supported her father, appealed the ruling. In April, the Ontario Court of Appeal reversed the lower court decision and awarded Ved Dhingra the money.

"If a person found not criminally responsible on account of mental disorder is not 'morally responsible' for his or her act, there is no rationale for applying the rule of public policy," Justice Marc Rosenberg wrote.

In other words, if persons are found not criminally responsible because of mental illness, they did not intend the outcome, therefore they did not intend to benefit or profit.

However, the court stayed its order for 30 days to allow the attorney general to file a request for forfeiture of the funds under the Civil Remedies Act (CRA), which the government promptly did. That hearing is scheduled for September.

At this point, victims' groups and the lawyer for Paul Dhingra, the son, are applauding the AG's decision to intervene.

Paul Dhingra's lawyer Vito Scalisi feels that the appeal court's decision — in nudging the attorney general to apply to seize it under the CRA — was "bang on."

"We’ve always from day one put the AG on notice and said there's a finding of NCR [not criminally responsible] so this is really your battle. But for whatever reason they never really picked up the ball.

"The estate should not have had to oppose Ved Dhingra’s application to collect the money, it should have been for the AG to step in, but anyway they've now come around."

Still, some legal experts are questioning the attorney general's rationale and timing in trying to go after the insurance money, calling the move "puzzling."

The attorney general's office declined requests for an interview. "As the matter remains before the court, it would be inappropriate for the ministry to grant an interview," spokesperson Marya Winter said in an email to CBC News.

Experts, however, point out that the CRA was designed to seize the proceeds of unlawful activity such as marijuana grow-ops, vehicles involved in street-racing, biker clubhouses, crack houses, illegal cash and guns — not insurance policies.

"I was just shocked that the AG wanted to bother," says Erik Knutsen, a Queen’s University law professor and expert in insurance law.

"Right off the bat it sets a dangerous precedent because the government will spend about $100,000 of public money — if it goes to trial — to go after $51,000. It’s not like it’s a $1-million policy. There’s something odd about that. Private lawyers would never do that."

Knutsen adds that this move is "really going to broaden what this CRA is expected to do. This isn’t a crack house. What’s the evil here other than the fact other members of the family don’t want this gentleman to have this money.

"From a standpoint of insurance, he paid the insurance premiums; there was no intent to commit the crime, according to the court, so why does the government get to keep that money? At the very least they should pay this man his premiums back."

Ved Dhingra's lawyer Eric Wolfman, feels the same way. "I’m very disappointed that this government would use this act in this way. This act was never intended to seize money arising out of an insurance policy of a man who has suffered from schizophrenia for many years."

So does James Diamond, a Toronto civil litigator, who said he's never seen a case like this.

"It will ask the court to apply the act in ways it has not before," says Diamond.

"When something is the proceeds of unlawful activity there is usually a causal connection to it. As an example, I'm running a marijuana grow-op to make money, that’s the purpose of it. In this case, I don’t think there’s evidence that he killed her to collect the insurance… At most there is an indirect benefit I suppose."

The case could very well turn on whether forfeiture would be in the interests of justice, which is left to the discretion of the presiding judge, he added.

The track record of the Ontario attorney general's office in pursuing cases under the CRA shows relatively little payback, adds Knutsen, pointing to its own report.

From 2003 to 2007, the office litigated 170 cases in which it tried to claim the proceeds of unlawful acts, and succeeding in getting $3.6 million forfeited. Of that, they gave $900,000 to victims' advocacy groups.

"When you think of all those Crown lawyers' time, chasing $3.6 million is not a big payout. Was that worth it? You spent more in lawyers' salaries than in getting this stuff.

"They paid $900,000 to prevent victimization. Why not just give the money you spent to chase those 170 cases to that cause?" asks Knutsen. "You’d go bankrupt if you ran a law firm that way."

Knutsen thinks the attorney general bowed to public opinion in choosing to wade into the case so late in the process.

"When this story broke, they took the public temperature. The public was like, 'Oh gee, the killer got away with murder and got some money.' So they [the attorney general's office] is trying to prove some moral point because there was a public outcry about this.

Wolfman says he was taken aback by the public reaction.

"If you would have gone on the websites and seen the vitriol that poured out from the public when this decision came down, it was just shocking to me how people didn't understand the facts and the hue and cry from the public how supposedly a murderer was being rewarded," he says.

"Well Mr. Dhingra is not a murderer and he was not being rewarded. Mr. Dhingra is suffering from mental illness. It's controlled now. He's on medication and he's out in the community and is no longer a threat to himself or the public."

Markham lawyer Vito Scalisi was hired by Paul Dhingra to represent his slain mother Kamlesh Dhingra’s estate and prevent Ved Dhingra from collecting the insurance money.

"He [Paul] was extremely close to his mom and he would like to see those funds used in a positive way," Scalisi says.

"He’s fine with all of that money going to charity such as a women's shelter. To him that would be a victory. He doesn't believe his dad deserves the money after what he did. A lot of people feel offended that Mr. Dhingra would be able to get this money based on the terrible crime."

Scalisi speculates that perhaps the attorney general’s office was hoping the family would resolve the matter on its own, but he says there’s little hope of that happening.

Paul Dhingra has been estranged from his sister Lina Dhingra and father Ved Dhingra since the murder. None of them responded to CBC News’ requests for interviews.

The attorney general's office may ask Paul Dhingra to swear an affidavit of support for the forfeiture application, which he would gladly do, Scalisi adds.

Victims' advocacy groups also support the attorney general for stepping in to seize the insurance funds.

"Many of the families we help who have been affected by homicide will be very upset to hear this story," says Heidi Illingworth, executive director of the Canadian Resource Centre for Victims of Crime.

She wants the money to go toward victims' services.

"It’s shocking that somebody can profit, literally over murder. Even though he was found criminally not responsible he did commit the act. It seems there's a massive loophole somewhere, whether it's the insurance system or through the civil court system that's allowing this to happen, it's really offensive."

Jack Bendahan, a senior life insurance adviser with LSM Insurance in Markham, says the Dhingra case has been a "hot topic" among his clients.

He specializes in high-risk cases involving people who suffer from health issues that might prevent them from getting insurance such as obesity, cancer, heart disease and severe mental illness.

He advises such clients to be open and honest about their diagnosis and the severity of their illness when applying for insurance and to consider designating an estate to be the beneficiary of their policy rather than a specific person.

"Is it morally right that the death benefit would get paid to a husband that killed his wife? It drives people crazy, but you can look at it both ways," Bendahan says.

"You may get people faking a mental illness for the sole purpose of collecting a death benefit. The likelihood of that happening is very small but there are probably criminals out there who would consider it to gain a windfall.

"On the other hand, there is widespread awareness on mental health disorders — how they are very real and affect one in four Canadians."

In the meantime, the $51,000 sits in a special account with the court while the legal battle continues.

"When the dust all settles what's going to happen to the $51,000? It's probably all gone by now in legal fees, says Knutsen.

Wolfman, Ved Dhingra's lawyer, says this case is a tragedy for all concerned. "The tragic death of Mrs. Dhingra and Mr. Dhingra's illness certainly has torn the family apart. That would be an understatement."