PMLA Tribunal Clarifies Scope of ‘Proceeds of Crime’ in Dalmia Cement Case

The Appellate Tribunal under SAFEMA (PMLA), New Delhi, in Dalmia Cement (Bharat) Limited Vs Deputy Director (Appellate Tribunal Under SAFEMA Delhi) has delivered a significant order on the contours of “proceeds of crime” under the Prevention of Money Laundering Act, 2002 (PMLA).

The Tribunal:

  • Rejected the Enforcement Directorate’s (ED) stand that the assessee’s investment and subsequent sale of shares in Bharathi Cement Corporation Pvt. Ltd. constituted “proceeds of crime”;
  • Upheld in principle that profits from limestone mining under an allegedly tainted mining lease could be treated as “proceeds of crime”, but only to the extent of actual profits, not gross receipts;
  • Recognised that productive, operating business assets attached under PMLA may be released on furnishing appropriate security, to avoid paralysing legitimate commercial activity while still protecting the Government’s interest.

The order thus narrows the attachment to mining-related profits of about ₹92.52 crore, within an overall revised figure of ₹176.52 crore alleged as proceeds of crime, and rejects the tagging of share-sale gains as illegally derived.

Background: CBI FIR, Scheduled Offences, and PMLA Trigger

A CBI FIR (RC 19(A)/2011 CBI-HYD dated 17.08.2011) was registered against Sh. Y.S. Jagan Mohan Reddy, M/s Dalmia Cement (Bharat) Ltd., and others for offences under:

  • Sections 420, 409, 477-A, 120-B of the erstwhile Indian Penal Code, 1960; and
  • Section 13(2) read with Section 13(1)(c) & (d) of the Prevention of Corruption Act, 1988.

The core allegation was that:

  • Sh. Y.S. Jagan Mohan Reddy used his influence over his father, Late Dr. Y.S. Rajasekhara Reddy (former Chief Minister of Andhra Pradesh), and other State officials;
  • In return for quid pro quo investments into companies controlled by him, including Bharathi Cement, the Government allegedly granted favours such as mining leases and other approvals;
  • Huge investments were made at high share premiums into Jagan-controlled companies in exchange for these favours.

Following this, the ED registered an ECIR No. 09/HZO/2011 dated 30.08.2011 under PMLA, treating the CBI offences as scheduled offences, and provisionally attached 1180 immovable properties valued at about ₹3,77,26,23,674/- via PAO No. 27/2025 dated 31.03.2025.

An Original Complaint (OC No. 235/2025 dated 28.04.2025) was filed under Section 5(5) PMLA before the Adjudicating Authority (AA), which ultimately confirmed the attachment by order dated 22.09.2025 under Section 8(3).

M/s Dalmia Cement (Bharat) Ltd. challenged this confirmation before the Appellate Tribunal under Section 26 of PMLA.

Core Allegations Against Dalmia Cement (Assessee)

The ED’s case, as crystallised before the Tribunal, centred around three primary elements of alleged “proceeds of crime” attributable to the assessee:

  1. Share Investment and Sale – Bharathi Cements

    • The assessee allegedly invested ₹95 crore in Bharathi Cement Corporation Pvt. Ltd., controlled by Y.S. Jagan Mohan Reddy, through share subscription at a high premium.
    • These shares were later sold to M/s PARFICIM (France) for ₹139 crore.
    • ED alleged that:
      • ₹55 crore of this amount was secretly paid to Jagan Mohan through cash/hawala channels; and
      • ₹84 crore remained with the assessee as allegedly laundered funds.

  2. Profits from Limestone Mining – Kadapa Mines

    • The assessee was alleged to have illegally extracted 1.06 crore MT of limestone from Kadapa mines.
    • The initial ED valuation treated this as ₹709.34 crore of illicit value from an illegally procured mining lease.
    • Subsequently, in proceedings before the AA, ED recalculated the profit component from this mining activity at ₹92.52 crore, after deducting extraction and related costs.

  3. Overpayment in Acquisition of Eswar Cements and Diversion

    • The assessee was stated to have overpaid ₹2.14 crore for acquiring M/s Eswar Cements Pvt. Ltd., whose promoters included Sajjala Diwakar Reddy and related parties.
    • This “excess” amount was then allegedly diverted to M/s R.R. Stones Pvt. Ltd., owned by Sajjala Diwakar Reddy.

On the ED’s computation at the PAO stage, the total alleged “proceeds of crime” in the assessee’s hands was ₹793.34 crore. Later, this was revised downwards to ₹176.52 crore, comprising:

  • ₹92.52 crore – Net profit from mining operations; and
  • ₹84 crore – Portion of share-sale proceeds (as per ED’s theory).

Since the ED claimed that the direct proceeds of crime had been intermingled and could no longer be specifically identified, it proceeded to attach other immovable properties of equivalent value as “value of such property” under Section 2(1)(u) PMLA.

Appellant’s (Dalmia Cement) Key Contentions

1. Investment in Bharathi Cements – Genuine Commercial Decision

The assessee’s counsel argued that the first and major plank of the ED’s case – that the investment in Bharathi Cements was essentially a bribe dressed up as share subscription – had already been examined and rejected by the Tribunal in M/s Alpha Avenue Pvt. Ltd. (FPA-PMLA-751/DLI/2014) and connected appeals involving identical fact patterns.

Relying on extensive passages from the Alpha Avenue decision, counsel submitted:

  • The Tribunal had already held that:
    • Investments in companies controlled by Y.S. Jagan Mohan Reddy (including Bharathi Cements) were commercial, portfolio-type investments, particularly by Shri Nimmagadda Prasad, and not per se illegal gratification.
    • The subsequent sale of those shares at a substantial profit to third parties such as M/s PARFICIM SAS, who were explicitly described by ED as “innocent investors” with clean funds, undermined the theory that the shares were “waste paper” representing bribe.
  • When ED itself accepts the bona fide, clean status of the purchaser and its consideration, it cannot simultaneously characterise the same shares as nothing but an instrumentality of bribe in the hands of original investors.
  • The Tribunal in Alpha Avenue had observed that:
    • If every asset or revenue of a person merely accused in a scheduled offence were to be treated as “proceeds of crime” without a causal nexus to the crime, it would be contrary to the very scheme of PMLA.
    • Returns earned from share sale to innocent third-party buyers, who are neither charge-sheeted nor alleged to hold tainted money, cannot assume a criminal colour only because an earlier leg of the chain is alleged to be quid pro quo.

On this reasoning, the assessee argued that: