Karnataka High Court 'Obliterates' PMLA Proceedings Against Developer For Delay In Delivering Flat To Homebuyer

The Karnataka High Court has quashed a criminal case for cheating registered by a home buyer against a Developer for delay in delivery of his flat. It added that ED proceedings under Prevention of Money Laundering Act will also stand obliterated.

A single judge bench of Justice M Nagaprasanna said,

“Criminal law cannot be set into motion on the said delay in delivery of flats, as those facts arise out of agreements entered into between the parties, at best, it can be breach of agreement. If it is a breach of agreement, it cannot be cheating or criminal breach of trust.”

It added, “The complainant is also a homebuyer like every other homebuyer. All other homebuyers have got their properties registered on execution of the sale deed. If the execution of the sale deed is not accepted by the complainant, it cannot mean that it would become a criminal breach of trust or cheating, as the case would be, as there is no dishonest intention right from the inception of the transaction by the petitioners.”

As per the complaint filed by home buyer Dhananjaya, he and few other members – investment based purchasers approached the petitioners/Company seeking purchase of flats in the project “Mantri Serenity” and accordingly applied for allotment of flats. Pursuant to the offer, the complainant and other members execute certain agreements for sale of undivided share of land and construction agreement inter alia. The project was not completed in time, leading to impugned criminal action. It was alleged that funds collected from homebuyers were diverted or misutilised for several other purposes.

The police registered a case under sections 406, 420, 415, 417 r/w 34 of IPC and taking a que the Enforcement Directorate also initiated proceedings under PMLA.

The petitioners, Sushil, Pratik and Snehal Mantri, argued that there is no element of cheating, criminal breach of trust or any other offence so alleged against them. He said mortgaging allotted apartments to Banks is a permissible exercise in construction of apartments, as finance has to be raised.

The bench went through the records and observed, “Breach of contract may have several hues and forms. Every breach of contract, unless it is shrouded with dishonest intention at the outset, cannot become an offence under Sections 406 or 420 of the IPC.”

Noting that offence under the PMLA cannot independently stand as it has to be foundationed on a crime being registered under any penal law, the bench said, “In the case at hand, the penal law is the registration of the impugned crime in Crime No.163 of 2020. It is based upon the said crime, the ECIR was registered and attachments orders have been passed. The ECIR would not stand as the predicate offence is now held to be unsustainable.”

Accordingly it allowed the quashing petitions saying, “The obliteration of the proceedings under the PMLA becomes axiomatic the moment the predicate offence gets obliterated.”

Appearance: Senior Advocate C.V.Nagesh a/w Advocate Mahesh S for Petitioners.

HCGP K.P.Yashodha for R1.

Dhananjaya, PARTY-IN-PERSON R-2.

Citation: 2023 LiveLaw (Kar) 408

Case Title: Sushil Mantri & Others AND State of Karnataka & ANR

Case No: WRIT PETITION No.10258 OF 2020 (GM-RES) C/W WRIT PETITION No.7855 OF 2023

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