Telangana High Court Quashes Cheating Case Against Builder Prevented From Delivering Villas Due To Litigation Initiated Against Property

The Telangana High Court has granted anticipatory bail to two petitioners accused of cheating and breach of trust in a real estate transaction.

The case stemmed from a complaint against a married couple running a company under M/s.EVK Projects Pvt. Ltd. The complainant, Raghavendar, and another individual had entered into an agreement with the petitioners to purchase two villas. When the petitioners couldn't deliver on the agreement and failed to refund the money as promised, criminal charges were filed under Sections 406 and 420 of the Indian Penal Code (IPC) and Section 5 of the Telangana State Protection of Depositors of Financial Establishments Act, 1999 (TSPDFE Act).

In her deliberation, Justice Sridevi examined the circumstances of the case.

The court found that civil suits had been filed against the property sold by the petitioners, which prevented them from proceeding with the construction work as promised to the complainant. This discovery was pivotal in the court's reasoning, as it indicated that the petitioners' failure to honor the agreement was due to external factors beyond their control, rather than a premeditated intention to deceive.

“On perusal of the complaint and the material placed on record, it is apparent that civil suits were filed against the property sold by the petitioners herein, due to which, the petitioners could not proceed with construction work as promised to the complainant, and thus, prima facie, they do not have an intention to cheat the complainant, but they could not honour the agreement for the reasons beyond their control, and thus, the offences under Sections 420 and 406 of IPC would not prima facie attract as there should be an intention to cheat from the beginning itself. It is to be noted that the petitioners have registered the land in favour of complainant and the petitioners never misappropriated such property in any manner.”

The court's decision hinged on the absence of prima facie evidence of criminal intent. Justice Sridevi emphasized that for offenses under Section 420 of the IPC to be applicable, there must be a clear intention to cheat from the inception of the transaction. In this case, the court found no such intention, noting that the petitioners had actually registered the land in favor of the complainant and had not misappropriated the property in any manner.

The court also addressed the charge under Section 5 of the TSPDFE Act. Justice Sridevi pointed out that this section requires the existence of a financial establishment that has defaulted on returning deposits or paying interest. However, the petitioners were running a real estate company, not a financial establishment, and there was no agreement indicating that the complainant's payment was a deposit intended to earn interest.

“Further, in order to attract an offence under Section 5 of the TSPDFE Act, there should be a financial establishment and it should have defaulted in the return of the deposits either in cash or kind or ought to have defaulted in the payment of interest on the deposit as agreed upon and there is no agreement between the parties to consider that the amount was deposited with an intention to receive interest on that. The petitioners herein are not running any financial establishment, but are running a real estate Company.”

Based on this reasoning, the court granted anticipatory bail to the petitioners, concluding that the dispute was primarily civil in nature, despite the criminal charges filed. This decision reflects a judicious approach to distinguishing between contractual disputes and criminal offenses in the real estate sector.

While disposing the petitioner, certain conditions were imposed with the anticipatory bail, including surrendering before the Station House Officer and cooperating with the investigation.

CRIMINAL PETITION No.7718 of 2024

Guntupalli Srinivas Rao vs. The State of Telangana

Counsel for petitioner: Yemmiganur Soma Srinath Reddy

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