Karnataka High Court quashes case against Mantri builders

Bengaluru: The Karnataka High Court has quashed the cheating case against the directors of Mantri Developers Limited and the subsequent Enforcement Directorate (ED) proceedings on the Prevention of Money Laundering Act (PMLA) case.

In doing so, it observed that delay in delivering flats by a builder will at best amount to breach of agreement, but cannot be regarded cheating or criminal breach of trust.

“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,” Justice M Nagaprasanna said.

The case

The Subramanyapura police registered an FIR in 2020 against Sushil Pandurang Mantri, his wife Snehal and their son Pratik based on a complaint filed by one Dhananjaya.

The complainant had claimed that he had booked a flat in ‘Mantri Serenity’, promoted by Mantri Castles Pvt Ltd, an associate and subsidiary of Mantri Developers Pvt Ltd.

The complainant had alleged misrepresentation, money laundering and fraud on the ground that the homes were not delivered in time even after paying nearly Rs 60-70 lakh as advance. He had also alleged that the funds collected from the homebuyers were diverted or misutilised for several other purposes and also the allotted flats had been mortgaged to the banks.

The ED had also initiated proceedings against the petitioners in August 2020 under the provisions of PMLA.

Petitioners’ argument

The petitioners contended that it is not cheating as alleged and claimed that mortgaging of flats is a permissible exercise in the business of construction. It was also argued that the homebuyers had approached every fora that was available to them.

FIR unsustainable

Citing several Apex Court judgements, Justice Nagaprasanna said that the criminal law that is set in motion on the breach of contract is unsustainable, more so in the light of the fact that the complainant has knocked at the doors of every fora or the remedy for non-delivery of flats within the stipulated time.

“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,” the court said.

The court further said: “The predicate offence in the case at hand is the FIR, which is held to be unsustainable. If crime is the foundation, and the proceedings under the PMLA are the super structure, the foundation having been obliterated, the super structure would tumble down, so to say, that the proceedings under the PMLA will vanish owing to its sustenance only on the predicate offence.”

The court said that the complainant is free to move any fora regarding the grievance he is seeking to vent out in terms of the agreement. It said the present order will have no influence on such a move.