Karnataka High Court Quashes PMLA Case Against Developer Over Delayed Flat Delivery

Karnataka High Court Quashes PMLA Case Against Developer Over Delayed Flat Delivery

The Karnataka High Court has quashed a cheating case against a developer for delayed delivery of a flat. The Court also ruled that the Enforcement Directorate's proceedings under the Prevention of Money Laundering Act (PMLA) will be terminated.

Justice M Nagaprasanna ruled that criminal law cannot be used to prosecute a developer for delayed delivery of flats, as this is a breach of contract, not a criminal offence.

The Court also stated that the complainant, like any other homebuyer, had the opportunity to register his property upon the execution of the sale deed. Refusing to accept the execution of the sale deed does not automatically transform the situation into a criminal breach of trust or cheating. This is because, from the outset of the transaction, the petitioners have not displayed any dishonest intentions.

Home buyer Dhananjaya and other investment-based purchasers approached the company to buy flats in the Mantri Serenity project and applied for allotment. After receiving an offer, they executed agreements for the sale of an undivided share of land and construction. However, the project was not completed on time, leading to criminal action. It was alleged that the funds collected from homebuyers were diverted or misused for other purposes.

The police registered a case under sections 406, 420, 415, and 417 of the IPC, and the Enforcement Directorate also initiated proceedings under the PMLA.

The petitioners, Sushil, Pratik, and Snehal Mantri, contended that they are not guilty of cheating, criminal breach of trust, or any other offence alleged against them. They said that mortgaging allotted apartments to banks is a common practice in construction projects, as it is necessary to raise funds.

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.”

The Bench noted that the PMLA offence cannot stand on its own, but must be based on a crime registered under a penal law. In this case, the penal law is the registration of Crime No.163 of 2020. The ECIR (Enforcement Case Information Report) was registered and attachments were ordered based on this crime. However, the ECIR would not stand because the predicate offence (the crime on which the PMLA offence is based) has now been ruled to be unsustainable.

The Court therefore allowed the quashing petitions, stating that the PMLA proceedings automatically collapse once the predicate offense is overturned.