Karnataka court orders status quo of ED-attached Mantri Serenity flats

The Karnataka High Court ordered status quo to be maintained on apartments worth Rs 285 crore of the delayed Mantri Serenity project in Bengaluru, which were seized by the Directorate of Enforcement (ED) after complaints that the developer allegedly misappropriated funds.

“The properties subject to attachment cannot be released in favour of the developers nor can be confirmed or sold by the enforcement directorate,” the court said, allowing a writ petition filed by Mantri Developers to quash the provisional attachment of the apartments.

The ED attached 381 apartments in the Mantri Serenity project in August 2022. The apartments were supposed to be handed over in 2015 and homebuyers alleged the developer had diverted part of the money they had paid.

The high court took cognisance of an FIR filed by the Mantri Serenity homebuyers in 2020 and a writ petition filed by the developer in October 2020 to quash the FIR. The court had earlier stayed the investigation in the matter and extended the stay by six months in July 2022.

“If status quo has to be maintained in the proceedings under the IPC (Indian Penal Code) for the reason that there is an interim order, status quo has to be maintained in the proceedings of ECIR (Enforcement Case Information Report) as well,” a bench headed by Justice M Nagaprasanna said in its order dated December 14, 2022.

The court said proceedings under ECIR can continue once it decides the matter in favour of the petitioners or against them.

Funds diverted

Homebuyers claim construction of the project was halted between 2018 and 2019 and they filed complaints with the Karnataka Real Estate Regulatory Authority from October 2020. The homebuyers wrote to the ED in June 2022, alleging misappropriation of funds.

The ED issued a provisional attachment order under provisions of the Prevention of Money Laundering Act, 2002, attaching immovable assets worth Rs 300.4 crore in a money laundering case against the Mantri Group for cheating homebuyers of Mantri Serenity, Mantri Web City, and Mantri Energia residential projects, it said in a statement on August 12, 2022.

The ED said Mantri Developers and its subsidiaries had collected money from homebuyers for apartments in various projects and diverted the funds for purposes other than construction of projects. The ED said of Rs 1,189 crore collected from Mantri Serenity homebuyers, Rs 277 crore had been diverted.

“The companies failed to complete residential projects named Mantri Serenity in a timely manner due to a diversion of funds,” the ED said.
The agency said Mantri owes banks about Rs 5,000 crore, of which about Rs 1,000 crore is overdue and some of the loans have been classified as non-performing assets.

In September 2022, the Karnataka Crime Investigation Department (CID) arrested Sushil Mantri, the director of Mantri Developers, in a money laundering investigation, as reported by Moneycontrol.

High court judgement

The court noted that the authorities cannot prosecute any person on an assumption that an offence has been committed unless it has been registered with the jurisdictional police and/or is the subject of an ongoing investigation/trial, including a criminal complaint before the competent forum.

It said the matter has been stayed and thus the provisions of the Prevention of Money Laundering Act cannot be sustained or cannot be permitted to be continued. Therefore, the high court concluded that the attached properties cannot be released in favour of either the developer or the ED.

The court added that the proceedings can continue after the investigation has been completed and the stay has been vacated.

Larger impact

“This judgement has given relief to homebuyers with an expectation that the matter will be closed in the court of law at the earliest. Homebuyers already waited for 8-10 years,” said Dhananjaya Padmanabhachar, one of those who booked an apartment at Mantri Serenity.

However, advocates said the court’s decision may delay the matter for some time before the apartments/funds are released to the homebuyers.

Chaitanya SG, an advocate, pointed out that the developer or the homebuyers, in this case, must move the high court again to reserve judgement of the stay that still remains sub judice.

Chandrachur Bhattacharyya, another advocate, said after the ED attaches assets, the authority has to approach the adjudicating officer to proceed with the attachments within 30 days.

“Additionally, Section 5 of PMLA notes that the attached assets are valid only for six 6 months – February 2022, in this case,” he added.

Jaffer, who goes by one name and a PMLA advocate in Bengaluru, however, said the attachment can be extended by the high court at the next hearing.

A list of questions has been sent to the developer, and Moneycontrol will update the story after receiving a response.