Karnataka HC quashes FIR against Mantri Group, vacates ED attachments over delayed project in Bengaluru

Advocates said in this case the court has held that a breach of contract or a breach of agreement cannot come under criminal law

In a major blow to homebuyers, the Karnataka High Court has quashed an FIR filed by the buyers of the delayed Mantri Serenity project against real estate firm Mantri Group and also vacated the Enforcement Directorate (ED) attachment of properties worth about Rs 285 crore.

Allowing the writ petition filed by the developer for quashing of the FIR, the court on October 9 said, "The proceedings in crime No 163 of 2020 (the FIR) and Spl CC No 2874 of 2022 (ED attachment) stands quashed."

In August last year, the ED under the provisions of the Prevention of Money Laundering Act (PMLA), 2002, attached immovable assets worth Rs 300.4 crore (including Mantri Serenity, Mantri Web City and Mantri Energia projects) after it found evidence of misappropriation of funds. This came after the homebuyers filed a first information report (FIR) at Subramanyapura Police Station in 2020 levelling criminal charges against the developer.

Advocates say in this case the court has held that a breach of contract or a breach of agreement cannot come under criminal law. "The money laundering case is based on the FIR, thus if the FIR is quashed, the ED attachment will also not be valid," they added.

Dhananjaya Padmanabhachar, who is the prime complainant in the FIR and party to the High Court order, declined to comment due to an ongoing Supreme Court case on the same matter.

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The case

The order mentioned that Padmanabhachar had booked an apartment in Mantri Serenity apartment in Bengaluru. However, the project got delayed due to complaints to the Karnataka State Pollution Control Board and other irregularities, according to the developer.

"The complaint alleges misrepresentation, money laundering and fraud and that the funds collected from all the homebuyers have been utilised, diverted or misutilised for several other purposes," the order said.

After filing the initial FIR in 2020, the homebuyers wrote to the ED in June 2022, alleging misappropriation of funds.

The ED said on June 25, 2022, as Moneycontrol reported, 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. It added that about Rs 1,189 crore was collected from Mantri Serenity homebuyers, and Rs 277 crore had been diverted.

In January, the developer approached the Karnataka High Court and obtained a status quo on the apartments of the delayed Mantri Serenity project, which were seized by the ED.

High Court finding

The Karnataka High Court noted, "The complainant has placed several documents before the court to contend that the developer has indulged in money laundering. They have invested the funds received by the homebuyers in several banks by mortgaging the property that the homebuyers are entitled to hold onto."

The complainant contends that if this is not cheating, nothing else can be termed to be cheating at the hands of the developers, the court said.
However, the court also pointed out that the ED has based the investigation on the FIR registered in 2020.

Referring to several Supreme Court and High Court judgements, the Karnataka HC said, "On breach of an agreement, the criminal law cannot be set into motion, as it would be giving predominantly civil proceedings."
Thus, it concluded that the delayed delivery of apartments cannot be subject to criminal law because those circumstances result from agreements made between the parties, and at most, they may constitute a breach of those agreements.

"The crime in the FIR of 2020 is rendered unsustainable. Additionally, the proceedings instituted by the ED cannot be permitted. Offences under the PMLA cannot independently stand," the order said.

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