The on September 25 quashed all criminal proceedings against home loan borrower Pritesh Bari, ruling that a bank cannot invoke against a borrower merely because a loan remains outstanding when the underlying transaction has failed due to the builder’s default. Justice Suraj Govindaraj held that continuing the proceedings against Bari would amount to an , as the between the borrower, the bank, and the builder expressly placed the obligation of repayment on the builder in the event of project failure or cancellation.
Bari had availed a home loan of ₹39.92 lakh from the in for the purchase of Flat No. B-306 in the “Grandeur Park” project being developed by a builder and his partners. A was executed under which the builder agreed to complete the project and execute a in Bari’s favour, with the bank retaining a over the loan amount. However, the builder never completed the project and, without obtaining the consent of either Bari or the bank, sold the same flat to a third party——under a registered dated .
SBI filed a before the , alleging that Bari and the builder had committed offences including , , , and under various sections of the . The magistrate ordered investigation under , and an FIR was registered on . Bari then approached the High Court seeking quashing of the FIR.
Borrower Left Without Apartment or Loan
Justice Govindaraj observed that the case was an instance where the borrower himself was a victim of the builder’s failure. “The petitioner has neither obtained the apartment for which the loan was sanctioned nor derived any benefit from its subsequent sale. The petitioner is left without the apartment and without the benefit of the transaction, while the Bank seeks to proceed against him for recovery of the very amount which, under the terms of the , was contemplated to be recovered from the builder in the eventuality which has, in fact, occurred,” the court noted.
The judge emphasised that the itself addressed the consequences of the builder defaulting. Clause 4 provided that if the builder cancelled the booking on account of the borrower’s default or if the project was shelved, the builder would pay the entire amount received from the borrower to the bank. Clause 5 similarly obligated the builder to repay the bank if the builder failed to complete the project. “The agreement specifically fastened the obligation upon the builder to return such amounts to the Bank in the circumstances contemplated under the agreement,” the court observed.
Cannot Substitute Recovery
The court expressed strong disapproval of SBI’s decision to set in motion against Bari despite being fully aware of the builder’s contractual obligations. “What is rather disconcerting is the manner in which the Bank, despite being a party to the and being fully aware of the obligations undertaken by the builder thereunder, has chosen to set the in motion against the petitioner,” the order stated.
Justice Govindaraj went on to deprecate the bank’s conduct, holding that “a financial institution, particularly a public sector bank, is expected to act with due care and circumspection before invoking the against a customer.” He underscored the distinction between a and a , noting that “the existence of an outstanding loan or the failure of the underlying transaction, by itself, cannot be treated as constituting a . cannot be employed as a means of securing recovery of a financial liability unless the of the alleged criminal offences are made out.”
The court found no material to suggest that Bari had participated in the builder’s subsequent sale of the flat, derived any benefit from it, or acted in concert with the builder to deceive or cause loss to the bank. “The petitioner cannot, merely because he continues to be shown as the borrower in the loan account, be made to answer criminally for the acts of the builder,” the judge said.
Builder’s Default Not Attributable to Borrower
Significantly, the court noted that no had ever been executed in favour of Bari, meaning he never acquired title to the apartment. The property was ultimately dealt with by the builder in favour of a third party, and “insofar as the alleged sale of the apartment contrary to the terms of the is concerned, the material presently available does not disclose any participation, benefit or wrongful gain attributable to accused No.1.”
The court clarified that it was expressing no opinion on the builder’s criminal liability and that its observations were confined strictly to Bari. “The limited question is whether the allegations contained in the , even if taken at their face value, disclose the commission of any by accused No.1. On a consideration of the and the allegations contained in the complaint, this Court finds that they do not disclose the necessary insofar as accused No.1 is concerned,” the order read.
Petition Allowed, FIR Quashed
Allowing Bari’s petition, the court quashed the FIR registered as Crime No. 55/2024 by the Shankarapura Police Station, Bengaluru, pending before the IV Additional Chief Metropolitan Magistrate, but only insofar as it pertained to Bari. The court made it clear that the builder and other accused (accused Nos. 2 to 5) remained subject to the ongoing investigation. “The initiation and continuation of criminal proceedings against the petitioner in such circumstances is therefore wholly unjustified. The cannot be permitted to become a substitute for remedies available to the Bank for enforcement of its contractual or financial rights,” the court concluded.
The judgment serves as a strong reminder that banks and financial institutions must exhaust civil remedies before resorting to the and cannot treat every loan default as a , particularly when the contractual arrangement itself contemplated a different party being liable.
criminal proceedings quashed - builder liability - tripartite agreement - home loan default - abuse of process
