The Karnataka High Court has quashed an FIR and vacated Enforcement Directorate (ED) attachments worth about Rs 285 crore in a case involving the real estate firm Mantri Group. The ED had attached assets under the Prevention of Money Laundering Act after homebuyers filed an FIR against the Mantri group for diverting funds collected from homebuyers and not completing the projects. But the court ruled that a breach of contract or agreement does not fall under criminal law. The court stated that if the FIR is quashed, the ED attachment becomes invalid.
The Karnataka High Court has taken a significant decision by quashing an FIR against the Mantri Group, a real estate firm, and vacating Enforcement Directorate (ED) attachments worth approximately Rs 285 crore related to the delayed Mantri Serenity project in Bengaluru. The ED had attached immovable assets, including properties from various Mantri projects, after allegations of fund misappropriation surfaced through an FIR filed by homebuyers. Advocates argue that the court's ruling in this case emphasizes that breaches of contract or agreements should not be treated as criminal offenses.
Dhananjaya Padmanabhachar, a prime complainant in the FIR, declined to comment due to an ongoing Supreme Court case on the matter. The case originated when Padmanabhachar booked an apartment in Mantri Serenity, but the project faced delays due to complaints lodged with the Karnataka State Pollution Control Board and other irregularities.
The complaint lodged by Padmanabhachar against the developer alleged misrepresentation, money laundering, and fraudulent use of funds collected from homebuyers for various purposes. After filing the initial FIR in 2020, the homebuyers wrote to the ED in June 2022, alleging misappropriation of funds. The ED then reported that Mantri Developers and its subsidiaries had collected around Rs 1,189 crore from Mantri Serenity homebuyers, with Rs 277 crore allegedly diverted for uses other than project construction.
In response to the ED's actions, the developer sought relief from the Karnataka High Court in January. The court granted a status quo order regarding the apartments in the delayed Mantri Serenity project, which had been seized by the ED.
The Karnataka High Court acknowledged that the complainant had presented various documents suggesting that the developer engaged in money laundering by investing the funds received by the homebuyers in several banks while keeping the properties intended for the homebuyers as collateral with the banks. However, the court pointed out that the ED's investigation was based on the FIR filed in 2020.
Citing Supreme Court and High Court judgments, the Karnataka HC emphasized that criminal law should not be invoked for breaches of agreements, as these primarily involve civil proceedings. Consequently, the court concluded that delayed apartment delivery should not be subject to criminal law, as it results from agreements between parties and, at most, they may constitute a breach of those agreements.
As a result, the FIR from 2020 was deemed unsustainable, and the ED's proceedings were not permitted to proceed independently under the Prevention of Money Laundering Act. This legal decision has far-reaching implications for similar cases involving delayed real estate projects and contractual disputes.
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