Court holds that builder's failure to complete project and sale to third party does not implicate borrower in criminal wrongdoing; Bank's criminal complaint deprecated as improper use of criminal law for civil recovery
In a significant judgment dated September 25, 2026, the Karnataka High Court, presided over by Justice Suraj Govindaraj, quashed the FIR registered against Pritesh Bari, a homebuyer and borrower in a housing loan transaction, thereby protecting him from criminal prosecution in a dispute involving a tripartite agreement between the borrower, the builder, and the lending bank.
The case arose from a private complaint filed by the State Bank of India (SBI) against Pritesh Bari and the builder-along with its partners-alleging cheating, criminal breach of trust, forgery, and other offences under various sections of the Indian Penal Code (IPC). The complaint stemmed from a housing loan transaction wherein the builder failed to complete the project and sold the apartment to a third party without the borrower's consent. The bank contended that Bari had assured execution of a registered sale deed in his favor, which did not materialize, and alleged that Bari became irregular in repaying the loan.
At the heart of the dispute was a tripartite agreement executed on February 8, 2020, between Bari (borrower), the builder, and SBI. The agreement clearly stipulated that if the builder failed to complete the project or cancelled the booking due to default, the builder was obligated to repay the entire amount received from the borrower to the bank. Further, the builder was required to record the bank's charge and lien over the apartment and was prohibited from transferring the apartment without the bank's prior written consent.
Justice Govindaraj observed that despite the bank's loan to Bari, no sale deed was ever executed in Bari's favor, and Bari did not acquire any title or benefit from the builder's subsequent sale of the apartment to M/s. Benaka Enterprises. The court emphasized that the available material did not disclose any participation, benefit, or wrongful gain by Bari in the builder's actions.
The court underscored the crucial distinction between civil/contractual liability and criminal liability. Mere outstanding loan liability or failure of an underlying transaction, the court held, cannot be transformed into a criminal offence without prima facie evidence of dishonest intention or deception by the accused. In this case, the builder's failure to honor the tripartite agreement and the subsequent sale of the apartment to a third party was not attributable to the borrower.
The judgment was critical of the bank's decision to invoke criminal proceedings against Bari, describing it as an abuse of the criminal process. The court made it clear that the bank's grievance should have been pursued against the builder through appropriate civil remedies, not through criminal prosecution of the borrower. It deprecated the bank's approach of using criminal law as a substitute for recovery of money or enforcement of contractual rights.
Consequently, the Karnataka High Court allowed the criminal petition and quashed the FIR and all ongoing proceedings against Pritesh Bari. The court expressly limited its observations to Bari's case and did not opine on the criminal liability of the builder or other accused.
This judgment serves as a precedent reinforcing that financial disputes involving loan defaults and failed real estate transactions must be carefully scrutinized before triggering criminal proceedings. It safeguards borrowers from being unfairly dragged into criminal litigation when they have neither participated in nor benefited from the builder's alleged malpractices.
Bottom Line:
Quashing of FIR - Tripartite agreement between borrower, builder and Bank - Builder failed to complete project and sold flat to third party - No sale deed executed in favour of borrower and no material showing his participation, benefit or connivance in subsequent sale - Mere outstanding loan liability or failed transaction cannot be converted into criminal prosecution - Criminal proceedings against borrower quashed as abuse of process; Bank deprecated for invoking criminal law in essentially money recovery/civil dispute.
Statutory provision(s):
Indian Penal Code Sections 406, 408, 417, 418, 419, 420, 423, 465, 467, 468, 471, 504, 506; Criminal Procedure Code Section 156(3)
Pritesh Bari v. State of Karnataka, (Karnataka) : Law Finder Doc Id # 2995531
