Court says homebuyers’ allegations of diversion of funds, double sale of flats and subvention scheme defaults disclose cognizable offences; only contractor’s money-recovery complaint is quashed as a civil dispute
The Karnataka High Court has declined to interfere with most criminal and money laundering proceedings arising out of the Ozone Urbana real estate project, holding that the complaints by homebuyers disclose prima facie offences of cheating, criminal breach of trust, conspiracy and money laundering, and cannot be treated as mere civil disputes.
Justice M. Nagaprasanna, while deciding a batch of writ petitions filed by Ozone Urbana Infra Developers Pvt. Ltd. and its office bearers, said that allegations of inducement of homebuyers, receipt of substantial sale consideration, failure to deliver possession, diversion of project funds to sister concerns, multiple sale of the same units and defaults under subvention schemes were serious enough to warrant investigation. The Court observed that criminal law cannot be used as a debt recovery mechanism, but equally, genuine allegations of real estate fraud cannot be stifled at the threshold.
The petitions arose from multiple complaints filed by homebuyers and an association of purchasers in relation to the “Ozone Urbana” township project. The complainants alleged that they were lured into booking flats through attractive subvention, buy-back and tripartite loan schemes, after which the developer received large sums from buyers and banks but failed to complete construction or hand over possession. Some complainants also alleged that the same flat was sold to another buyer and that they were left with EMI liabilities despite not receiving the property.
The Court held that these allegations, if taken at face value, prima facie made out offences under the Indian Penal Code and could not be brushed aside as contractual disputes. It further ruled that the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 could also apply at the investigation stage because monies collected from homebuyers against a promise of flats and services may fall within the broad definition of “deposit”.
On the money laundering angle, the Court refused to quash the Enforcement Directorate’s 2025 ECIR and the provisional attachment order attaching properties worth about Rs.423.38 crore. The Court noted that the predicate offences had not vanished in law, as one private complaint remained pending and other FIRs had been quashed only on technical or settlement grounds. It held that the ECIR could not be nullified merely because some predicate proceedings were later quashed on procedural grounds. The Court also said that the ED’s attachment order was only provisional and the petitioners had statutory remedies before the Adjudicating Authority and Appellate Tribunal under the PMLA.
However, the Court drew a clear distinction in one case involving a contractor’s claim for unpaid work bills. In Writ Petition No.20063 of 2022, it found that the complaint was essentially about recovery of Rs.1.32 crore due under civil contracts for excavation and civil works. The Court said that adding allegations of abuse and threats could not convert a pure money recovery dispute into a criminal case. Holding that criminal law cannot be used as an engine for recovery of money, the Court quashed those proceedings as an abuse of process.
In the remaining petitions, the Court dismissed the challenge and allowed the investigation to proceed. It also observed that economic offences affecting large numbers of homebuyers have wider societal ramifications and require a full and unhindered investigation.
Bottom Line :
Real estate fraud and money laundering - Home buyers' complaints alleging inducement, receipt of substantial sale consideration, diversion/siphoning of funds, failure to deliver possession, multiple sale of same units and defaults under subvention schemes disclose criminal offences and cannot be quashed at threshold merely as civil disputes - ECIR under PMLA can survive where predicate proceedings subsist through pending private complaint or where FIRs were quashed only on technical grounds - Provisional attachment under PMLA should ordinarily be tested before the statutory forums - However, criminal proceedings arising purely out of contractor's money recovery dispute are liable to be quashed as abuse of criminal process.
Statutory provision(s): CrPC Section 156(3), CrPC Section 200, CrPC Section 482, IPC Sections 406, 409, 417, 418, 420, 341, 323, 504, 506, 403, 149, 120B, 34, PMLA Sections 2(1)(u), 3, 5, 8, 26, 50, Prevention of Corruption Act, 1988 Sections 13(1)(d), 13(2), Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 Sections 2(2), 2(3), 2(4), 9, Karnataka Ownership Flats Act, 1972 Section 15
