High Court Quashes Criminal Charges Against Real Estate Developer Over Unfulfilled Housing Project

The Calcutta High Court has quashed criminal proceedings against a Mumbai-based real estate developer and its promoters, who were accused of cheating, criminal breach of trust, and forgery in a failed housing project. The court ruled that the case was fundamentally a contractual dispute and that criminal law could not be invoked as a substitute for civil recovery proceedings.

The bench, headed by Justice Dr. Ajoy Kumar Mukherjee, allowed a criminal revision petition filed by Rajendra Ramesh Chandra Chaturvedi and another, quashing a case registered under Sections 406, 418, 420, 467, 468, 471, and 120B of the Indian Penal Code. The court observed that even if the allegations in the FIR were accepted in their entirety, they did not meet the essential criteria for the alleged offences.

The case originated in 2009 when a real estate company invested in a proposed housing project in Mumbai. The complainant alleged that the developer induced it to purchase two flats by promising that all necessary approvals would be obtained and the project would be completed within a stipulated timeframe. Based on these assurances, the complainant paid approximately ₹3.30 crore between 2009 and 2010. An agreement for sale was executed in March 2011. However, the project did not progress as expected, and the flats were never delivered.

The complainant further alleged that the developers later produced fabricated approval documents and forged municipal sanctions to mislead investors about the project's status. When confronted, the developers admitted their inability to obtain approvals and persuaded the complainant to treat the advance amount as a loan. Written assurances were issued promising repayment with interest, but the money was not repaid, leading to the filing of the FIR in 2020.

The petitioners argued that the complainant had already pursued insolvency proceedings before the National Company Law Tribunal under the Insolvency and Bankruptcy Code and had suppressed this information in the FIR. They contended that the project faced regulatory hurdles due to objections from jail authorities in Mumbai, which delayed construction and led to litigation in the Bombay High Court.

The developers also submitted that the original booking amount was mutually converted into a loan transaction in 2015, and the criminal proceedings were initiated only after the complainant failed to achieve its objectives through insolvency proceedings. According to them, the FIR was an attempt to recover money through criminal prosecution rather than civil remedies.

In its analysis, the court noted that criminal breach of trust under Section 406 of the IPC requires the entrustment of property coupled with dishonest misappropriation. Cheating under Sections 418 and 420 of the IPC requires fraudulent or dishonest intentions from the outset of the transaction. The court found that the materials on record did not establish that the developers had made false representations at the time the investment was made. Instead, the representations regarding future approvals and optimistic projections about property sales were considered commercial assurances rather than criminal inducements.

The court also noted that the developers had deposited the entire principal amount of ₹3.30 crore with the Registrar General of the High Court pursuant to earlier interim directions, demonstrating that the money had not been misappropriated or dishonestly retained.

A significant factor in the court's decision was the conversion of the advance payment into a loan arrangement in 2015. The court held that once the parties mutually agreed to substitute the original arrangement with a loan transaction carrying interest, the doctrine of novation under Section 62 of the Indian Contract Act came into play, effectively replacing the earlier arrangement and creating a new cause of action.

Justice Mukherjee emphasized that after novation, the dispute became one concerning repayment of a loan and could not automatically be transformed into a criminal prosecution merely because repayment was not made. The court stressed that criminal proceedings cannot be used as a mechanism for debt recovery.

The court was also critical of the forgery allegations. It noted that although the complainant alleged that forged approval documents were shown in 2013, no such allegations were made in the insolvency proceedings initiated in 2018. The court observed that the forgery allegations surfaced only in the FIR lodged in 2020, raising serious doubts about their credibility. The court found that the alleged forged documents had no connection with the original payment made in 2009 and could not have been the basis for inducing the complainant to part with money. Additionally, no material was produced to establish that the accused had created any forged documents.

Another factor that weighed heavily with the court was the extraordinary delay in lodging the criminal complaint. The investment was made in 2009, the agreement for sale was executed in 2011, and the transaction was converted into a loan arrangement in 2015. Yet, the FIR was lodged only in January 2020. The court found no satisfactory explanation for this delay and held that such belated initiation of criminal proceedings indicated an attempt to enforce civil rights through the criminal process.

The court concluded that the allegations disclosed at best a case of breach of contract and not criminal offences, and quashed the entire criminal proceeding pending before the Chief Judicial Magistrate, Alipore. However, since the petitioners had already deposited ₹3.30 crore with the Registrar General of the High Court, the court granted liberty to the complainant to seek the release of that amount. It directed that upon an appropriate application, the deposited sum along with accrued interest be paid to the complainant.