The High Court said an unpaid loan or a failed underlying transaction does not, by itself, make out a criminal offence, and that SBI should have pursued the builder under the tripartite agreement.
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Bengaluru: The Karnataka High Court has quashed an FIR for alleged cheating, criminal breach of trust and forgery registered against a home loan borrower at the instance of State Bank of India (SBI), holding that the initiation and continuation of the criminal proceedings were wholly unjustified. [Pritesh Bari v. State of Karnataka & Another]
A Single Bench of Justice Suraj Govindaraj allowed the petition filed under Criminal Petition No. 3230 of 2025.
The Loan And The Builder
The petitioner had availed a home loan from SBI for an apartment under a tripartite agreement between the borrower, the bank and the builder. The builder did not complete the project, and no sale deed was executed in the petitioner’s favour. The builder later sold the apartment to a third party.
Where Liability Lay
The Court noted that, under the tripartite agreement, the liability to repay the bank rested on the builder if the project was shelved or not completed, or if the booking was cancelled. It found that the petitioner received no benefit from the transaction and that the material on record did not attribute criminal liability to him.
Criminal Law And Recovery
The Bench held that an outstanding loan or the failure of the underlying transaction cannot by itself amount to a criminal offence, and that criminal prosecution cannot be employed as a means of securing recovery of a financial liability unless the foundational ingredients of the alleged offences are prima facie made out. It said a financial institution, particularly a public sector bank, is expected to act with due care and circumspection before invoking criminal process.
The Bank’s Conduct
The Court found it disconcerting that the Bank, despite being a party to the tripartite agreement, proceeded against the petitioner merely because the loan account remained outstanding. It observed that the borrower could not be held liable for the builder’s acts merely because he continued to be shown as the borrower in the loan account. SBI’s action was termed unwarranted and one that deserved to be deprecated, and the Bank should have pursued the builder under the agreement.
Result
Holding that the initiation and continuation of the proceedings were wholly unjustified, the Court quashed the FIR against the petitioner. The allegations in the FIR were not tested at trial, and the Court’s findings relate to the petition before it.
Case Details: Pritesh Bari v. State of Karnataka & Another, Criminal Petition No. 3230 of 2025, Karnataka High Court, Justice Suraj Govindaraj.