The Calcutta High Court has quashed criminal proceedings initiated against a Mumbai-based real estate developer and its promoters over allegations of cheating, criminal breach of trust and forgery arising out of a failed housing project. The dispute was essentially contractual in nature and that criminal law could not be invoked as a substitute for recovery proceedings. 

The bench of Justice Dr. Ajoy Kumar Mukherjee allowed a criminal revision petition filed by Rajendra Ramesh Chandra Chaturvedi and another, quashing a Kalighat Police Station 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 disclose the essential ingredients of the alleged offences. 

The case originated from an investment made by a real estate company in 2009. According to the complainant, the developer induced it to purchase two flats in a proposed Mumbai housing project by representing that all necessary approvals would be obtained and that the project would be completed within a stipulated timeframe.

Relying on these assurances, the complainant paid approximately ₹3.30 crore between 2009 and 2010. Subsequently, 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 alleged that the developers later produced fabricated approval documents and forged municipal sanctions to mislead investors regarding the status of the project. 

The complaint further alleged that 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 subsequently issued promising repayment with interest. Despite multiple acknowledgments of liability, the money was allegedly not repaid, leading to the filing of the FIR in 2020. 

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

The developers further submitted that the original booking amount was mutually converted into a loan transaction in 2015 and that 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. 

While analysing the offences alleged in the FIR, the Court reiterated that criminal breach of trust under Section 406 IPC requires entrustment of property coupled with dishonest misappropriation, while cheating under Sections 418 and 420 IPC requires fraudulent or dishonest intention from the very inception of the transaction. 

The Court observed that the materials on record did not establish that the developers had made false representations at the time the investment was made. It noted that representations regarding future approvals and optimistic projections about property sales amounted at best to commercial assurances or an “invitation to treat” rather than criminal inducement. 

The Court also took note of the fact 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. According to the Court, this demonstrated that the money had neither been misappropriated nor dishonestly retained. 

A significant factor influencing the Court’s decision was the admitted 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. The substituted contract effectively replaced the earlier arrangement and created a new cause of action. 

Justice Mukherjee observed that after such 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 emphasised that criminal proceedings cannot be used as a mechanism for debt recovery. 

The Court was equally critical of the allegations of forgery.

It noted that although the complainant alleged that forged approval documents were shown in 2013, no such allegation had been made in the insolvency proceedings initiated in 2018. The Court observed that the forgery allegations surfaced for the first time only in the FIR lodged in 2020, creating serious doubts regarding their credibility. 

Importantly, the Court found that the alleged forged documents had no connection with the original payment made in 2009 because they were allegedly shown several years later. Therefore, the alleged documents could not have been the basis for inducing the complainant to part with money. The Court further observed that no material had been produced to establish that the accused themselves had created any forged document. 

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 criminal process. 

The Court remarked that the criminal case appeared to be an abuse of the process of law aimed at recovering money rather than prosecuting genuine criminal conduct. 

Concluding that the allegations disclosed at best a case of breach of contract and not criminal offences, the Court 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 pursuant to earlier orders, the Court granted liberty to the complainant to seek release of that amount. It directed that upon an appropriate application, the deposited sum along with accrued interest be paid to the complainant. 

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