The Karnataka High Court recently quashed criminal proceedings against a homebuyer who stopped paying his home loan EMIs after finding that the builder had already sold his flat to someone else.
The case involved Mr Bari, a resident of Sion East, Mumbai. According to the submissions to the court, Bari took a home loan of Rs 39.92 lakh from State Bank of India (SBI) in FY19-20 to buy a flat (B-306) in the Grandeur Park project in Bengaluru, Karnataka. As required, he also signed a tripartite agreement with the bank and builder on February 8, 2020.
Since Bari lived in Mumbai, he could not visit the project site regularly and check its construction progress. But he continued to pay his home loan EMIs (equated monthly instalments). However, the builder sold the same flat (B-306) to a third party on March 27, 2023, without consent from either SBI or Bari.
Bari stopped paying the home loan EMIs as soon as he learnt that the builder had sold his booked flat to someone else. But the home loan amount was still outstanding. So, SBI filed criminal cases against both the builder and Bari, alleging that the bank has suffered losses to their actions.
On September 25, 2024, SBI filed a crime FIR (55/2024) in Shankarapura Police Station (South Bengaluru) against Bari. SBI’s lawyers, citing clauses 2,4, 5 and 6 of the tripartite agreement, said that if the builder has cancelled the booking due to Bari defaulting or the project getting shelved, then the builder is legally obliged to repay the bank any money received from Bari.
Clause 5 further stipulated that, in the event of the builder failing to complete the project, the builder would pay the entire amount received by it from the borrower to the bank.
SBI’s lawyers told court that the bank was unaware of what happened between Bari and the builder. They said Bari had assured the bank that a registered sale deed would be signed soon, and the home loan was sanctioned on that basis. However, Bari later became irregular in paying the loan EMIs, despite several reminders from the bank.
SBI’s lawyers alleged that Bari had committed criminal breach of trust and misappropriated the loan amount by producing documents and entering into an agreement of sale to avail of the loan. They further accused him of cheating the bank and committing a criminal offence.
Bari’s lawyer (Advocate Rajath) said that if there is anyone who is a victim, it is Bari, since he was defrauded by the builder who sold the flat again to someone else.
Bari’s lawyer argued that SBI should think from his client’s perspective. Bari had invested his savings to in the flat, taken a home loan, and paid the EMIs, only to be left without the property. On top of it, the bank is pursuing a criminal case against him, thereby causing him further trouble, the lawyer said.
On September 25, 2026, the Karnataka High Court quashed the criminal case against Bari, giving his relief from the proceedings. However, the ruling does not resolve the question about what happens to Bari’s booking and the money paid towards the property, since the court was dealing with the criminal case proceedings.
Why did the homebuyer win the case?
Kalpit Khandelwal - Partner, Aekom Legal, said to ET Wealth Online: The tripartite agreement itself made the builder, not the home buyer, liable to repay the bank if the project failed or the flat was cancelled. The home buyer never got a sale deed, took no part in the resale and gained nothing from it, so the Karnataka High Court found no dishonest intention and treated the dispute as a civil recovery matter.
According to Khandelwal, home buyers should read the tripartite agreement closely, since it allocates who bears the risk if the builder defaults or the project stalls.
Khandelwal says: "Keep records of payments and of all communication with the bank and builder, and stay in touch with both, because an outstanding loan alone is not a crime but you remain a borrower in the bank's books and should act early on any builder default."
Karnataka High Court discussion
Bari did not get title to this flat, yet it was sold to a third party
The Karnataka High Court said that if the facts of the case are observed then, it can be seen that Bari never got the title to this flat and neither signed any sale deed; however, the same flat was sold to a third party in 2023.
The Karnataka High Court said that the evidence suggests that Bari did not get any benefit or wrongful gains from this sale of the flat to a third party without authorisation.
Bank took criminal action against Bari ignoring the circumstances
The Karnataka High Court said that SBI, which is a public sector bank, is expected to act with due care and circumspection before invoking the criminal process against a customer.
The Karnataka High Court said: “The existence of an outstanding loan or the failure of the underlying transaction, by itself, cannot be treated as constituting a criminal offence.”
The Karnataka High Court said that criminal prosecution cannot be employed as a means of securing recovery of a financial liability unless the foundational ingredients of the alleged criminal offences are prima facie made out.
Consequently, the Karnataka High Court quashed the criminal proceedings and the consequential FIR against Bari. The high court, however, refrained from commenting about the actions of the builder in this case.