₹423-crore provisional attachment against Ozone Urbana developer survives as Karnataka HC allows ED probe into alleged diversion of homebuyer funds

Ozone Urbana Infra Developers Pvt. Ltd. and its directors/office-bearers developed the “Ozone Urbana” township at Devanahalli, Bengaluru. The project involved multiple residential developments, including apartments, villas and plots.

Home buyers alleged that they had paid substantial consideration—often through tripartite loan and subvention arrangements—but were neither given possession nor refunded their money. They further alleged diversion and siphoning of project funds, non-payment of pre-EMIs, double sale or multiple mortgaging of units, and use of funds in other group entities and projects.

Six writ petitions were heard together. W.P. No.20063/2022 concerned a contractor’s claim for unpaid dues arising from excavation and civil works. W.P. No.25722/2022 challenged an Enforcement Case Information Report (“ECIR”) registered under the Prevention of Money Laundering Act, 2002 (“PMLA”), based on predicate offences concerning home buyers.

The Enforcement Directorate subsequently registered a 2025 ECIR based on multiple crimes, including a CBI FIR registered pursuant to proceedings before the Supreme Court concerning alleged collusion between builders and financial institutions under subvention schemes. On 4 October 2025, the Enforcement Directorate provisionally attached properties valued at approximately ₹423.38 crores under Section 5(1) of the PMLA.

1. Whether the criminal proceedings arising from the contractor’s complaint, which principally sought recovery of unpaid contractual dues, disclosed offences under the IPC or amounted to an abuse of process of law?

2. Whether the 2022 ECIR and the consequential summons under Section 50 of the PMLA were liable to be quashed because the predicate FIRs had subsequently been quashed or stayed?

3. Whether the criminal proceedings initiated by home buyers under Sections 406 and 420 of the IPC and Section 15 of the Karnataka Ownership of Flats Act were merely civil disputes and therefore liable to be quashed at the threshold?

4. Whether the KPIDFE Act could prima facie apply to monies collected from home buyers under subvention, buy-back and tripartite arrangements?

5. Whether the 2025 ECIR and the provisional attachment order under Section 5(1) of the PMLA were liable to be quashed for want of a surviving scheduled offence or for absence of a sufficient nexus between the alleged proceeds of crime and the attached properties?

The Court applied Sections 406, 409, 420 and 120-B of the IPC; Section 15 of the Karnataka Ownership of Flats Act, which permits prosecution of a company and persons responsible for its business; and Sections 2(2), 2(3), 2(4) and 9 of the KPIDFE Act concerning “deposit,” “depositor,” “financial establishment” and fraudulent default.

It applied the principles governing quashing under Section 482 Cr.P.C. and Articles 226 and 227, including State of Haryana v. Bhajan Lal, that proceedings may be quashed where allegations, even if accepted in full, do not disclose an offence or constitute an abuse of process, but that disputed facts and legitimate investigations should not be prematurely examined.

Relying on Anukul Singh v. State of U.P., Indian Oil Corporation v. NEPC India Ltd., Inder Mohan Goswami v. State of Uttaranchal, Ganga Dhar Kalita v. State of Assam and Shailesh Kumar Singh v. State of Uttar Pradesh, the Court held that criminal law cannot be used as a debt-recovery mechanism, although a contractual transaction may also disclose criminality where the requisite ingredients are pleaded.

Under Vijay Madanlal Choudhary v. Union of India, money-laundering proceedings require a scheduled offence and proceeds of crime, but may continue where the predicate complaint or investigation survives; quashing of a predicate case on technical or procedural grounds does not automatically extinguish the ECIR.

For attachment proceedings, the Court relied on Sections 5, 8 and 26 of the PMLA and JSW Steel Ltd. v. Enforcement Directorate, holding that provisional attachment is subject to adjudication by the Adjudicating Authority and appeal to the Appellate Tribunal, making writ interference ordinarily premature.

In interpreting the KPIDFE Act, the Court relied on State of Maharashtra v. 63 Moons Technologies Ltd., Alka Agrawal v. State of Maharashtra and Manohar Bhimrao Mahalle v. State of Maharashtra, which recognise a broad meaning of “deposit” and permit monies paid by flat purchasers against a promised construction service to fall within the statutory concept.

The Court distinguished the contractor’s complaint from the home-buyers’ complaints. In W.P. No.20063/2022, the allegations concerned completed civil works, part-payment and recovery of the alleged balance amount. The assertions of threats and cheating were treated as embellishments to a fundamentally contractual monetary claim; the complaint did not disclose the dishonest intention or other ingredients necessary for cheating or criminal breach of trust. Criminal proceedings could therefore not be used to compel payment of a disputed debt.

In contrast, the home-buyers’ complaints contained allegations of inducement, receipt of approximately 95% of the sale consideration, failure to complete or deliver the units, diversion of project funds, non-payment of agreed EMIs and, in one case, sale of the same unit to another purchaser. These allegations, taken at face value, disclosed sufficient prima facie criminal content and required investigation rather than a mini-trial at the quashing stage.

The omission to array the company as an accused in one case was held curable; it did not justify quashing the entire crime, and the police were permitted to array the company in accordance with law.

The Court further held that the surviving private complaint in PCR No.20/2022 preserved the substratum of the scheduled offence despite the quashing of the consequential FIR on procedural grounds. Accordingly, the 2022 ECIR and Section 50 summons were not foundationless.

The allegations concerning subvention, buy-back schemes and promised services also justified investigation under the KPIDFE Act, since the statutory concept of “deposit” is determined by the substance and return obligation of the transaction, not its nomenclature.

Finally, the 2025 ECIR was supported by surviving predicate proceedings, including the CBI FIR, while the merits of the alleged diversion, layering and nexus between properties and proceeds of crime were matters for investigation and statutory adjudication. The provisional attachment could not be invalidated merely because the petitioners disputed the ED’s factual conclusions.

All other writ petitions were dismissed. The Court declined to quash the 2022 and 2025 ECIRs, the Section 50 PMLA summons, the criminal proceedings arising from the home-buyers’ complaints, or the provisional attachment order.

The attachment-related objections were left open for consideration before the Adjudicating Authority and, thereafter, the Appellate Tribunal under the PMLA.

Pending applications were disposed of.