Karnataka HC Quashes Loan-Fraud Case Against Mother-Daughter Buyers, Citing Down Payment, EMIs And No Material They Knew Of The Alleged Fraud

In brief

The question

1. Whether the charge-sheet material disclosed a prima facie case that the petitioners knowingly conspired to cheat the bank, justifying prosecution under Sections 120B and 420 read with Section 34 IPC.

The court held

The Court allowed the petition and quashed the proceedings against the petitioners—accused Nos. 1 and 2—in C.C. No. 35983/2022, arising from Crime No. 105/2020, for offences under Sections 120B and 420 read with Section 34 IPC.

It also directed

The operative order addresses that case; it does not state a disposition of the separately listed Criminal Petition No. 2397 of 2024.

01Facts

The petitioners were accused Nos. 1 and 2 in a case arising from a complaint by an Assistant Branch Manager of Karnataka Bank.

pp. 4–6

The complaint alleged that petitioner No. 1 obtained a housing loan of ₹38 lakh to purchase Flat No. 300 in Keerthana Enclave, with petitioner No. 2 standing as guarantor.

pp. 4–6

The bank alleged that the flat did not exist and that it was the same property as another flat, Flat No. C-100, against which a loan had also been obtained.

pp. 4–6

The petitioners paid a down payment and some instalments before defaulting; following investigation, police filed a charge sheet alleging offences under Sections 120B and 420 read with Section 34 IPC.

pp. 4–6, 9–10

The petitioners sought to quash the proceedings under Section 482 CrPC, contending that they were bona fide purchasers and victims of fraud allegedly committed by the vendors.

pp. 6–8

02Issues

i.1. Whether the charge-sheet material disclosed a prima facie case that the petitioners knowingly conspired to cheat the bank, justifying prosecution under Sections 120B and 420 read with Section 34 IPC.

pp. 14–13

ii.2. Whether continuation of the criminal proceedings against the petitioners amounted to an abuse of process warranting the High Court’s intervention under Section 482 CrPC.

pp. 12–14

03Law Applied

Section 482 CrPC preserves the High Court’s inherent power to prevent abuse of the process of any court and secure the ends of justice.

pp. 12–13

For an offence under Section 420 IPC, the material must prima facie disclose dishonest or fraudulent inducement and the requisite intention to cheat; a conspiracy allegation under Section 120B likewise requires material supporting an agreement to commit an unlawful act.

pp. 12–13

The Court relied on Mohammad Wajid v. State of U.P., 2023 SCC OnLine SC 951, for the principle that, when quashing is sought on the ground that proceedings are frivolous, vexatious, or brought with an ulterior motive, the Court may examine the record and attending circumstances beyond the FIR or complaint.

pp. 12–13

Provisions in the judgment · 7 · Linked ones open on LawLens

Code of Criminal Procedure, 1973 Section 482

Indian Penal Code, 1860 Section 406 Section 420 Section 465 Section 468 Section 471 Section 34

04Reasoning

The Court considered the petitioners’ payments towards the purchase price and loan instalments, the bank’s verification of title and property documents before sanctioning the loan, and the charge-sheet account that the vendors allegedly assigned different flat numbers and obtained loans from different banks.

pp. 10–14

It found no specific material, beyond bald and omnibus allegations, showing that the petitioners knew of the alleged fraud or conspired with the vendors to cheat the bank.

pp. 10–14

On that record, the essential ingredients of Section 420 IPC were not prima facie made out against them, and continuation of the prosecution would amount to abuse of process.

pp. 10–14