The Tis Hazari Court has directed registration of an FIR against several real estate developers and their associates in a ₹107.77 crore loan fraud case filed by DMI Finance Private Ltd., holding that allegations of diversion and siphoning of loan funds disclose cognizable criminal offences and cannot be brushed aside as a mere commercial dispute.
The Chief Judicial Magistrate, Central District, Tis Hazari Courts directed the police to register an FIR against the borrowers, mortgagors and guarantors involved in the transaction.
DMI Finance, a Reserve Bank of India–registered non-banking financial company, alleged that the accused persons had fraudulently availed and diverted loans sanctioned for construction of a senior citizen housing project, “Gagan Nulife”, in Pune, Maharashtra. According to the complaint, a term loan of ₹85 crore was sanctioned in 2017 on the basis of representations regarding the project and assurances that the funds would be used exclusively for construction and repaid within the agreed timeline.
The complainant alleged that the borrowers had, even prior to disbursement, dishonestly sold certain mortgaged units while continuing to show them as security. After disbursement, the loan amounts were allegedly diverted for personal use, repayment of unrelated liabilities and to benefit affiliated entities, in violation of the loan agreements and escrow arrangements.
Despite these irregularities, the accused allegedly induced the lender to extend further credit, leading to a second term loan of ₹45.5 crore in July 2018. The complainant claimed that the same pattern of misrepresentation and diversion continued under the second loan as well, with no intention to repay. As on 22 August 2023, the outstanding dues were stated to be approximately ₹107.77 crore.
The complaint further alleged fabrication of documents, sale of mortgaged units without mandatory no-objection certificates, and routing of funds to related-party entities, including Bavaria Motors, allegedly owned and controlled by family members of the accused. One of the accused is stated to have admitted, in a written reply to a show-cause notice, to selling multiple units without obtaining the requisite approvals.
Although the police, in an action taken report, noted that arbitration proceedings were pending between the parties and opined that no cognizable offence was made out, the court rejected this view. The Magistrate observed that at the stage of directing registration of an FIR, the court is only required to see whether the allegations prima facie disclose cognizable offences.
Holding that the alleged conduct went beyond a mere breach of contract, the Court noted that diversion of entrusted funds, suppression of material facts and continued deception of the lender prima facie attracted offences of cheating, criminal breach of trust, forgery and conspiracy under the Bharatiya Nyaya Sanhita, 2023.
The Court further held that the pendency of arbitration proceedings does not bar criminal investigation, reiterating that civil or arbitral remedies operate in a distinct sphere from criminal law. It observed that allowing borrowers to evade criminal prosecution by invoking arbitration would undermine the object of criminal law, particularly in cases involving economic offences and misuse of institutional funds.
Directing the SHO of the police station concerned to register an FIR forthwith, the Court ordered a proper and expeditious investigation, including examination of fund flow, related entities and utilisation of the loan amounts. The Court clarified that its observations were prima facie and would not amount to an expression on the merits of the case.
Appearances:
Sh. Prateck Som, Sh. Aditya Shukla and Sh. Chinmaya Tripathi, Ld. Counsel for the complainant.
