SBI Loan Default Case: Court Says Flat Buyer Cannot Be Blamed After Builder Sold Apartment to Third Party
The Karnataka High Court has quashed criminal proceedings initiated by the State Bank of India (SBI) against a flat buyer who defaulted on a housing loan after the builder sold the booked apartment to a third party in violation of a tripartite agreement.
The case involved a flat that the borrower had booked, but the builder later sold to another person without following the terms of the agreement with the bank.
Court Criticises SBI’s Action
Justice Suraj Govindaraj said the bank’s decision to start criminal proceedings against the customer was not justified in the circumstances of the case. The court said that a financial institution, especially a public sector bank, should act carefully before using criminal law against a customer.
The judge made these observations while hearing a petition filed by Pritesh Bari, a Mumbai resident. Bari challenged the FIR registered against him in 2024 at Shankarapuram Police Station under various provisions of the Indian Penal Code (IPC).
Flat Sold to Another Buyer
Bari was the first accused in the case and had purchased the flat from the developer. At the time of taking the housing loan, he entered into a tripartite agreement involving himself, SBI and the builder.
According to the complaint, the builder sold the same flat to a third party in 2023 without getting permission or consent from SBI. The flat was the property linked to the loan taken by Bari.
Loan Amount of ₹39.92 Lakh Remained Unpaid
The complaint stated that the loan amount of ₹39.92 lakh was not repaid by either the borrower or the developer. Following a private complaint filed by the assistant general manager of SBI’s Basavanagudi branch, a magistrate ordered registration of the case, leading to the FIR against Bari. The Karnataka High Court, however, allowed Bari’s petition and quashed the criminal proceedings against him.
Who will pay bank loan now?
Under the terms of a standard tripartite agreement and established legal precedents set by the Karnataka High Court, the builder (developer) is legally liable to repay the money to the bank.
Because the builder violated the tripartite agreement by selling the flat to a third party without the bank’s consent, the builder has committed a breach of trust. Under tripartite rules, if a booking is cancelled or the builder defaults, the primary obligation to refund the disbursed loan amount directly to the financial institution falls squarely on the builder.
The State Bank of India (SBI) cannot use criminal machinery to coerce the homebuyer into paying for the builder’s fraud. SBI must recover the outstanding amount of ₹39.92 lakh plus applicable interest through appropriate civil or debt recovery proceedings directly targeting the developer.
The High Court’s ruling effectively shields the flat buyer from criminal prosecution for the default. In similar real estate landmark rulings involving tripartite disputes (such as the Mantri Developers case), the High Court explicitly clarified that it is not the customer’s obligation to repay the outstanding loan when the builder abdicates their responsibility.
