Cheating by a Builder Is a Criminal Offence, Not Just a Civil Dispute

If a redevelopment builder dishonestly deceives your society — taking money on promises it never meant to keep, forging members’ consent, selling the same flat twice, or diverting redevelopment funds — that conduct can be a criminal offence, not merely a civil or RERA dispute. The governing principle, applied for years by the Supreme Court of India and the Bombay High Court, is that the builder’s dishonest intention decides whether a broken promise is an ordinary breach of contract or a crime. An honest project that later runs into funding or approval trouble is usually a civil matter; a scheme that was dishonest from the very start can attract an FIR, arrest and prosecution — running in parallel with your claims for a refund or completion. In today’s law, cheating is Section 318 of the Bharatiya Nyaya Sanhita, 2023 (BNS), and criminal breach of trust is Section 316; both replaced the old Indian Penal Code provisions that Mumbai members still call “420” and “406”.

When a broken promise becomes a crime: the intention test

Not every failure by a builder is a crime, and courts are careful not to turn every commercial dispute into a criminal case. A delay, a cost overrun, or even the collapse of a project is, by itself, a breach of contract. What converts that breach into cheating is the builder’s state of mind at the moment the promise was made — what judges call the “intention at the inception”.

The reasoning runs like this. Cheating requires that the builder deceived you dishonestly and that, because of that deception, you parted with money or property. If the deception existed from the start — the builder collected booking amounts, corpus, or rent deposits while knowing it could not or would not deliver — the dishonesty is complete the moment you hand over the money. If, instead, the builder genuinely intended to perform but the project later failed because of a funding gap, a market downturn, or delayed municipal approvals, there is a broken promise but no dishonest inducement, and the matter usually stays civil or with MahaRERA. This is why courts have repeatedly refused to let a pure recovery dispute be dressed up as a criminal case, and equally why they have allowed prosecution to proceed where the facts genuinely show fraud from day one. For your society, the practical lesson is that the paper trail — what was promised, what was paid, and what the builder actually knew — is what decides which door you can knock on.

From the IPC to the Bharatiya Nyaya Sanhita, 2023

For generations these offences lived in the Indian Penal Code, 1860. Cheating was defined in Section 415 and punished under Sections 417 and 420, and criminal breach of trust sat in Sections 405 and 406. Most members still say “file a 420” out of habit. Since the BNS came into force, the numbering has changed even though the core ideas have not:

• Section 318 (cheating) replaces the old IPC Sections 415, 417 and 420. It covers dishonestly deceiving a person and thereby fraudulently or dishonestly inducing them to deliver property, or to do or omit something they would not otherwise have done.
• Section 316 (criminal breach of trust) replaces the old IPC Sections 405 and 406. It punishes dishonestly misusing or converting property that was lawfully entrusted to you, and carries imprisonment that can extend to five years, or longer for certain categories.

Cheating that involves the delivery of property is a cognizable offence, which means the police can register an FIR and begin investigating without first obtaining a Magistrate’s order. The change from the IPC to the BNS did not weaken these protections — it only renumbered and modernised them, so a complaint drafted today should cite the BNS sections rather than the old IPC ones.

Why cheating and breach of trust cannot be alleged on the same facts

This is a subtle point that decides many cases, so it is worth understanding before you rush to the police station. Cheating and criminal breach of trust are, in law, mutually exclusive on the same set of facts — courts have consistently held that both cannot be alleged against a single act.

The difference lies in when the dishonesty appears. In cheating, the dishonest intention exists at the very beginning: the builder never held the property honestly, because you were tricked into parting with it. In criminal breach of trust, the entrustment is honest and lawful to start with — you willingly gave the builder money or possession for the redevelopment — and the dishonesty comes later, when the builder misuses what was entrusted. Because the two describe opposite moments of dishonesty, the same transaction cannot be both at once. A complaint that blindly alleges both against one act can be challenged and quashed, which is exactly why the offence has to be framed to fit the facts.

Because the two cannot overlap on one act, a good criminal lawyer will study each payment and promise separately — some facts may amount to cheating, others to breach of trust — and getting the classification right keeps the complaint from being thrown out on a technicality.

What builder conduct can cross the line into crime

Courts have treated a range of redevelopment conduct as potentially criminal where genuine dishonesty is present, including:

• Collecting booking amounts, corpus, or hardship and rent compensation with no intention or ability to deliver the flats;
• Diverting money meant for your redevelopment into another project or for personal use;
• Selling the same flat, or the same extra carpet area, to two different buyers;
• Forging or fabricating members’ consent, the development agreement, or bank documents;
• Mortgaging the society’s land or the members’ flats without disclosure and pocketing the loan;
• Inducing members to sign by promising sanctioned area or FSI that was never approved.

Many of these are precisely the warning signs set out in our guide to the red flags in a development agreement, and several overlap with the committee-developer nexus that quietly enables such frauds. Catching them before you sign is far cheaper than proving them afterwards.

Criminal action runs alongside your RERA and civil remedies

Filing an FIR does not cancel your right to recover money, and pursuing a refund does not stop a prosecution. The remedies answer different questions and can run at the same time:

• MahaRERA. Under Section 18 of RERA, if the builder fails to hand over possession on time, an allottee can withdraw and demand a refund with interest, or choose to stay in the project and claim interest for every month of delay. Complaints are filed with the Authority under Section 31. If your real problem is a stalled but honest project, this is usually the right first step — our guide on what to do about a builder delay walks through it.
• Consumer forum. The Consumer Protection Act, 2019 lets members claim for deficiency in service and compensation before the consumer commission.
• Co-operative Court. A dispute between the society and its members touching the business of the society is, under Section 91 of the Maharashtra Co-operative Societies Act, 1960, decided by the Co-operative Court rather than an ordinary civil court.
• Criminal court. The FIR and prosecution address the dishonesty itself and can lead to investigation, arrest and trial.

Courts have treated these tracks as complementary: the civil and RERA routes recover money and enforce delivery, while criminal law punishes the fraud. Your society does not have to choose only one.

What this means for your society: filing a complaint or FIR

If your society believes it has been genuinely cheated, a structured approach protects both your case and your committee:

1. Assemble the evidence first. The registered development agreement and PAAA (permanent alternate accommodation agreement), payment receipts and bank statements, MahaRERA registration details, correspondence, and the general-body and committee resolutions showing what was promised and paid. Registration of the development agreement, PAAA and conveyance is compulsory under Section 17 of the Registration Act, 1908, so certified copies are usually available from the sub-registrar.
2. Pass a committee resolution authorising the complaint. A society acting as one body speaks far more powerfully than scattered individual complaints, and it shields individual members from standing alone against a builder.
3. File the written complaint or FIR at the police station where the project is located. For large financial frauds, the Economic Offences Wing (EOW) of the Mumbai Police can be approached.
4. If the police refuse to register the FIR, escalate to senior officers, apply to the Magistrate to direct an investigation — the power that earlier sat in Section 156(3) of the Criminal Procedure Code — or file a private complaint before the Magistrate.
5. Take a criminal lawyer’s help to frame the ingredients clearly — dishonest inducement and property parted with for cheating, or entrustment and misuse for breach of trust — and to decide which offence fits which fact. Our step-by-step guide on filing an FIR against a builder sets out the practical detail.

The bottom line for members

Keep a clean paper trail from day one, use RERA and the delay remedies for an ordinary hold-up, and reserve the criminal complaint for real deception — forged consent, diverted money, double-selling, or promises of area that was never sanctioned. The strongest protection, though, remains never signing with a dishonest builder in the first place: screen candidates using our guide on how to choose a developer, have the tender and agreement professionally checked through our tender review service, and register your society for ongoing support. Act as a society, not as scattered individuals.

This article is general legal information for Mumbai housing-society members, not legal advice for your particular dispute. The distinction between an honest delay and criminal cheating turns on the facts, and the law is applied case by case, so please consult a qualified criminal or property lawyer before you file anything.