Law on forfeiture of earnest money :Real Estate

Law on forfeiture of earnest money :Real Estate


Legal  Issue :How much deduction is reasonable and justifiable if the home buyer cancels the booking amount

Case Law ;Goutam Roy V/S Avolon Projects

CC No 1941 of 2018 ,Decided on 24.01.2023 (NC)

A landmark judgement National Commission (NCDRC)


·         Builder and Home buyer signed an agreement having forfeiture clause. In case of cancelling the booking by Home Buyer, 20% of total basic sale price shall be forfeited.

·         Question before the National Commission was as to how much deduction is reasonable and justifiable

National commission while referring to number of SC cases on the issue relied upon section

74 of 1872 Contract Act that in case of breach of contract, actual damage is to be proved for

penalizing the other party. In such matters cancelling the booking flat or property by the

buyer, the property remains with builder only and there is hardly any loss to the builder

National commission ordered for forfeiture of 10% of the total sale cost of the property

Cases Referred:

Moula Bux V/S Union of India 1970 SC

Sirdar K B Ram Chandra Raj URS v/s SC 2015theory of actual damage as per section

74 of contract act



Legal issue :Whether there can be  any forfeiture of earnest money or any money ?

Case Law ; Amit Gupta & Anr. Versus. M/S. Vatika Limited ( National Commission) Consumer Case No. 425 Of 2018

A landmark judgement National Commission (NCDRC)

Facts :

A.    The OP sent the blank of Builder Buyer Agreement to the complainants on 16.4.2015.  Some of the terms and conditions contained in the said agreement were not acceptable to the complainants.  They therefore sent an email dated 26.8.2015 responding to the draft agreement, which was sent to them along with a letter dated 16.7.2015.  Some of the objections raised by the complainants were as under:

B.     It appears from Section A that full land has not yet been acquired for the said housing colony.  Also License No.22 of 2011 as mentioned in section B is expired in March, 2015 as checked form DTCP website on August 21,2015.  You are in breach of the promise of my making the application. 

C.       Clause F mention about several exceptions including 'specification and location' of the flat.  This is not communicated to me before (at the time of book and thereafter) and this is the first time it is mentioned. 

  1. In clase 2 it is the first time Vatika has mentioned about earnest money with its definition.  So far the definition of EM was not communicated to me either by the vatika or involved broker.  The definition of EM as proposed in BBA is not acceptable, it cannot be more than 10% of booking amount paid with Express of Interest. 

Since the issues raised by the complainants were not addressed, they, vide email dated 06.12.2017 sought refund of the amount which they had paid to the OP along with interest.

Rejecting the contentions advanced by the OP and allowing the consumer complaint, this Commission directed refund of the entire amount of Rs.37,05,892/ which the said complainant had paid to the OP, along with interest on that amount @ 9% per annum.


Legal Issue;Unfair clauses in the buyer builder agreement

Case Law  Pioneer Urban Land & Infrastructure Ltd. Vs. Govindan Raghavan

 (2019) 5 SCC 725 decided on 2nd April 2019

Such wholly one-sided agreements were termed as unfair and were not approved by the Hon'ble Supreme Court in Pioneer Urban Land & Infrastructure Ltd. Vs. Govindan Raghavan (2019) 5 SCC 725, decided on 2nd April 2019 which to the extent it is relevant reads as under:

“incorporation of one-sided clausesin an agreement constitutesan unfair trade practice as per section 2®of consumer protection act. .”

Quoted law-Section 2 (r) of the Consumer Protection Act, 1986 defines 'unfair trade practices' in the following words :

"'Unfair trade practice' means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice ...", and includes any of the practices enumerated therein. The provision is illustrative, and not exhaustive.


Legal issue: Equality before the law

Case Law  In Central Inland Water Transport Corporation Limited and Ors. v. Brojo Nath Ganguly and Ors.,

 This Court held that :

 "89. ... Our judges are bound by their oath to 'uphold the Constitution and the laws'. The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and equal protection of the laws. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power.


Legal Issue:Forfeature of earnest Money

Case Law Amit Kansal Vs. M/s. Vatika Limited CC No. 1244 of 2015,

Decided on 30.10.2019

The learned counsel for the complainant also relied upon the decision of this Commission dated 23.10.2017 in Amit Kansal Vs. M/s. Vatika Limited CC No. 1244 of 2015, which pertain to the allotment made in this very project namely 'Tranquil Heights'.  In Amit Kansal (supra), the terms of the builder buyer agreement sent to the complainants for signatures were not acceptable to him and therefore, he sought some changes in the agreement to which the builder did not agree.  He stopped making further payment and approached this Commission by way of a consumer complaint, seeking refund of the amount paid by him to the builder with interest etc.  The complaint was resisted by the OP inter-alia on the ground that the complainant was a speculator who wanted to make quick gains and he was duty-bound to sign the standard builder buyer agreement sent to him by the OP for signatures. 

Allowing the consumer complaint, this Commission directed refund of the entire amount which the said complainant had paid to the OP, along with interest on that amount @ 9% per annum.


 Legal Issue : Forfeature of earnest Money

Case Law;Mr Dinesh R Humane& Mrs  Ranjana D. humane  v/s Piramal estate Pvt. Ltd

APPEAL NO AT00000041967  Decided on 16march 2021

(RERA Estate Appellant Tribunal ,Maharathra)


“transaction of sale and purchase of the flat is cancelled at initial stage Allottee marley booked the flat and paid some money towards the booking on printed form .thereafter there is no progress in the transaction Parties never reached to execute agreement for sale. In this peculiar matter it cannot be ignored that the object of RERA is to protect interest of consumer ,so whatever amount is paid by home buyer to the promoter should be refunded to the allottee on his withdrawal from the project ”


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