Law on forfeiture of earnest money :Real Estate
1.
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)
Facts:
·
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
2.
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.
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.
3.
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.
4.
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.
5.
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.
6.
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)
Held
“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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