Earnest Money Forfeiture – Contractual Obligations – One-Sided Agreements – Consumer Protection

Case Note & Summary

Forfeiture Clause – Valid But Limited to 10% of BSP – Contractual forfeiture of 20% BSP was excessive – Courts can interfere with unfair and one-sided agreements – Para 25

Unfair Trade Practice & One-Sided Agreement – Clause disproportionately favored the builder – Consumer courts can strike down terms imposing unfair obligations on buyers – Para 27

Interest on Refund – Not Justified – Buyers canceled due to falling property prices, not builder’s fault – No entitlement to interest on refund – Para 42

Applicability of Precedents:

Satish Batra v. Sudhir Rawal [(2013) 1 SCC 345] – Earnest money can be forfeited if contract terms are explicit – Not applicable here due to one-sided agreement – Para 33

Pioneer Urban Land v. Govindan Raghavan [(2019) 5 SCC 725] – Unfair contract clauses can be struck down – Applied to limit forfeiture – Para 27

Maula Bux v. Union of India [(1969) 2 SCC 554] – Forfeiture cannot be a penalty – Only reasonable forfeiture allowed – Para 37

Consumer Protection Act, 2019 – Stronger Safeguards – Recognized “Unfair Contract” concept – Builders cannot impose disproportionate penalties on buyers – Para 31

Final Decision: NCDRC’s ruling on 10% forfeiture upheld. Interest on refund set aside. Builder directed to pay ₹12,02,955 to buyers within six weeks.

Appeal Partly Allowed.

Major Acts & Sections Discussed: Constitution of India, 1950 – Article 14 Consumer Protection Act, 1986 – Section 23 – Appeal against NCDRC Order Consumer Protection Act, 2019 – Section 2(46) – Unfair Contract Indian Contract Act, 1872 – Section 74 – Liquidated Damages and Penalty Subjects:

Earnest Money Forfeiture – Consumer Complaint – One-Sided Contract – Builder-Buyer Agreement – NCDRC Jurisdiction – Interest on Refund – Recession in Real Estate

Facts:

a. Nature of the Litigation: Appeal against the NCDRC order reducing the forfeiture of earnest money from 20% to 10% of Basic Sale Price (BSP).

b. Who is Asking the Court and for What Remedy?The appellant (Godrej Projects Development Ltd.) challenged the NCDRC order that directed a refund of the excess forfeited amount, arguing that the contractual clause permitted a 20% forfeiture.

c. Reason for Filing the Case:

The respondents (buyers) booked an apartment in Godrej Summit, Gurgaon in 2014 and later sought cancellation in 2017, citing market recession and price drops. The appellant forfeited 20% of BSP (₹17,08,140) as per the Builder-Buyer Agreement. The NCDRC reduced the forfeiture to 10% of BSP and directed a refund of the remaining amount with 6% interest per annum.

d. What Has Already Been Decided Until Now?

NCDRC ruled in favor of the buyers, limiting forfeiture to 10% of BSP. The appellant sought restoration of 20% forfeiture as per contract terms. Issues Before the Court: Whether the forfeiture of 20% of BSP as earnest money is justified under the contract? Whether the NCDRC was correct in reducing the forfeiture to 10% of BSP? Whether interest on the refunded amount was justified? Submissions/Arguments: Appellant (Godrej Projects Development Ltd.): Forfeiture Clause in Contract: The agreement explicitly allowed forfeiture of 20% BSP in case of cancellation. Buyers’ Own Decision to Cancel: Respondents canceled only due to market recession, not builder's fault. Reliance on Previous Judgments: Satish Batra v. Sudhir Rawal [(2013) 1 SCC 345] – upheld contractual forfeiture of earnest money. Respondents (Buyers): Unfair and One-Sided Agreement: The contract allowed builders strict rights but imposed minimal penalties on delays. Consumer Protection Act, 2019 – Unfair Contracts: The forfeiture clause was excessive and unreasonable. Precedents Against One-Sided Agreements: Pioneer Urban Land v. Govindan Raghavan [(2019) 5 SCC 725] – Courts struck down unfair forfeiture clauses. Decision: Forfeiture Valid but Limited to 10% of BSP: The Court upheld the NCDRC ruling that 20% forfeiture was excessive and reduced it to 10% BSP. No Interest on Refund: The Court set aside the NCDRC's order of 6% interest, holding that buyers willingly canceled due to price drops. Direction to Pay Balance Amount: The appellant was directed to refund ₹12,02,955 within six weeks. Ratio: Unfair Trade Practice & One-Sided Agreements: Agreements favoring builders disproportionately can be struck down under consumer law. Forfeiture of Earnest Money: Contractual forfeiture is valid only if reasonable – 10% of BSP is deemed fair. Interest on Refund: Buyers cannot claim interest when they cancel the contract for commercial reasons.