CCPA has jurisdiction to initiate proceeding suo moto against enterprise

by | Dec 30, 2023 | Legal

CCPA has jurisdiction to initiate proceeding suo moto against enterprise

Case title:

 Cloudtail India Private Limited.Versus Central Consumer Protection Authority 

CCPA Appeal No. 4 Of 2022

 (Against the Order dated 04/11/2022 in Complaint No. J-25/72/2021 of the CCPA DELHI) 

CCPA directs Cloudtail India Private Limited to recall 1033 pressure cookers, sold by the company in the country, refunding its price to the consumers, within 45 days and imposed a penalty of Rs.100000/-, for selling the pressure cooker, in violation of Quality Control Order, 2020.

This is the first order of its kind by CCPA after CP Act 2019 enforced  which has been challenged before the apex consumer commission questioning the jurisdiction of CCPA.Since this is the new entity established under the Act 2019 ,this order holds significant importance. 

Dr Prem Lata ,Legal Head

Issue -Mandatory BIS Mark

Bureau of Indian Standards Act, 2016, issued Notification dated 21.01.2020, making it mandatory for domestic pressure cooker to bear Standard Mark under a licence from Bureau of Indian Standards 

Facts:

  1. Cloudtail India Private Limited was doing e-commerce through Amazon website and listed ‘Amazon Basics Stainless Steel Outer Lid Pressure Cooker, 4 Litre’ on above website and sold 1033 pressure cookers in India after 01.02.2021. These pressure cookers were manufactured by “Zhejiang Supor Company Limited, Damaiyu Economic Investment Zone, Yuhuan, Taizhou, Zhjiang, China” and bears “European Commission Standard” mark as established in the European Union and were imported into India, prior to issue of the Order.
  2. Central Consumer Protection Authority is a statutory authority constituted under Section 10 of the Consumer Protection Act, 2019 and under the power Section 18 of the Act, issued notice dated 29.11.2021 to the company to show cause as it were selling pressure cooker in violation of the Order, which was liable to be held as defective, violative of consumer right and amounts to unfair trade practice, within the meaning of the Act.
  3. The Cloudtail India Private Limited submitted its reply dated 11.01.2022, stating
  • That the pressure cookers in question were manufactured by “Zhejiang Supor Company Limited, Damaiyu Economic Investment Zone, Yuhuan, Taizhou, Zhjiang, China” and conforms to the “European Commission Standard” mark as established in the European Union Directives-2014/68/EU granted by TUV SUD, valid up to 13.12.2030 and holds a valid certification of conformance
  • That the product is of requisite quality, pre-shipment inspection by a nominated third party inspection agency is carried out and product is imported after satisfaction There was no complaint, related to safety of the pressure cooker, since its introduction in the market.
  • That  import of this product in India was suspended prior to 01.02.2021, i.e. enforcement of the Order. 
  • The Order mandates domestic pressure cooker to bear BIS mark by the manufacturer and is not applicable for an importer.
  • Frequently Asked Questions, as answered by Bureau of Indian Standard (uploaded in February, 2019 and (uploaded on 14.11.2019) clearly provided that if product had been imported to India before last date of implementation or manufactured by domestic manufacturers before the last date of implementation, then such product can be sold
  • The pressure cooker is neither ‘defective’ within the meaning of Section 2(10) nor the appellant has committed any ‘unfair trade practice’ within the meaning of Section 2(47) of the Act. The product meets all objective criteria of Bureau of Indian Standards Act, 2016 and Consumer Protection Act, 2019 and the notice is liable to be discharged.
  • That a Test Report dated 15.02.2022, from Delhi Test House, (a National Accreditation Board for Testing and Calibration Laboratory) and Certificate of the “European Commission Standard” mark as established in the European Union Directives2014/68/EU granted by TUV SUD. T

Action by CCPA -.

Authority Called for reports in connection with sold cookers without BIS Mark 

  •  Director General Investigation, vide its report dated 04.07.2022 confirmed that product sold without mark after enforcement of the Order, manufacture, import, sell, distribution, hire, lease, store or exhibit for sale is violative of Section 17 of Bureau of Indian Standards Act, 2016.
  • Department for Promotion of Industry and Internal Trade, vide its report dated. 28.09.2022  confirmed that no such exemption was issued by it, permitting sale of pressure cooker in the country, imported prior to the date of enforcement of the Order, which has no BIS mark.

Order by CCPA –

  • Central Consumer Protection Authority, vide its order dated 04.11.2022, held that after enforcement of the Order on 01.02.2021, any domestic pressure cooker, offered for sale in India, is required to conform IS 2347 :2017 and if violative ,it is 
  • The pressure cookers which do not conform IS 2347 :2017 are liable to be held as defective within the meaning of Section 2(10) of the Act and violative of the consumer’s right as defined under Section 2(9) of the Act.
  • Admittedly, the appellant had sold 1033 pressure cookers after 01.02.2021, which did not conform IS 2347 :2017. The Cloudtail India Private Limited is directed to recall 1033 pressure cookers, sold by the company in the country, refunding its price to the consumers, within 45 days and a penalty of Rs.100000/-, has been imposed upon it for selling the pressure cooker, in violation of Quality Control Order, 2020

Hence the present appeal has been filed before Apex Commission (NC) for adjudication 

Stand of appellant company before NC 

Company reiterated its stand in appeal as stated above  However appellant company also added Finding of Central Consumer Protection Authority that pressure cooker was ‘defective’ raising presumption due to not having ISI mark is illegal. In any case, violation of Domestic Pressure Cooker (Quality Control) Order, 2020 may attract the provisions of Bureau of Indian Standards Act, 2016 and not the Consumer Protection Act, 2019..

Analysis by National Commission 

 “consumer rights” as defined under Section 2 (9) includes,—

  1. the right to be protected against the marketing of goods, products or services which are hazardous to life and property;
  2.  (ii) the right to be informed about the quality, quantity, potency, purity, standard and price of goods, products or services, as the case may be, so as to protect the consumer against unfair trade practices;
  3.  (iii) the right to be assured, wherever possible, access to a variety of goods, products or services at competitive prices;
  4.  (iv) the right to be heard and to be assured that consumer’s interests will receive due consideration at appropriate fora;
  5.  (v) the right to seek redressal against unfair trade practice or restrictive trade practices or unscrupulous exploitation of consumers; and 
  6. (vi) the right to consumer awareness.

 “defect” as defined under Section 2(10) of the Act is quoted below: 

“defect” means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to be maintained by or under any law for the time being in force or under any contract, express or implied or as is claimed by the trader in any manner whatsoever in relation to any goods or product and the expression “defective” shall be construed accordingly.”

Observations by Commission :

  1. Section 16 of the Bureau of Indian Standards Act, 2016 directs compulsory use of standard mark. Since the Quality Control Order, 2020 has been enforced, then it has become compulsory for using the standard mark. In spite of the fact that it bears the European Commission Standard Marks or in any subsequent test report it has satisfied the norms of Bureau of Indian Standard. The right of the consumer has also to be looked into. The consumer has right to purchase the product bearing BIS mark only after 01.02.2021. If BIS mark is not fixed or certified and the product is sold then the right of the consumer has been violated and   Standard mark after enforcement of the Domestic Pressure Cooker (Quality Control) Order, 2020, it was mandatory.

Supreme Court verdict  

Various earlier judgments on the issue :

Sumat Prasad Jain vs. Sheojanam Prasad (Dead) & Ors (1973) 1 SCC 56

Delhi High Court in Bottled Water Processor Association vs. Union of Inida, 2010 SCC Online Delhi 2038 and Andhra Pradesh High Court in Sri Seetharamanjaneya Swamyvari Seva Sangam vs. Superintending Engineer, APSPDCL, 2015 SCC Online Hyd. 335 

Above judgments  Highlighted the significance of BIS standards and held that people at large will be put to risk and public interest would be jeopardised if the safety standards are not complied with.

CCPA holds power under Section 18 of the Consumer Protection Act, 2019 and  Authority can exercise its power suo moto and to protect the consumers’ interest it can pass any suitable order. It cannot be said that it was without jurisdiction.

No procedural irregularity is found in passing the order by CCPA After initiation of the proceeding, report dated 04.07.2022 has been obtained from Director General (Investigation). The appellant has been given full opportunity of hearing by giving  the notice as well as the report.

Order by CCPA confirmed

Questions and Answers December 2023

by | Dec 17, 2023 | Legal

Questions and Answers December 2023

Question 1: The land booking has been cancelled, and there is a request for a refund of the money paid to the builder. The agreed-to-sell document was signed, but objections to the terms arose before registration, resulting in a refusal to register. The total amount paid is Rs 2, 96, 00,000, distributed across installments of Rs 1,000, Rs 99,000, and Rs 96,132. (Jitendra Yadav, Jhansi, UP) 

Answer: If the agreement remains unsigned, no terms have been agreed upon. In situations where legal requirements dictate that an agreement must be registered to be valid, failure to register renders it as unsigned. This is particularly applicable to agreements involving immovable property, where registration is deemed mandatory.

How buyer has the right to cancel the booking, as per agreement 

  • Buyer can cancel the booking within the stipulated time frame of one month from the receipt of the Unregistered Agreement for Sale (Plot) dated 14/07/2023.
  • That the agreement between the promoter and the allottee becomes binding only after the allottee signs and delivers the agreement along with the necessary schedules and payments within 30 days from the date of receipt.
  • The submission of the draft agreement with the allottee’s appearance for registration before the Sub-Registrar is a crucial step in this process. As per clause 20 of the draft agreement, since this process remains incomplete, there is no formal agreement established between the parties.
  • Promoter has also not taken initiative to get the document registered to make it complete contract, hence the application of the allottee shall be treated as cancelled as per draft agreement clause 20 & 22.
  • The sums deposited by the allottee, including the booking amount, are to be returned without interest or compensation.

Reasons for cancelling the deal: Legal issues

  • Failure to adhere to the obligatory stipulations outlined in The Uttar Pradesh Real Estate (Regulation and Development) (Agreement for Sale) Rules, 2018, as per the RERA Act of 2016, including the omission of critical sections such as “21. Entire Agreement.”
  • Non-receipt of the Non-Encumbrance Certificate and a No Objection Certificate (NOC) from the relevant authority, a prerequisite for loan approval from any bank.
  • Indication of the land being mortgaged to HDFC Bank, necessitating permission from the bank, with no recorded evidence of such approval.
  • The verbal assurances given by the representatives of the promoter substantially deviate from the terms specified in the Agreement for Sale (Plot), particularly in relation to the insistence on a 90% payment without obtaining the necessary No Objection Certificate (NOC) and Non-Encumbrance Certificate.

Status of Contract 

There is no fully registered agreement with the sub-registrar; what exists is merely an offer or proposal. Without formal acceptance, there is no legally recognized contractual agreement. This situation involves the provision of funds for a contract that remains incomplete, placing the recipient of the funds in debt to the homebuyer. The obligation is to refund the money along with interest and compensation due to the breach of contract, which has led to misrepresentation to the homebuyer and the squandering of time, energy, and other potential opportunities.

Question 2: Is it possible for me to approach the High Court for the enforcement of the consumer court order while the opposite party’s appeal is pending before the State Commission?

Background: The truck, financed through a loan, had one instalment unpaid. The bank repossessed and sold the vehicle at auction. However, the truck has not yet been transferred to the buyer. A consumer complaint was filed, and since the opposite party did not appear, an ex-parte order was issued in favour of the complainant. The case has now reached the execution stage, but the opposite party has filed an appeal. Can I seek execution in the High Court while allowing the appeal to continue in the State Commission? (Shubh Yadav) 

Answer: After appeal is filed, execution shall be stayed. Court may order the lower commission to hear the case on merits and send back to the District commission for trial. High court has no jurisdiction to enter into the matter. In some cases where execution by revenue department is delayed, HC in writ has ordered to speed up execution but not in cases of appeal. 

Question 3: My phone sustained physical damage, and I personally arranged and paid for the repairs within the warranty period. Currently, the phone is malfunctioning, and the service centre has declined repair requests multiple times. Now that the warranty has expired, can I still request repairs despite the device being out of warranty? (Aniket, Faridabad, Haryana) 

Answer: It’s crucial to grasp the terms of the warranty. Typically, if an unauthorized entity performs repairs during the warranty period, it may void the warranty. However, if the service centre conducts the repair, you generally have the right to request further repairs. In your situation, where the damage is a result of your actions, there might be complications. Nonetheless, legally, if you reported the issue during the warranty and it remains unresolved even after the warranty has expired, it can be considered a continuing cause of action.

Question 4: Is it possible to scrutinize the LIC policy under Section 45 of the Insurance Act after the policy is revived by paying the missed premium? 

Background: The LIC policy was initiated on 28.10.2016 by my father. A premium was missed, and revival occurred on 16.7. 2020 after a thorough health check-up. The policyholder passed away on 18.2.2021, and the three-year period had not elapsed. Post-revival, the policyholder underwent heart treatment. The claim was declined due to non-disclosure, despite the demise not being attributed to a heart attack. (Raj Jain)

Answer: 

Two questions involved –

Within three years, can the company cancel the policy ?YES Section 45 (2) A policy can be called  in question at any time within three years from the date of commencement of the policy or the date of revival of the policy or from the date of rider of the policy…..

But it should have been communicated in writing to insured about the reason and decision and opportunity to explain. If cause of death is not the non-disclosure of material fact, in your case heart attack, you need to specifically disclose with evidence the cause of death and proved facts so not disclosed are not ‘material’ in your case.

Question 5: Is it possible to exchange my vehicle or receive a refund if a feature is absent?

Background: I bought a car from Tata Motors in May 2023. In July, I discovered that a feature mentioned in the brochure (Dual function of DRL with indicator) was missing. Upon contacting the showroom, they explained that this feature is intended for a higher model and is not available in my model. Additionally, other complications could not be rectified. (Abhishek Singh Rathore, Pune) 

Answer: If the brochure affirms the inclusion of a particular feature in your version, the dealership is obligated to provide that feature if it is feasible. If it turns out that the promised feature cannot be implemented in your model, you have the right to either exchange the car or receive a refund.

For any additional complications that can be addressed through repairs or part replacements, every effort should be made to rectify the issues. If, despite attempting repairs and changing parts, the problems persist and cannot be resolved, the next step would be to consider exchanging the vehicle.

Question 6: S.Dass – Execution against Jiva club issue.

Facts -Execution petition filed, OP not appearing before the court. Available address rented. I have no property details but bank account details 

Can account be attached?

Answer:

Two issues involved –a) Notice not served 

  • Notice can be sent to available address last known to the court and you.
  • Can send through E-mail also
  • Can do substituted service through publication in the local paper where OP office/branch, application to court for permission and notice matter.
  1. b) Attachment of property stage comes only after notice served property and still OP does not appear.
  2. c) Account cannot be attached without taking all steps as it leads to many complications, other business /personal activities of a person get affected 
  3. c) You can get address and other details from the bank, can request court to direct bank to do so.

Question 7: Rajnikanth Panigrahi :Procedure in Appeal before state commission

Facts: Complaint before District commission for defective paper cup machine making three parties-Dealer Rashmi Enterprises, Manufacturer Aman Impex and SBI General Insurance for loan 

Only Rashmi Enterprise appeared, order against Rashmi Enterprises and in my favour 

I appealed for not giving compensation

SBI &Rashmi Enterprises also challenge the order

State commission finds district order erroneous because Aman impex was not served and manufacturer is not liable now 

State commission suggests to attract Product liability clause for execution of order in the absence of manufacturer .

Answer:

  • In the absence of any order against manufacturer, you can catch hold dealer only under product liability clause section 85,86 

Question Sanchay Deshmukh :Property issue 

Facts ;Purchased a land which belonged to Govt(school &garden land) but colonizer and sarpanch illegally sold to me.They were sent to jail for crime.Now not getting any approvals for construction 

Answer; this is not your land now, its declared Govt. land .You can file case for refund of your money in civil court as recovery suit and compensation also for unfair dealing

Can also file before consumer court/RERA for unfair trade practices and refund with compensation 

Question 8: Builder issue 

Fact: complaint filed before consumer forum against DHFL which was dismissed approached NLCT &copy to president, nothing has happened 

Ans :

  • NCLT is not appellant court for consumer matters ,hence if filed appeal,it will not work 
  • In case case dismissed because OP Is Declared Insolvent ,Then You Have Become financial creditor and file claim before NCLT for refund or any other solution as per resolution passed by NLCT 

    Question 9: Imran khan builder issue

    Facts; Booked flat in 2017, 3 years’ time for construction 

    After 6 year’s now flat ready but asking for increased cost. 

    Answer:

    • File complaint before consumer commission and ask for some interim order for possession at agreed cost till matter is decided on merits 
    • Claim for compensation for delay before the court 
    • Contest the issue of cost increase because delay was due to builder and homebuyer had agreed for cost which was at the time of three years of construction period.  

      Question 10: Purchase of vehicle

      Facts: Purchase vehicle, delivery due on 6.12.2023 .At the time of delivery sunroof not working, promised to give on 11/12/2023 neither delivery nor changing vehicle.

      Refusing cancelling Registration 

      Answer: 

      Can file complaint before consumer commission you have options to repair, change, refund etc. depending on merit of the case 

      Question 11: Complaint ;Radhey Gupta ,Education issue 

      Facts; Case filed against University. Court asks for some document or proof to show you are a consumer in education matter 

      Answer:

      Student is not consumer against University 

      Bihar examination board case 2009 

      Question 12: Sandeep Arora 

      Facts: New Bike with starting problem .Service centre failed to remove the defect .Now case filed before consumer commission and service centre refused to give any service. Next date is 19.2.24

      Any way to get bike repaired or early date possible .What application can be filed before court.

      Answer:

      • You can file an application stating your this problem and ask for early date 
      • You can also file an application during hearing next time for interim order do get vehicle repaired till case decided on merits 
      • You can also request court to obtain expert opinion about the defects in the vehicle and decide the relief on merits 

        Question 13: Electricity Bill 

        Facts: Getting huge bill of Rs 25000/- for four months due to fast meter

        Answer:

        Application to electricity department for checking meter, you need to pay some fee for it 

        In case meter found fast /defective, billing shall be done on the basis of earlier billing pattern calculating average during the last six months  

        Question 14: Purchase of vehicle 

        Facts :Purchase Yamaha Aero ON 5TH Oct 023 Engine stops after driving 1364 Km ,repaired after 4 days Again after 3200 km same problem 

        Can I get vehicle changed 

        Answer:

        Not a case of change unless declared beyond repair or having manufacturing defect .May go to consumer court, ask for obtain expert opinion and order on merits

        Question 15: Construction issue 

        Facts Collaboration with dealer for construction .Work not completed, Lift not made functional .Given us fourth floor 

        Answer: Explore any payment issue .Can go to consumer commission /RERA

        Question 16: A.Kapur Advocate 

        Can relevant law be incorporated in the petition/complaint?

        Answer:

        Generally petition /complaint is narration of facts with relevant documents. Case law, citation and judgments are attached with written arguments and discussed at the time of oral arguments 

        But while drafting complaint when you allege for deficiency in service, you can refer to relevant provisions such as how you become complainant as per definition of complainant, product liability clause, express warranty, unfair trade practice or misleading ads defined in the act. 

        Question 17: Rajput Baghela 

        Builder has not obtained completion certificate but forcing to take possession.

        Answer:

        First, you can refuse to take possession without completion certificate because there might be some incomplete work or administrative/legal requirement for which Completion certificate is either rejected or not applied by builder 

        Second: sometimes due to so much delay, homebuyer accepts possession without completion certificate, in such situation corporation may ask for extra taxes for this default. There are judgments that such penal taxes are to be borne by builder only for which you may have to go to court

        Third, you can go to consumer commission or RERA at this stage also for possession with completion certificate and compensation for delay.  

        Question 18: Advocate Raj Jain

        After 45 days of notice, OP comes with excuse that policy record of complainant not traceable, time be given to trace records.Commission asked to submit proof of service made .Is this the duty of consumer to track service of notice?

        Answer: After 45 days from proper notice with documents, this excuse cannot work. Commission asking you to provide proof of service is to confirm that service is made in proper manner. After confirmation of notice served, commission can exercise its power to go expert against OP.

        It’s not duty of complainant to track service of notice but you can facilitate the court when you press for proceeding ex party against OP.

        Question 19: Dilip kumar 

        Can we ask for govt. documents also through RTI ?

        Answer:

        Yes, you can ask for documents also if you are an interesting party. You need to prove how you are entitled to get information or documents. Further under RTI you can be given information only but cannot reply as to why no action/or un- favouring action has been taken 

        Question 20: Smitha Bangalore 

        What is the difference between execution through civil court and consumer commission, explain procedure. 

        Answer: There is no difference in procedure for execution of order by consumer commission. In both places order xx1 Ist schedule of CPC 1908 is to be followed. Consumer commissions are given power of Ist class Magistrate to follow this procedure within the Act under sec 71&72

        Procedure is the same –Notice, BW, NBW through police, Arrest by police &fine by commission, order for attachment of property. 

        Question 21: Vinod Yadav 

        How medical negligence cases are proceeded and proved 

        Answer:

        Procedure is same for all cases coming to consumer commissions since in medical cases, medical literature, expert opinion etc. are required. Treatment record is also important factor, Sometimes more than one affidavits are needed for evidence. There may be more than one expert opinions are accepted or sought by courts. Hence process becomes lengthy

        Negligence is proved on the basis of entire facts, circomstances, treatment record, medical literature and medical expert opinion. Activities of para medical staff, required infrastructure in the hospital /nursing Home and requisite facilities are also considered for reaching to some logical end

        Foundation for Media Professionals v. Union of India & Ors. | Writ Petition (Criminal) No. 395 of 2022

        by | Nov 26, 2023 | Legal

        Foundation for Media Professionals v. Union of India & Ors. | Writ Petition (Criminal) No. 395 of 2022

        The Supreme Court on November 7th expressed concerns over the arbitrary seizure of media professionals’ digital devices and stressed the need for better guidelines to protect their interests.

        A public interest litigation (PIL) filed by the Foundation for Media Professionals through Advocate-on-Record Rahul Narayan urging the court to establish safeguards against unreasonable interference by law enforcement agencies and create comprehensive guidelines for search and seizure of digital devices.

        CONTENTION OF PIL

        “There are hundreds of journalists whose digital devices are taken away en masse. The issues raised in this petition are very significant because there are no guidelines with reference to when and what may be seized, what can be accessed, what kind of protection is ensured for personal data, health data, financial data…The entire digital footprint is on that one device. Once an investigating agency is involved, it’s not like the person can have a back-up…”

        SUPREME COURT OBSERVED 

        Justice Kaul, however, stressed the importance of guidelines to protect journalists from arbitrary seizures –

        “It’s a serious matter. These are media professionals who will have their own sources and other things. There must be some guidelines. If you take everything away, there’s a problem. You must ensure that there are some guidelines.”

        Justice Kaul firmly said that guidelines were required to ensure that the powers of the agency were not misused in this respect –

        “I’m finding it very difficult to accept some kind of all-within power that the agencies have…This is very dangerous. You must have better guidelines. If you want us to do it, we’ll do it. But my view is that you ought to do it yourself.

        Quoted Example :

        The Supreme Court issued its famous Vishaka guidelines on sexual harassment, the foundation has urged the court to issue guidelines to strike a balance between the right to privacy in the digital space and the legitimate interests of law enforcement, in line with established judgments.

        Judges go by Constitutional morality

        by | Nov 26, 2023 | Legal

        Judges go by Constitutional morality

        By CJI D Y Chandrachud  (4 Nov 2023)

        Judges don’t go by popular morality, but by constitutional morality. Constitutional morality consists of those values of the constitution that the courts are intended to espouse such as fraternity, human dignity, personal liberty and equality.

        “Judges don’t look at how society would respond when they decide cases, that’s exactly the difference between the elected arms of government & the judiciary,” he said

        While the elected arm of governance is intended to be responsive to the people, judges need to follow Constitutional morality.Courts are a platform for engagement, where people feel that they will atleast have a space to exchange views and ideas to produce a new synthesis of change within society, he added.

        “There is a dividing line between what the legislature can and cannot do. If a judgment points out a deficiency in the law, it is open to the legislature to enact a fresh law to cure the deficiency. What the legislature cannot do is to overrule a judgment. But this is not happening for the first time. This has been happening in the tax arena. Validating acts are perfectly permissible, but directly overruling a judgment is completely impermissible,” 

        “We can’t profess to be right. We are final not because we are right, but we are right because we are final.The work we do is open to criticism and broader social dialogue,” 

        Understanding the Legal Aspects of Earnest Money Forfeiture in Real Estate

        Understanding the Legal Aspects of Earnest Money Forfeiture in Real Estate

        by | Nov 19, 2023 | Legal, resources

        Understanding the Legal Aspects of Earnest Money Forfeiture in Real Estate

        The practice of forfeiting earnest money in real estate transactions is a critical legal aspect that both buyers and sellers need to comprehend. This earnest money, typically a deposit made by the buyer to demonstrate their commitment to the purchase, can become a subject of contention and legal scrutiny if the deal doesn’t proceed as planned. In this article, we will delve into the intricacies of the law surrounding the forfeiture of earnest money in real estate, shedding light on the regulations, rights, and responsibilities governing this aspect of property transactions through some cases. Whether you are a buyer, seller, or simply an individual interested in the intricacies of real estate transactions, this discussion will provide valuable insights into the legal framework that governs earnest money in the real estate sector.

        Dr Prem Lata, Legal Head VOICE

        Legal issue: What is a reasonable and justifiable amount to deduct if a home buyer cancels their booking?

        • Case- Goutam Roy V/S Avalon Projects
        • CC No 1941 of 2018, Decided on 24.01.2023 (NC)

        A landmark judgement by the National Commission (NCDRC)

        Facts:

        • The builder and the home buyer have a signed agreement that includes a forfeiture clause. If the home buyer cancels their booking, 20% of the total basic sale price will be forfeited.
        • The question before the National Commission was as to how much deduction is reasonable and justifiable.

        The National Commission, when addressing the number of Supreme Court cases on this matter, relied on Section 74 of the 1872 Contract Act. According to this section, in cases of breach of contract, actual damages must be proven to penalize the other party. In situations where a buyer cancels their booking for a flat or property, it’s noted that the property remains solely with the builder, and there is minimal loss to the builder. In light of this, the National Commission ordered a forfeiture of 10% of the total sale cost of the property.

        Cases Referred:

        • Maula Bux vs Union of India 1970 SC
        • Sirdar K B Ramachandra Raj URS vs SC 2015

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

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

        A landmark judgement National Commission (NCDRC)

        Facts:

        The complainants received the draft of the Builder Buyer Agreement on 16th April 2015. Upon reviewing the agreement, they found certain terms and conditions to be unacceptable. Consequently, they conveyed their concerns via an email dated 26th August 2015 in response to the draft agreement, which had been initially sent to them in a letter dated 16th July 2015. Among the objections raised by the complainants were the following:

        • Section A suggests that the entire land required for the housing colony has not been acquired as of now. Additionally, as per Section B, License No. 22 of 2011, which was referred to, expired in March 2015. This information was verified by checking the DTCP website on August 21, 2015. It’s apparent that there has been a breach of the promise regarding my application.
        • Clause F mention about several exceptions including ‘specification and location’ of the flat.  This has not been communicated to me before (at the time of book and thereafter) and this is the first time it is being mentioned.
        • In Clause 2, it is the first instance where Vatika mentions earnest money (EM) along with its definition. Up until this point, neither Vatika nor the involved broker had provided me with the definition of EM. The definition of EM as outlined in the Builder Buyer Agreement (BBA) is not agreeable to me; it cannot exceed 10% of the booking amount paid with an Expression of Interest.

        Since the issues raised by the complainants were not addressed, they via 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, the 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-Pioneer Urban Land & Infrastructure Ltd. vs Govindan Raghavan
        • Decided on 02.04.19

        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 clauses in an agreement constitutes an 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

        This court’s ruling states that our judges are duty-bound by their oath to uphold the Constitution and the law. The Constitution was established to ensure social and economic justice for all citizens of the country. Article 14 of the Constitution ensures that all individuals are entitled to equality before the law and equal protection of the laws. This principle dictates that the courts will not enforce, and will instead invalidate, when necessary, an unfair and unreasonable contract or any unfair and unreasonable clause within a contract. This holds particularly true when such contracts are entered into by parties who do not possess equal bargaining power. 

        Legal Issue: Forfeiture of earnest money

        • Case– Amit Kansal vs M/s. Vatika Limited CC No. 1244 of 2015
        • Decided on 30.10.2019

        The counsel representing the complainant also cited a decision of this Commission from the date 23.10.2017 in the case of Amit Kansal Vs. M/s. Vatika Limited CC No. 1244 of 2015. This case is related to an allotment made in the same project, ‘Tranquil Heights’. In the Amit Kansal case, the terms of the builder-buyer agreement sent to the complainants were not acceptable to him, and as a result, he requested modifications to the agreement, which the builder did not agree to. Consequently, he ceased making further payments and approached this Commission through a consumer complaint, seeking a refund of the amount paid to the builder along with interest, among other claims. The builder opposed the complaint, alleging, among other things, that the complainant was a speculator aiming for quick profits and had an obligation to sign the standard builder-buyer agreement sent by the builder 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: Forfeiture of earnest money

        • Case-Mr Dinesh R Humane & Mrs Ranjana D. humane vs Piramal Estate Pvt. Ltd
        • Decided on 16.03.21

        The RERA Estate Appellate Tribunal in Maharashtra ruled that when a sale and purchase transaction of a flat is cancelled at the initial stage, with the allottee merely booking the flat and making an initial payment on a printed form, and no further progress occurs in the transaction, where the parties never reach the point of executing a sale agreement, in such a unique situation, it is essential to consider the core objective of RERA, which is to safeguard the interests of consumers. Therefore, any amount paid by the home buyer to the promoter should be refunded to the allottee if they decide to withdraw from the project.

        Alert Consumers: Legal Queries and Responses

        Alert Consumers: Legal Queries and Responses

        by | Nov 19, 2023 | Legal

        Alert Consumers: Legal Queries and Responses

        Question 1: If I intend to file a case against a builder, and the agreement was executed in Lucknow, while I currently reside in Delhi, which Consumer Commission would have jurisdiction over the matter? (Shubhit)

        Answer: The new legislation has introduced a provision allowing a complaint to be filed at the location where the consumer either works or resides. It doesn’t depend on the whereabouts of the opposing party’s workplace, offices, or residence.

        Subject to the other provisions of this Act, the District Commission shall have jurisdiction to entertain complaints where the value of the goods or services paid as consideration does not exceed one crore rupees, provided that where the Central Government deems it necessary so to do, it may prescribe such other value, as it deems fit.

        A complaint shall be instituted in a District Commission within the local limits of-

        (a) The opposite party or each of the opposite parties, where there are more than

        one, at the time of the institution of the complaint, ordinarily resides or carries on

        business or has a branch office or personally works for gain; or

        (b) Any of the opposite parties, where there are more than one, at the time of the

        institution of the complaint, actually and voluntarily resides, or carries on business or

        has a branch office, or personally works for gain, provided that in such case the permission of the District Commission is given; or

        (c) The cause of action, wholly or in part, arises; or

        (d) The complainant resides or personally works for gain.

        Question 2 : The date of birth on my Aadhaar card and my 10th certificate matches, but it is not my actual date of birth. I don’t possess a birth certificate either. How will the new birth registration rules impact my situation?  (Mukleshwar Garnayak, Odisha)

        Answer:

        New Birth and Death (Amendment) Act is applicable from 1st 0ctober 2023. Henceforth from 1st October, birth certificate shall be required for admission in schools, issuance of driving licence, preparation of voter list, Aadhaar number, registration of marriage appointment and Govt jobs. However, those who already have school certificate or adhar cards or licence etc, those will stand valid.

        Use of birth certificate: The Bill requires the use of birth and death certificates to prove the date and place of birth for persons born on or after this Bill comes into effect.  The information will be used for purposes including: (i) admission to an educational institution, (ii) preparation of voter lists, (iii) appointment to a government post, and (iv) any other purpose determined by the central government.

        Ref Section 13 of the Act

        Notwithstanding anything contained in any other law for the time being in force, the certificate referred to in sub-section (2) or section 12, shall be used to prove the date and place of birth of a person who is born on or after the date of commencement of the Registration of Births and Deaths (Amendment) Act, 2023, for the purposes of—

        (a) Admission to an educational institution;

        (b) Issuance of a driving licence;

        (c) Preparation of a voter list;

        (d) Registration of a marriage;

        (e) Appointment to a post in the Central Government or State Government or a local body or public sector undertaking or in any statutory or autonomous body under the Central Government or State Government;

        (f) Issuance of a passport;

        (g) Issuance of an Aadhaar number.

        Question 3: I was assured admission as an irregular student at Bhuwan College, Rajiv Gandhi Institute in Bengaluru for the 2022-2023 session. However, despite making payments throughout the academic year (2022-2023) in instalments for each term, admission was not granted, and I was not allowed to sit for exams. In total, I paid Rs 1, 79,000. I had come from Chhattisgarh to Bengaluru for a job and couldn’t commit to a regular course. I initially provided Rs 30,000 directly to the college, but afterward, I made further payments to an employee’s account with the college with the assurance of securing admission. (Priyanka, Bengaluru)

        Answer: This seems to be a case involving deception and the misappropriation of funds, possibly stemming from the inability to secure admission as an irregular student. You

        • Can File FIR for cheating
        • Write to the institute about the events took place
        • File consumer case making college /institute party stating their employee mislead amounts to deficiency in services

        Question 4: Electricity billing for both shops in my residence is consolidated into a single meter. The Department disconnected the power supply and imposed a bill of Rs 34,000.

        Answer: You are currently utilizing a residential meter for commercial purposes, which is considered unauthorized use of electricity under Section 126/135 of the Electricity Act 2003. Consequently, penal billing has been applied. To resolve this issue, consider installing separate meters for your shops. You can also request the department for a potential rebate if you commit to complying with the recommended system.

        Question 5: The opposing party is failing to adhere to the court’s directive. In the event that the party is incarcerated following the issuance of a Non-Bailable Warrant (NBW), what steps can I take to seek redress? (Venkateshan, Karnataka)

        Answer: Punishing the non-compliant party with imprisonment and fines will not diminish your entitlement. The opposing party remains obligated to settle the dues in accordance with the court’s original order, and this obligation cannot be altered even if the opposing party serves their jail sentence.

        Question 6: I received an excessively high bill after a 20-month period. I submitted my meter to the department for inspection and received an acknowledgment of the meter being in their possession. However, the opposing party failed to appear in court for two scheduled dates and did not provide a Written Statement (WS) within the allotted 45-day period. Can the court refuse to accept their WS on the next court date? They claim they never received the meter, but I have evidence to the contrary. (Guddu Kumar, Rohtas)

        Notice to party-15.7.2023

        Hearings -3.7.2023, 11.8.20231.9.2023, 12.9.2023

        Answer: Certainly, you can submit a written request to the commission to terminate the opposing party’s defence, allowing your case to proceed, and an order to be issued based on the merits of the case.

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