Questions and Answers June 2024

Law on forfeiture of earnest money: Real Estate

Question 1: How much deduction is reasonable and justifiable if the home buyer cancels the booking amount?

Answer: 

Case Law; Goutam Roy V/S Avalon 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

Question 2: Whether there can be any forfeiture of earnest money when agreement not signed ?

Answer: 

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 :

The OP sent the blank 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.  Some of the objections raised by the complainants were as under:

  1. It appears that full land has not yet been acquired for the said housing colony. 
  2. Several exceptions including ‘specification and location’ of the flat as mentioned in the draft agreement  were not communicated earlier 
  3. . 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.  

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.

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.

Question 3: What are the unfair clauses in the buyer builder agreement?

Answer: 

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 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.

Question 4: Can there be any Forfeiture of earnest Money when only booking done and no further transaction completed?

Answer:

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

Decided on 16 March 2021

(RERA Estate Appellant Tribunal ,Maharashtra)

Held

“Transaction of sale and purchase of the flat is cancelled at initial stage Allottee Marely booked the flat and paid some money towards the booking on printed form. Thereafter there is no progressing of 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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