NEW DELHI: The Supreme Court has said that the real estate devlopers can't forfeit beyond 10 % of the basic sale price of a flat upon cancellation of the booking by the buyer, on the basis of terms of a one-sided agreement.
Supreme Court Ruling on Real Estate Cancellation and Forfeiture Limits
A bench of Justices B R Gavai and S V N Bhatti upheld October 25, 2022 judgment by the National Consumer Disputes Redressal Commission directing Godrej Projects Development Limited to refund the amount deposited by complainant Anil Karlekar and others for a flat in Gurgaon, only after deducting 10 % of the basic sale price.
The complainant-flat buyers booked the flat at 'Godrej Summit' in Gurgaon in 2014 at the basic sale price of Rs 1,70,81,400. They deposited Rs 51,12,310. However, in 2017, they sought refund of the money, after receiving a letter to take possession. The developer sought to forfeit 20 % the basic sale price, treated as earnest money, as per terms of the agreement, leading to a consumer complaint in the case.
Consumer Protection: SC Rejects One-Sided Developer Agreements in Flat Booking Disputes
In its judgment on appeal by the developer, the court rejected a contention by the developer that the NCDRC has grossly erred in interfering with the contractual terms of the agreement as entered into between the parties.
The developer submitted the agreement specifically provided for a forfeiture clause, so it was entitled to forfeit the entire earnest money, determined as 20% of the basic sale price.
The court, however, said that contractual terms which are ex facie one-sided, unfair and unreasonable would constitute unfair trade practice.
The courts will not enforce an unfair and unreasonable contract or such a clause in a contract, entered into between parties who are not equal in bargaining power, the bench said.
"The NCDRC, in a series of cases right from the year 2015, has held that 10% of the basic sale price is a reasonable amount which is liable to be forfeited as earnest money. We see no reason to upset the view consistently taken by the NCDRC," the bench said in its judgment on February 3, 2025.
After going through the terms of the agreement, the bench said those were "one-sided and totally tilted in favour of the developer".
The court specifically pointed out the agreement provided only a very meagre compensation to the flat buyer, if the developer does not comply with the timelines.
"Such one-sided agreements would be covered by the definition of term “unfair trade practice”, the bench said.
The court, however, opined the NCDRC was not justified in awarding 6% simple interest per annum from the date of payment till the date of realisation in the case.
It directed the developer to refund Rs 12,02,955 to the complainants within six weeks. The developer had already refunded Rs 22,01,215 at the instance of the court earlier, of Rs 51,12,310 deposited by the flat buyers.
The court found the flat buyers sought cancellation of the allotment due to sharp decline in the prices, and that a flat at a substantially lower price was available even in primary market.
"It is quite probable that the respondents would have utilised the money which was payable by them to the appellant for purchasing another property at a lower rate," the bench said.
