BLANKET CONSENT  

An agreement with the builder includes pre-printed clauses that secure the interests of the promoter or builder. In a way it’s a business because the promoter is investing huge sums of money, and he wants its security.

Godrej Projects Development Limited vs Anil Karlekar on 3 February, 2025

A question arose in the matter of Godrej Properties at Gurgaon, Haryana.

Mr. A books a flat and pays a sum of Rs.51 lakhs approx. But upon issuing letter of allotment, the buyer instead of taking possession of the flat agreed he opted for cancellation of the Agreement. He cited the recession in the real estate industry and sought a full refund of the money.

A legal notice was served and subsequently flat buyer filed a consumer complaint. The NCDRC disposed of the Consumer Complaint by directing the Appellant to deduct only 10% of the BSP ( Base Sale Price) only towards cancellation of the Complainants’ Apartment and refund the balance amount Rs.34 lakhs  along with simple interest @ 6% per annum from the date of each payment till the date of refund within three months.

The standard clause in the purchase agreement was :

Agreement entered into between the Parties, which read thus:

 “2.6 It has been specifically agreed between the Parties that, 20% of the Basic Sale Price, shall be considered and treated as earnest money under this Agreement (“Earnest Money”), to ensure the performance, compliance and fulfillment of the obligations and responsibilities of the Buyer under this Agreement.

It has been made clear by the Developer and the Buyer has understood that the Sale Consideration and Statutory Charges as mentioned in Schedule VI hereto have been computed on the basis of Super Built Up Area of the Apartment. The Buyer agrees that the calculation of Super Built Up Area in respect of the Apartment is tentative at this stage and subject to variations till the Completion of Construction. In case such variations are

beyond +/- 5%, then the Developer shall take prior consent of the Buyer.

 8.4 On and from the date of such termination on account of Buyer’s Event of Default as mentioned above (“Termination Date”), the Parties mutually agree that-

(i) The Developer shall, out of the entire amounts paid by the Buyer to the Developer till the Termination Date, forfeit the entire Earnest Money and any other dues payable by the Buyer including interest on delayed

payments as specified in this Agreement.

(ii) After the said forfeiture, the Developer shall refund the balance amount to the Buyer or to his banker/financial institution, as the case may be, without any interest;

(iii) On and from the Termination Date, the Buyer shall be left with no right, title, interest, claim, lien, authority whatsoever either in respect of the Apartment or under this Agreement and the Developer shall be released and discharged of all its liabilities and obligations under this Agreement.

(iv) On and from the Termination Date, the Developer shall be entitled, without any claim or interference of the Buyer, to convey, sell, transfer and/or assign the Apartment in favour of third party(ies) or otherwise deal

with it as the Developer may deem fit and appropriate, in such a manner that this Agreement was never executed and without any claim of the Buyer to any sale proceeds of such conveyance, sale, transfer and/or assignment of the Apartment in favour of third party(ies).”

It can be seen that as per the Agreement between the Parties, the Complainants were required to pay earnest money deposit of 20% of the BSP, which undisputedly has been paid. As per clause 8.4, on termination on account of Buyer’s Event of Default, the Developer was entitled to forfeit the entire earnest money deposit and other dues including interest on delayed payments as specified in the Agreement.

Termination by buyer on receiving possession notice:

The termination notice contained following reasoning:

“Some of the promised connections from internal roads to externals have been abandoned. Overall, the place falls to invite you, entice your And the most painful part is the fact that the market prices have sharply fallen and a similar flat to a new buyer is available at a substantially lower price, not

only in secondary market but even by Godrej themselves. This is unfair, and one feels cheated that an old customer of 4 years is a loser compared to the new one. Under the circumstances, am pained to state that I want

to cancel my booking of the said flat and demand that the amount paid till date be refunded along with applicable interest. We shall appreciate a prompt action on our request. Kindly share the cancellation formalities, and the refund amount.”

Relying upon Maula Bux v. Union of India  in which it was held that:

“ 5. Forfeiture of earnest money under abcontract for sale of property — Movable or immovable — If the amount is reasonable,ndoes not fall within Section 74. That has been decided in several cases: Chiranjitn Singh v. Har Swarup; Roshan Lal v. Delhi  Cloth and General Mills Company Ltd.nDelhi [1910 SCC OnLine All 98 : ILR (1911) 33 All 166] ; Mohd Habibullah v. MohdnShafi [1919 SCC OnLine All 87 : ILR 41 All

324] ; Bishan Chand v. Radhakishan Das.[1897 SCC OnLine All 52 : ILR (1897) 19 All 490] These cases are easily explained, for forfeiture of reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty. Section 74 applies.

Where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, then undertaking is of the nature of a penalty.”

 Meaning thereby if the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the Indian Contract Act, 1872, inasmuch as, such a forfeiture does not amount to imposing a penalty. It has further been held that, however, if the forfeiture is of the nature of penalty, then Section 74 would be applicable. This Court has further held that under the terms of the contract, if the party in breach undertook to pay a sum of money or to forfeit a sum of money which he had already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty.

It was held by the Supreme Court “we  are not inclined to interfere with the direction of the NCDRC for refund of the amount in excess of 10% of the BSP, we however find that the NCDRC was not justified in awarding interest on the amount to be refunded.”

Hence now there is clarity in case of cancellation of Agreement what amount is to be refunded.

However in Maharashtra RERA Under the Maharashtra Real Estate Regulatory Authority (Maha RERA) Rules 2017 , provides for rules for refunds to home buyers. According to these rules, if the deal is cancelled due to the builder, then he has to return the token money to the buyer.   

Maha RERA refund rules:

  • If the builder does not complete the project on time, he has to return the token money within 45 days from the date of cancellation.   
  • If there is no fault of the developer and the buyer cancels the deal within 45 days, the developer can deduct some amount from the token money as a penalty.   
  • If the builder does not follow the order, the complainant can complain to Maha RERA.   
  • Maha RERA can issue a recovery warrant under Section 40(1) of RERA.   
  • Maha RERA can order refund of booking amount even for pre-RERA projects to protect the interests of home buyers.  

Forfeiture is a penalty for a buyer’s breach of contract, while withdrawal is a buyer’s option to cancel the contract and default in many cases by the builder.

Concluding Note:

 We have to see now whether all states follow the above Supreme Court judgment by amending their RERA Laws or it remains in particular applicable to this case only.

17th February 20125

Shruti Desai