1. Apartment booking — Refusal to take possession due to market recession — Dispute over forfeiture of earnest money under Apartment Buyer Agreement — Consumer complaint for refund. (Para 1 , 2 , 11 , 12 )
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2025 Supreme(SC) 264
SUPREME COURT OF INDIA
B.R. GAVAI, S.V.N. BHATTI, JJ.
Godrej Projects Development Limited – Appellant
Versus
Anil Karlekar & Ors. – Respondents
Civil Appeal No. 3334 of 2023
Decided on : 03-02-2025
Advocates appeared:
For the Appellant(s) : Mr. Dhruv Mehta, Sr. Adv. Mr. Kapil Madan, Adv. Mr. Saurabh Gauba, Adv. Mr. Akshit Narula, Adv. Mr. Shailendra Pratap Singh, Adv. Mr. Randhir Kumar Ojha, AOR Ms. Surabhi Kapur, Adv.
For the Respondent(s): Mr. Ashwarya Sinha, AOR Mr. Aditya Malhotra, Adv.
For the Appellant(s) : Mr. Dhruv Mehta, Sr. Adv. Mr. Kapil Madan, Adv. Mr. Saurabh Gauba, Adv. Mr. Akshit Narula, Adv. Mr. Shailendra Pratap Singh, Adv. Mr. Randhir Kumar Ojha, AOR Ms. Surabhi Kapur, Adv.
For the Respondent(s): Mr. Ashwarya Sinha, AOR Mr. Aditya Malhotra, Adv.
IMPORTANT POINT
Apartment Buyers Agreement – Cancellation of allotment – To justify forfeiture of advance money being part of “earnest money” terms of contract should be clear and explicit – Agreement is one-sided and totally tilted in favour of Developer.
Headnote:
Consumer Protection Act, 1986 – Section 23 [Consumer Protection Act, 2019 – Section 67] – Real estate – Apartment Buyers Agreement – Cancellation of allotment – Direction to refund with order to deduct only 10% of Basic Sale Price – As per Agreement between Parties, Complainants were required to pay earnest money deposit of 20% of BSP, which has been paid – As per clause 8.4, on termination on account of Buyer’s Event of Default, Developer was entitled to forfeit entire earnest money deposit and other dues including interest on delayed payments as specified in Agreement – Respondents had cancelled deal since there was recession in market – However, to justify forfeiture of advance money being part of “earnest money” terms of contract should be clear and explicit – Agreement is one-sided and totally tilted in favour of Developer – Court not inclined to interfere with direction of NCDRC for refund of amount in excess of 10% of BSP, however, NCDRC was not justified in awarding interest on amount to be refunded – Order passed by NCDRC modified. (Paras 14, 15, 17, 19, 25, 40, 43 and 44)
Facts of the case:
Present appeal takes exception to final judgment and order dated 25th October, 2022 passed in Consumer Complaint No. 262 of 2018, whereby National Consumer Disputes Redressal Commission disposed of the Consumer Complaint filed by Complainants-Respondents thereby directing Appellant to deduct only 10% of Basic Sale Price (“BSP”) towards cancellation of Complainants’ Apartment and refund balance amount along with simple interest @ 6% per annum from the date of each payment till date of refund. Aggrieved thereby, present appeal has been filed under Section 23 of Consumer Protection Act, 1986.
Findings of Court:
After the Agreement was entered into between Parties in year 2014, only after possession was offered by Appellant to Respondents, they sought cancellation of the allotment. Reason given by them is that on account of sharp decline in the prices, a person would be able to buy a flat at a substantially lower price even in Primary market.
Result : Appeal partly allowed.
Legal Category Hierarchy
Table of Contents
2. Validity of 20% earnest money forfeiture clause — Contractual binding versus one-sided and unconscionable terms constituting unfair trade practice. (Para 4 , 5 , 6 , 8 , 9 , 10 )
3. Agreement was one-sided and tilted in favor of the developer — Forfeiture of 20% BSP is unreasonable — 10% BSP is a reasonable forfeiture amount. (Para 17 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 41 , 42 )
4. One-sided contractual terms in apartment agreements constitute unfair trade practices; reasonable earnest money forfeiture is limited to 10% of the basic sale price. (Para 25 , 32 , 36 , 39 )
5. Appeal partly allowed — Forfeiture of 10% basic sale price upheld — Award of interest set aside — Balance amount ordered to be refunded. (Para 40 , 43 , 44 , 45 )
6. When is a forfeiture clause in an apartment buyer's agreement considered an unfair trade practice?
When contractual terms are ex facie one-sided, unfair, and unreasonable, creating a stark incongruity between the remedies available to the developer and the purchaser, it constitutes an unfair trade practice. (Para 25 , 27 , 30 , 32 )
7. What is the reasonable limit for forfeiting earnest money in real estate contracts?
Based on the principle that forfeiture should not be a penalty, the court and NCDRC have consistently held that 10% of the basic sale price is a reasonable amount to be forfeited as earnest money. (Para 37 , 38 , 39 )
8. Does the court award interest on refunds when a buyer cancels due to market recession?
No. If the buyer seeks cancellation because of a decline in market prices rather than a developer's default, the court may find that awarding interest on the refund is unjustified. (Para 41 , 42 , 43 )
JUDGMENT :
B.R. GAVAI, J.
1. The present appeal takes exception to the final judgment and order dated 25th October, 2022 passed in Consumer Complaint No. 262 of 2018, whereby the National Consumer Disputes Redressal Commission (hereinafter, “NCDRC”) disposed of the Consumer Complaint filed by the Respondents No. 1 and 2 (hereinafter referred to as, “Complainants” or “Respondents”) thereby directing the Appellant to deduct only 10% of the Basic Sale Price (“BSP” for short) towards cancellation of the Complainants’ Apartment and refund the balance amount along with simple interest @ 6% per annum from the date of each payment till the date of refund. Aggrieved thereby, the present appeal has been filed under Section 23 of Consumer Protection Act, 1986.
2. The facts, in brief, giving rise to the present appeal are as given below.
2.1 On 10th January, 2014 the Complainants had booked an Apartment with the Appellant in the project by the name “Godrej Summit” situated at Sector 104, Gurgaon, Haryana by an Application Form and submitted Rs. 10,00,000/- as application money.
2.2 On 20th June, 2014 by an allotment letter, the Appellant allotted an Apartment being Apartment No. C-1501 on the 14th floor in Tower ‘C’ to the Complainants in the above-mentioned project, pursuant to which an Apartment Buyer Agreement (hereafter referred to as “the Agreement”) was entered into between the Parties.
2.3 On 20th June, 2017 the Appellant upon completion of construction applied to and subsequently received the Occupation Certificate from the Director, Town & Country Planning Department, Haryana.
2.4 On 28th June, 2017 the Appellant offered possession to the Complainants. The Complainants, however, sought cancellation of the allotment and further sought full refund of the amount paid.
2.5 On 29th September, 2017, the Complainants served a legal notice to the Appellant for refund of the amount paid totaling Rs. 51,12,310/-.
2.6 Thereafter, on 14th November, 2017, the Complainants filed a Consumer Complaint (No. 262 of 2018) before the NCDRC inter-alia praying that Appellant be directed to refund the sum totaling Rs. 51,12,310/- paid by the Complainants so far, with interest @ 18% per annum, calculated from the date of making each payment till the date of realization of the sum.
2.7 Vide impugned order dated 25th October, 2022, the NCDRC disposed of the Consumer Complaint by directing the Appellant to deduct only 10% of the BSP i.e. Rs. 17,08,140/- only towards cancellation of the Complainants’ Apartment and refund the balance amount Rs.34,04,170/- (i.e. Rs. 51,12,310/- minus Rs. 17,08,140/-) along with simple interest @ 6% per annum from the date of each payment till the date of refund within three months.
2.8 On 5th December, 2022, the NCDRC also dismissed the Review Application filed by the Appellant challenging the impugned order.
2.9 Aggrieved thereby, on 10th January 2023 the Appellant filed the present appeal challenging only the order dated 25th October, 2022.
2.10 By an order dated 24th April, 2023, this Court while issuing notice had granted stay of the impugned order on the condition that the Appellant refunds the amount deposited by the Complainants after deducting 20% (earnest money deposit) along with interest @ 6% per annum from the date of cancellation of the contract.
3. We have heard Shri Dhruv Mehta, learned Senior Counsel appearing on behalf of the Appellant and Shri Ashwarya Sinha, learned Counsel appearing on behalf of the Respondents.
4. Shri Dhruv Mehta submits that the NCDRC has grossly erred in interfering with the contractual terms as entered into between the Parties. It is submitted that the Agreement between the parties specifically provided for a forfeiture clause. The Agreement provided that the Appellant was entitled to forfeit the entire earnest money and any other due payable by the buyer including interest on delayed payment.
5. He further submits that the NCDRC has specifically come to a conclusion that the Appellant was entitled t
