MR. JUSTICE V.K.JAIN (ORAL) The complainant booked a commercial unit with the opposite party in a project, namely, Urabana, which the opposite party was to develop in Sector 67 of Gurgaon for the purpose of earning their livelihood by means of self-employment in the aforesaid commercial space. They made a payment of Rs.10 lakh to the opposite party on 4.4.2011 and on the same day, an allotment letter was issued to them allotting unit No.SD/R/GL/06/21 for a basic price of Rs.10461950/-. The parties then executed a buyers agreement on 27.11.2012 incorporating their respective obligations in respect of the said transaction. In terms of clause 15.1 of the said agreement, the possession was to be delivered to the complainant within 36 months from the date of approval of the plans or execution of the agreement whichever was later and the opposite party was also entitled to an extension of 180 days as a grace period. 2. The following was the payment plan agreed between the parties:- Sl.No. | Linked Stages | Description | 1 | On Booking and 30 days from Booking | 20% of Basic | 2 | Within 60 days from Booking | 10% of Basic | 3 | Within 120 days from Booking/Construction Commencement(Whichever is earlier) | 10% of Basic | 4 | On Casting of 2nd Basement Roof Slab | 7.5% of Basic | 5 | On Casting of 1st Basement Roof Slab | 7.5% of Basic + 100% of Edc + 100% of Idc | 6 | On Casting of Ground Floor Roof Slab | 5% of Basic | 7 | On Casting of 2nd Floor Roof Slab | 5% of Basic + 50% of Plc | 8 | On Casting of 4th Floor Roof Slab . | 5% of Basic + 50% of Plc | 9 | On Casting of 6th Floor Roof Slab | 5% of Basic | 10 | On Commencement of Exterior Facade | 10% of Basic + 50% of Car Parking | 11 | On Installation of Services | 10% of Basic + 50% of Car Parking | 12 | On Notice of Possession | 5% Of Basic + 100% of lfms” |
3. The admitted position is that the complainants paid the first three installments comprising 40% of the basic sale price to the opposite party. The 4th 5th 6th 7th and 8th installments demanded on 8.11.2013, 5.2.2014, 7.3.2014, 3.5.2014 and 29.5.2014 respectively were not paid. The allotment was therefore, terminated on 14.11.2014 and a sum of Rs.1931508/- was forfeited out of the amount which the complainant had paid to the opposite party. The balance amount was paid to them by way of a demand draft on 9.8.2016. The said demand draft however, has not been encashed by the complainants and has since become invalid. 4. This is also the case of the complainants that they gave a cheque of Rs.10 lakh to the opposite party on 10.5.2015 which was accepted but was not encashed. They then made payment of Rs.40 lakhs to the opposite party vide cheque dated 10.7.2015 which was accepted but not encashed. The opposite party, however, denies having received the above-referred two cheques from the complainants. 5. As would be seen from a perusal of the payment plan agreed between the parties, the 4th 5th 6th 7th and 8th installments were payable on casting of 2nd Basement Roof Slab, on casting of 1st Basement Roof Slab, on casting of Ground Floor Roof Slab, on casting of 2nd Floor Roof Slab and on casting of 4th Floor Roof Slab respectively. There is no specific averment in the complaint that the construction had not reached the prescribed level by the dates on which the demands were raised. There is no evidence by the complainants having written to the opposite party alleging therein that the demands had been raised without the construction having reached the prescribed level. Therefore, I find no merit in the contention that the complainants were not bound to pay the 4th 5th 6th 7th and 8th installments on the dates the said installments were demanded. Though the complainants claim to have sent a letter on 21.7.2016 to the Managing Director of the opposite party alleging therein that the construction had started in November 2013, there is no proof of the said letter having actually been delivered to the opposite party. Moreover even the said letter does not indicate when the roof slabs of the 2nd basement, 1st basement, ground floor, 2nd floor and 4th floor were actually cast. Therefore, I have no hesitation in holding that the complainants had defaulted in payment of the 4th 5th 6th 7th and 8th installments, they having not even tendered payment of the said installments. As far as the alleged acceptance of one cheque of Rs10 lakh and other cheque of Rs.40 lakh is concerned, the opposite party having denied receipt of the said cheques, it was necessary for the complainants to prove that the said cheques were actually delivered by them to the opposite party. There is no acknowledgement or receipt evidencing delivery of either of those two cheques to the opposite party. Even in the legal notice sent to the opposite party on 20.8.2016, there is no allegation that the above-referred two cheques were accepted by the opposite party. Even otherwise, there could be no reason for the opposite party to first accept the said cheques and then keep them unencahsed with it. It has to be kept in mind that the allotment had already been cancelled on 14.11.2014 much before the first of the above-referred two cheques is alleged to have been given to the opposite party. Therefore, had the opposite party intended or assured to restore the allotment, it would in the normal course of event have enchased those cheques instead of keeping them with it. 6. For the reasons stated hereinabove, I have no hesitation in holding that the cancellation of the allotment was justified on account of default in payment of 4th to 8th installments by the complainants. 7. The next question which arises for consideration is as to how much the opposite party could have forfeited while cancelling the agreement. Relaying upon the provisions of the agreement executed between the parties, the learned counsel for the opposite party submits that 10% of the sale price excluding EDC/IDC could have been forfeited by the opposite party as earnest money along with interest on the unpaid installments and that is why they had deducted a sum of Rs.1931508/- from the amount paid by the complainants and had refunded the balance amount of Rs.2253270/- to the complainants by way of a demand draft. 8. This issue came up for consideration before this Commission in RP No.3860 of 2014 - DLF Ltd. Vs. Bhagwanti Narula decided on 6.1.2015 and the following view taken by this Commission is relevant in this regard:- “5. Clause 8, 9 and 40 of the Agreement, on which reliance is placed by the Petitioner Company read as under: “8. THAT the Company and the Apartment Allottee hereby agree that the amounts paid on registration to the extent of 20% of the sale price of the said premises, and on allotment or in instalments as the case may be, will collectively constitute the earnest money. 9. THAT the time of payment of instalments as stated in schedule of payment (Annexure II) is the essence of this contract. It shall be incumbent on the Apartment Allottee to comply with the terms of payment and other terms and conditions of sale, failing which he shall forfeit to the Company the entire amount of earnest money and the Agreement of sale shall stand cancelled and the Apartment Allottee shall be left with no lien on the said premises. The Company shall thereafter be free to deal with the said premises in any manner whatsoever, at its sole discretion. The amount(s), if any, paid over and above the earnest money shall be refunded to the Apartment Allottee by the Company without any interest. 40. THAT all notices to be served on the Apartment Allottees as contemplated by this Agreement shall be deemed to have been duly served if sent to the Apartment Allottee by pre-paid post under certificate of posting at his address specified below viz. Mrs. Bhagwanti Narula B-1/1585, Vasant Kunj New Delhi and it shall be responsibility of the Apartment Allottee to inform the Company by a registered (A.D.) letter about all subsequent changes, if any, in his address, failing which, all communications and letters posted at the first registered address will be deemed to have been received by him at the time when those would ordinarily reach at such address and the Apartment Allottee shall be fully liable for any default in payment and other consequences that may occur therefrom”. 7. It is also evident from a perusal of Clause 9 of the Agreement that in the event of failure of the complainant to make payment in terms of the agreement between the parties, the Petitioner Company was entitled to forfeit the entire amount of the earnest money and the Agreement to Sell was to stand cancelled. In view of the aforesaid Clause, it cannot be disputed that since the complainant had failed to make payment as per her Agreement with the Petitioner Company, the Agreement between the parties could be cancelled and the Petitioner Company was entitled to forfeit the earnest money. However, the question which primarily arises for consideration in this case is as what would constitute the “earnest money” and to what extent the Petitioner Company is entitled to forfeit the same. The contention of the petitioner is that as agreed by the parties in terms of Clause 8 of the Agreement, 20% of the sale price, irrespective of the stage at which the payment was made constitutes earnest money whereas the case of the complainant as submitted during the course of arguments was that only the amount of Rs.63,469/- which was paid at the time of booking the apartment can be said to be the earnest money and only that amount could be forfeited. 8. In Maula Bux Vs. Union of India – 1969 (2) SCC 554, the Hon’ble Supreme Court quoted the following observations made by the Judicial Committee in Kunwar Chiranjit Singh Vs. Har Swarup – AIR 1926 PC 1 – “Earnest money is part of the purchase price when the transaction goes forward; it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee”. 9. In Shree Hanuman Cotton Mills & Ors. Vs. Tata Air Craft Ltd. – 1969 (3) SCC 522, the Hon’ble Supreme Court quoted the following characteristics of the earnest money – “15. Borrows, in Words & Phrases, Vol. II, gives the characteristics of "earnest". According to the author, "An earnest must be a tangible thing. That thing must be given at the moment at which the contract is concluded, because it is something given to bind the contract, and, therefore, it must come into existence at the making or conclusion of the contract. The thing given in that way must be given by the contracting party who gives it, as an earnest or token of good faith, and as a guarantee that he will fulfil his contract, and subject to the terms that if, owing to his default, the contract goes off, it will be forfeited. If, on the other hand, the contract is fulfilled, an earnest may still serve a further purpose and operate by way of part payment." After considering several decisions on the subject, the following principles were laid down by the Hon’ble Supreme Court regarding ‘earnest’: (1) It must be given at the moment at which the contract is concluded. (2) It represents a guarantee that the contract will be fulfilled or, in other words, 'earnest' is given to bind the contract. (3) It is part of the purchase price when the transaction is carried out. (4) It is forfeited when the transaction falls through by reason of the default or failure of the purchaser. (5) Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest”. The above referred principles were reiterated in Satish Batra Vs. Sudhir Rawal – (2013) 1 SCC 345. It would, thus, be seen that only that amount would constitute earnest money which is paid at the time of contract is concluded between the parties. Any payment made after the contract is concluded, cannot be said to be part of the earnest money. In the case before us, admittedly, only a sum of Rs.63,469/- was paid to the Petitioner Company at the time the deal was concluded between the parties. Therefore, in view of the above said referred authoritative pronouncements of the Hon’ble Supreme Court, only the aforesaid forfeited amount can constitute earnest money. 10. In Maula Bux case (Supra), the Hon’ble Supreme Court took the following view with respect to forfeiture of the earnest money - “5. Forfeiture of earnest money under a contract for sale of property-movable or immovable--if the amount is reasonable, does not fall within s. 74. That has been decided in several cases: Kunwar Chiranjit Singh v. Hat Swarup (t); Roshan Lal v. The Delhi Cloth and General Mills Company Ltd., Delhi (2); Muhammad Habibullah v. Muhammad Shafi (3); Bishan Chand v. Radha Kishan Das(4); These cases are easily explained, for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, s. 74 applies”. It would thus be seen that only a ‘reasonable amount’ can be forfeited as earnest money in the event of default on the part of the purchaser and it is not permissible in law to forfeit any amount beyond a reasonable amount, unless it is shown that the person forfeiting the said amount had actually suffered loss to the extent of the amount forfeited by him. In our opinion, 20% of the sale price cannot be said to be a reasonable amount which the Petitioner Company could have forfeited on account of default on the part of the complainant unless it can show it had only suffered loss to the extent the amount was forfeited by it. In our opinion, in absence of evidence of actual loss, forfeiture of any amount exceeding 10% of the sale price cannot be said to be a reasonable amount. 11. It was contended by the learned Counsel for the Petitioner Company that since the complainant had specifically agreed to deliver 20% of the sale price as earnest money, the forfeiture to the extent of 20% of the sale price cannot be said to be unreasonable, the same being inconsonance with the terms agreed between the parties. This was also his contention that so long as the Petitioner Company was acting as per the terms and conditions agreed between the parties, it cannot be said to be deficient in rendering services to the complainant. We, however, find ourselves unable to accept the aforesaid contention, since, in our view, forfeiture of the amount which cannot be shown to be a reasonable amount would be contrary to the very concept of forfeiture of the earnest money. If we accept the aforesaid contention, an unreasonable person, in a given case may insert a clause in Buyers Agreement whereby say 50% or even 75% of the sale price is to be treated as earnest money and in the event of default on the part of the Buyer; he may seek to forfeit 50% of the sale price as earnest money. An Agreement for forfeiting more than 10% of the sale price, in our view, would be invalid since it would be contrary to the established legal principle that only a reasonable amount can be forfeited in the event of default on the part of the Buyer. In Bharathi Knitting Company Vs. DHL Worldwide Express Courier Division of Airfreight Ltd.- (1996) 4 SCC 704, the Hon’ble Supreme Court accepted the contention that in an appropriate case, the Consumer Forum without trenching upon acute disputed question of facts may decide the validity of the terms of the contract based upon the fact situation and may grant relief, though, each case depends upon its own facts. 12. Learned Counsel for the Petitioner Company has referred to the decisions of the Hon’ble Supreme Court in Saurabh Prakash Vs. DLF Universal Ltd. – (2007) 1 SCC 228 and Shiv Kumar Sharma Vs. Santosh Kumari – (2007) 8 SCC 600. In Saurabh Prakash (Supra), the agreement between the parties, one of which was none other than DLF Universal Ltd., stipulated forfeiture of earnest money which was 10% of the sale price, as would be noted from paragraphs 4 and 14 of the judgment. Therefore, the decision is of no help to the Petitioner Company. The decision in Shiv Kumar Shama (Supra), does not contain any legal proposition contrary to the view being taken by us with respect to forfeiture of reasonable earnest money. The learned Counsel for the petitioner also referred to the decisions of this Commission in Sahara India Commercial Corporation Ltd. & Anr. Vs. C. Madhu Babu – II (2011) CPJ 3 (NC), Sahara India Commercial Corporation Ltd. Vs. P. Gajendra Chary – III (2010) CPJ 190 (NC) and M/s. DLF Commercial Developers Ltd. & Anr. Vs. S.C. Jain & Anr. in Appeal No. 611 of 2007 decided on 12.9.2014. However, none of these decisions contain any legal proposition contrary to the view taken by us and in none of them the earnest money was to the extent of 20% of the sale price. 13. For the reasons stated herein above, we hold that (i) an amount exceeding 10% of the total price cannot be forfeited by the seller, since forfeiture beyond 10% of the sale price would be unreasonable and (ii) only the amount, which is paid at the time of concluding the contract can be said to be the earnest money. The Petitioner Company, therefore, was entitled to forfeit only the sum of Rs.63,469/-, which the complainant had deposited with them at the time of booking of the apartment. We, therefore, direct the Petitioner Company to pay the balance amount of Rs.81,534/- to the complainant within 4 weeks from today, failing which, the said amount shall carry interest @ 12% p.a. from the date of this order till payment. However, in the facts and circumstances of the case, we find no justification for grant of any compensation or cost of litigation to the complainant. The orders passed by District Forum and State Commission stand modified accordingly.” | | |
9. It would thus be seen that only that amount which is paid at the time of concluding the contract can constitute earnest money and that the quantum of the earnest money in any case cannot exceed 10% of the total sale consideration. EDC and IDC amount could not have been deducted, in addition to the earnest money, i.e., the amount paid at the time of booking/allotment since that would amount to increasing the forfeitable amount, albeit in an indirect manner. It would be an extremely unfair trade practice to allow a term which permits such a forfeiture, in addition to the earnest money. In the present case only Rs.10 lakhs were paid by the complainants to the opposite party at the time of allotment since the allotment was issued on 4.4.2011 when the said payment of Rs.10 lakhs was made. The second payment was amounting to Rs.1066468/- was made after one month of the allotment, the same having been paid on 4.5.2011. Therefore, relying upon the decision of this Commission in Bhagwanti Narula (supra) I have no hesitation in holding that only Rs.10 lakhs could have been forfeited by the opposite party out of the amount which the complainants had paid to them for the allotted unit. Though the learned counsel for the opposite party submits that the amount paid at the time of booking was Rs.20 lakhs, the said submission is patently incorrect since the allotment was made on 4.4.2011 after receipt of Rs.10 lakhs only and the payment of Rs.1066468/- was made after one month, i.e. on 4.5.2011. 10. The opposite party sent a demand draft of Rs.2253270/- to the complainants on 9.8.2016 whereas the amount which remained payable to the complainants ought to have been refunded to them immediacy after cancellation of the allotment on 14.11.2014. The learned counsel for the opposite party submits that they were required to refund the balance amount only after selling the unit which had been allotted to the complainants. A reference in this regard is made to clause 7.3 of the agreement which reads as under:- “In the event the Company terminates this Agreement under the aforesaid Clause 7.2, any amount refundable to the Allottee shall be refunded, without interest or compensation only from the sale proceeds of the further sale/resale of the Commercial unit to another party.” 11. In my opinion, the above-referred term contained in the Buyers Agreement being wholly one-sided and unjustified constitutes an unfair trade practice and therefore, is not binding upon the complainants. If the builder while retaining the earnest money which it has enjoyed for a substantial period also postpones the payment of the balance amount to him for an indefinite period till he is able to resell the said unit, that would be highly arbitrary and unreasonable since there would be no compulsion on the builder to resell the cancelled unit he knowing it that he will not have to refund the balance amount to the allottee till he resells the said unit. 12 For the reasons stated hereinabove, the complaint is disposed of with the following directions:- The opposite party shall refund the entire amount received from the complainants against their unit after deducting a sum of Rs.10 lakhs from that amount. The opposite party shall pay interest to the complainants @ 10% p.a. w.e.f. 14.11.2014 till 9.8.2016 on the amount of Rs.2253270/- w.e.f. 14.11.2014 till the date of refund on the balance amount. The demand draft which the opposite party had sent to the complainants and has since become invalid, shall be returned to the opposite party within a week from today. The payment in terms of this order shall be made within three months from today failing which it shall carry interest on the entire awarded amount inclusive of interest @ 10% p.a. w.e.f. three months from the date of the order till the date of payment.
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