JUSTICE V.K. JAIN (ORAL)

M/s Manohar Singh and Company booked a residential plot with the respondent Unitech Ltd. in a project, namely, Uniworld City which the said respondent was to develop in Mohali. Later on, the allotment of the said plot was transferred in favour of the complainant/petitioner, vide letter dated 23.4.2008. While approving the transfer, the said respondent annexed a payment schedule of the balance amount which the petitioner/complainant was to pay for the aforesaid plot. The payment plan opted by the petitioner/complainant was a time linked payment plan and the schedule of payment agreed between the parties as under:-

          Admittedly, the petitioner/complainant defaulted in payment of the instalments. The respondent did not cancel the allotment immediately on the happening of the default. The allotment came to be cancelled vide letter dated 3.6.2011. While cancelling the allotment, a sum of Rs.18,83,700/- was forfeited by the respondent.

2.      The petitioners/complainants in RP/1073/2016 also purchased an allotment made by the respondent Unitech Ltd. to Manohar Singh and Company and in their case, the transfer was approved vide letter dated 12.9.2008. The payment schedule was annexed while approving the transfer and they also opted for time linked payment plan which read as under:-

          The petitioners/complainants in RP/1073/2016 also defaulted in making payment of the instalments and in their case the allotment was later cancelled after sending several reminders asking them to pay the balance amount.

3.      Being aggrieved from the course of action adopted by the respondent, the petitioners/complainants approached the concerned District Forum by way of two separate complaints.

4.      The complaints were resisted by the respondent primarily on the ground that the petitioners/complainants had failed to pay the balance sale consideration as per the payment plan agreed by them and, therefore, the amount in question was forfeited by them on account of the aforesaid default.

5.      The District Forum relying upon clause 7 of the terms and conditions applicable to the allotment held that the respondent was entitled to deduct 20% of the basic consideration price of the plot as earnest money out of the amount paid by the petitioners/complainants and directed refund of the balance amount along with interest @ 9% p.a. w.e.f. 10.12.2008. The said order was maintained by the State Commission. Being aggrieved, the petitioners/complainants are before this Commission by way of two separate revision petitions.

6.      When these petitions came up for admission hearing on 27.4.2016, the learned counsel for the complainants/petitioners stated on instructions that the petitioners/complainant would be satisfied if after deducing 10% on account of basic price of the plot, the balance amount is refunded with appropriate interest and cost of litigation.

7.      In DLF Ltd. Vs. Bhagwani Narula - Revision Petition No.3860 of 2014 decided on 6.1.2015, this Commission after reviewing the law on the subject held that not more than 10% of the total price can be forfeited by the seller as earnest money and any forfeiture beyond that amount would be un-reasonable. The following view taken by this Commission in DLF Ltd. (supra) is relevant in this regard:-

“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.”

In view of the above-referred decision of this Commission, I have no hesitation in holding that only 10% of the basis sale price could have been deducted by the respondent on account of the default committed by the petitioners/complainants.

8.      In view of the foregoing, both the revision petitions are partly allowed by directing the respondent Unitech Ltd. to refund the balance amount after deducting 10% of the basic sale consideration, along with interest on the balance amount @ 9% per annum w.e.f.10.12.2008 till the date on which the said amount is refunded. The payment in terms of this order shall be made by the Unitech Ltd. within four weeks from today.