Builder Can't Forfeit Homebuyer's Money Without Proving Actual Loss: Delhi High Court
The Delhi High Court has held that a builder cannot forfeit money paid by a homebuyer unless it proves actual loss arising from the alleged breach of contract.
Justice Neena Bansal Krishna made the observation while dismissing an appeal filed by Eros Group against a trial court decree directing refund of ₹18 lakh to homebuyers.
The dispute arose from a 2008 agreement for purchase of a villa in the developer's “Rosewood City” project in Gurgaon for ₹2.5 crore. The buyers had paid ₹62 lakh towards the booking.
According to the buyers, construction at the site was slow and substandard, and despite repeated requests, the builder failed to provide the construction schedule and related documents.
The builder later cancelled the allotment on March 9, 2009 alleging default in payment of instalments and retained ₹18 lakh while refunding ₹44 lakh under what it termed a “full and final settlement.”
The homebuyer then moved a money recovery suit, which was decreed in its favour. Aggrieved, the developer (Defendant) preferred an appeal before the High Court.
The developer argued that the payment plan was time-linked and that under the agreement it was entitled to forfeit 25% of the sale consideration as earnest money in the event of default.
Rejecting the contention, the Court held that the installments were actually linked to construction progress and were not merely calendar dates.
It also found that the builder failed to prove service of demand notices upon the buyers as required under the agreement.
In these circumstances, the Court held that the buyers could not be treated as defaulters and that the cancellation of allotment was illegal and arbitrary.
On the issue of forfeiture, the Court referred to Section 74 of the Indian Contract Act and reiterated that forfeiture of money is impermissible in the absence of proof of actual loss.
“The Defendant has neither pleaded nor adduced any evidence regarding any alleged financial loss arising from the allotment of the Villa. Under the principles of contract law, the onus rests squarely on the Defendant to prove that it sustained an actual loss to justify the forfeiture of funds; however, the Defendant has wholly failed to discharge this burden,” it observed.
The Court also rejected the builder's argument that the buyers had voluntarily accepted ₹44 lakh in full and final settlement. It held that the developer occupied a “dominant position” since it was already holding ₹62 lakh belonging to the buyers and had threatened forfeiture of the entire amount.
As such, holding that the deduction of ₹18 lakh was illegal, the High Court upheld the decree directing refund of the amount with 6% interest.
Appearance: Mr. Vikas Mishra, Mr. Kartik Magar Karti, Mr. Sanchit Gawri and Mr. Krishna Dev Yadav, Advocates for Appellant; Mr. Manish Kaushik and Mr. Mishal Johari, Advocates for Respondents
Case title: M/S R. C. Sood & Co. Developers Pvt. Ltd. (Eros Group) v. Shri Sharad Maheshwari & Anr.
Case no.: RFA 37/2020