10% Forfeiture Of Earnest Money Reasonable In Default Of Payment Cases: NCDRC

The National Consumer Disputes Redressal Commission, presided over by AVM J. Rajendra and Justice Sudhir Kumar Jain, dismissed a deficiency complaint against Taneja Developers and held that forfeiture of 10% of the earnest money in default of payment cases is a reasonable amount. Furthermore, it was held that forfeiture beyond the reasonable amount becomes a penalty. Brief Facts of the Case The complainant booked a residential plot with Taneja Developers/ the developer and later received an allotment letter confirming the allotment. The developer told him that a particular bank was an approved lender for the project. The complainant then applied for a home loan from that bank. However, the developer failed to provide the No Objection Certificate (NOC) and did not sign the required tripartite agreement, which was needed for loan disbursement. Because of this, the loan was not processed, and the complainant couldn't make further payments. Despite having paid ₹5,21,250, the developer cancelled the booking, citing non-payment. The complainant filed a complaint, alleging unfair cancellation and deficiency in service. The State Commission of Delhi partly allowed the complaint and directed the developer to deduct 20% of the plot price (₹4,30,000) as forfeiture and refund the remaining ₹91,250 after the complainant submitted the original receipts. In case of delay, the full amount was to be refunded with 6% interest per annum from the judgment date till payment. Aggrieved, the complainant filed an appeal before the National Commission. Arguments of the Developer The developer argued that the complainant was not a consumer and had booked the plot for investment. They claimed the complainant failed to complete the payment schedule despite several reminders. The NOC, according to them, was to be obtained from the Indian Bank, not from the developer. They stated that the cancellation was valid due to repeated defaults. The developer also said that they had no responsibility to coordinate with the complainant's chosen lender, and any loan-related issues were not their fault. The amount forfeited was in line with the terms of the allotment letter, which allowed for a 20% deduction upon cancellation. They asked for the complaint to be dismissed. Observations by the National Commission The National Commission observed that the complainant booked a plot and paid ₹5,21,250 to the developer. The total sale price was ₹21,50,000. The complainant could not make full payment because the developer did not provide the NOC and did not sign the tripartite agreement required for bank loan disbursement. The Commission agreed with the State Commission that the complainant was a consumer. It noted that there was no proof to show the complainant was buying the plot for commercial purposes. Mere claims by the developer were not enough to reject the complaint. However, the Commission held that the complainant did not complete payment on time. The cancellation of the booking by the developer was found to be justified. But it ruled that the forfeiture of 20% of the sale price was excessive. The Commission referred to Godrej Projects Development Ltd. v. Anil Karlekar & Ors., 2025 LiveLaw (SC) 150, where the Supreme Court said forfeiture beyond a reasonable amount becomes a penalty under Section 74 of the Indian Contract Act. It also cited DLF Ltd. v. Bhagwanti Narula and Maula Bux v. Union of India, which held that 10% of the price is reasonable as earnest money in such cases. Applying these rulings, the Commission reduced the forfeiture from ₹4,30,000 (20%) to ₹2,15,000 (10%). It directed the developer to refund the balance of ₹3,06,250 with 9% interest from the date of each deposit. The Commission also ordered the developer to pay ₹50,000 as litigation costs. The appeal was partly allowed, and the rest of the State Commission's order was modified accordingly. Case Title: Vishal Saxena Vs. Taneja Developers & Infrastructure Limited Case Number: F.A. No. 683 of 2022Click Here To Read/Download The Order

10% Forfeiture Of Earnest Money Reasonable In Default Of Payment Cases: NCDRC

Ayushi Rani

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Ayushi Rani

10% Forfeiture Of Earnest Money Reasonable In Default Of Payment Cases: NCDRC

Ayushi Rani

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

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Ayushi Rani

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Our subscribers