Forfeiture Of Amount In Case Of Breach Of Contract Must Be Reasonable: NCDRC

The National Consumer Disputes Redressal Commission, presided by Mr. Subhash Chandra and Dr. Sadhna Shanker (member), held that when a contract is breached, the amount forfeited by the non-breaching party must be reasonable and proportionate. In the case of forfeiture of “earnest money” in a builder-buyer agreement, the amount was set to be 10% of the basic sale price. Brief Facts of the Case The complainant booked a flat with Ireo Grace Realtech/developer and paid a booking amount of Rs. 12,00,000 and a second installment of Rs. 17,21,976. The complainant received an allotment letter mentioning a basic sale price of Rs. 9200 per sq. ft. and Club Membership charges of Rs. 2,50,000, but he did not sign the builder-buyer's agreement as he discovered that the company was a consortium and the agreement was tripartite. Additionally, the developer was neither the owner of the land nor the developer of the project, and the clearances were received after the allotment had been granted. Consequently, the complainant lost faith in the project and filed a complaint before the National Commission seeking a refund of the amount paid and interest at 20% per annum. Contentions of the Developer The developer argued that they followed all proper procedures and did not engage in any wrongdoing or deficiency in service. The developer provided a copy of an undated application for booking the apartment, duly signed by the complainant, along with Schedule I containing key indicators from the terms and conditions of the apartment buyer's agreement. When the complainant failed to make the third installment payment and sign the builder-buyer's agreement, the developer sent reminders for payment and signing the agreement. However, after the complainant failed to comply, the developer cancelled the allotment and forfeited the total amount paid by the complainant. Throughout the process, the developer maintained that there was no defect in their right, title, or interest, and they did not indulge in any unfair trade practices. Observations by the Commission The commission observed that the developer claimed the complainant is not a consumer but an investor since he booked two flats. However, no details or evidence of the second flat were provided. In the case Kavita Ahuja Vs. Shipra Estate Ltd. and Jaikrishan Estate Developers Pvt. Ltd. and Ors., the onus of proof to prove if a party is a consumer or not lies upon the developer, which has not been discharged in this case. The commission highlighted that the complaint was filed with the prayer that the entire money deposited should be refunded to the complainant along with interest on the ground that it was only after payment of the second installment that the complainant became aware that the developers were in a consortium and there was a defect in the title, and that no builder-buyer agreement was ever signed. The commission observed that the developer submitted that “IREO” signified an agglomeration of companies under captive management with a common purpose, and such a business model is legally permissible. The commission further observed that the project in question received all clearances, including environmental, fire, and pollution control board clearances. The commission highlighted that the only question remaining in the complaint was refunding the forfeited amount. The commission cited the cases of Maula Bux Vs. Union of India and Sirdar K.B. Ram Chandra Raj Urs Vs. Sarah C. Urs, where it was held that the forfeiture of funds in the event of a contract breach must be fair and reasonable. Furthermore, the commission highlighted its own decision in Ramesh Malhotra Vs. EMAAR MGF Land Ltd., where it held that 10% of the basic sale price is a reasonable amount to be forfeited as “earnest money”. The commission partly allowed the complaint and directed the developer to refund the balance amount paid after forfeiting 10% of the basic sale price at the rate of 9% per annum. Case Title: B.K. Malhotra Vs. Ireo Grace Realtech Private Limited Case Number: C.C. No. 2916/2017Click Here To Read/Download Order

Forfeiture Of Amount In Case Of Breach Of Contract Must Be Reasonable: NCDRC

Ayushi Rani

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