Forfeiture Must Be Reasonable Requiring Actual Proof Of Damage: NCDRC

The National Consumer Disputes Redressal Commission, presided by Justice Ram Surat Maurya and Bharatkumar Pandya, held that forfeiture of earnest money must be reasonable and not penal, requiring proof of actual damage. Brief Facts of the Case The complainant stated that M/s Capital Heights Private Limited, the developer, launched a Group Housing Project. Trusting the developer, the complainant booked a flat, depositing Rs. 10 lakhs and receiving a 6% discount. The developer issued an allotment letter with a possession due date of 36 months from the start of construction, plus grace periods. The complainant made additional payments totaling Rs. 40,48,981. Despite the 36-month deadline, construction was significantly delayed, with only a partial concrete structure visible during a site visit. There were no electrical connections, entrance gates, lanes, or lifts, and construction materials were scattered hazardously. Promised facilities like a club, gym, and shops were absent, and there was no sewerage connection or proper road access. Due to these delays and incomplete construction, the complainant filed a complaint before the National Commission. Contentions of the Developer The developer acknowledged the booking, flat allotment, and the deposits made by the complainant. However, the developer claimed the complainant did not fulfill payment obligations, causing construction delays. They also raised a preliminary objection, citing an arbitration clause in the allotment letter, arguing the complaint is not maintainable. Observations by the National Commission The National Commission observed that the provisional allotment letter contained a construction-linked payment plan, requiring the complainant to make payments at various construction stages. After paying the initial 35%, the complainant stopped payments. It is well-settled that time is not the essence of building construction contracts. The commission observed that the allotment letter imposes a reciprocal obligation to make installment payments, which the complainant breached after receiving further discounts. As a result, the complainant's earnest money is liable to be forfeited. Furthermore, although the contract terms state 15% of the sale consideration as earnest money, the Supreme Court, in Maula Bux v. Union of India and Kailash Nath Associates v. Delhi Development Authority, held that forfeiture must be reasonable and not penal, requiring proof of actual damage. The commission observed that since the flat remains with the developer, actual damage is minimal. Additionally, the commission, in several cases, has held that 10% of the basic sale price is a reasonable amount to forfeit as earnest money. While the complainant demanded 18% interest, the Supreme Court in Experion Developers Pvt. Ltd. v. Sushma Ashok Shiroor ruled that 9% per annum is just and fair compensation for refunds, providing restitutory and compensatory relief. The National Commission allowed the complaint and directed the developer to refund the entire amount deposited by the complainant with interest @9% per annum after forfeiting 10% of the basic sale price. Case Title: Dhruv Upadhyaya Vs. M/S Capital Heights Pvt Ltd. Case Number: C.C. No. 963/2017

Forfeiture Must Be Reasonable Requiring Actual Proof Of Damage: NCDRC

Ayushi Rani

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