Forfeiture Of Earnest Money In Case Of Default Should Be Reasonable: NCDRC Holds TDI Infrastructure For Deficiency In Service

The National Consumer Disputes Redressal Commission, presided by Justice Ram Surat Maurya and Bharatkumar Pandya (member), held that in case of default by the buyer, the forfeiture of the earnest money should be reasonable in nature. It was highlighted that according to set precedents, such forfeiture can only go up to 10% of the basic sale price. Brief Facts of the Case The complainant booked a flat with TDI infrastructure/builder and deposited the booking amount. The builder allotted an apartment and executed an Apartment Buyer's Agreement, stating a basic consideration of Rs. 2,356,250, with a “construction link payment plan.” The complainant paid installments as demanded by the builder. According to the Agreement, construction was to be completed within three years, but the project remained incomplete despite significant payments made by the complainant. The builder later demanded the entire balance amount, threatening to cancel the provisional allotment otherwise. The complainant protested this demand and was assured possession soon. Despite numerous letters and legal notices, the builder did not issue a possession letter or provide a correct account statement. The complaint was then filed before the District Consumer Forum. The District Forum returned the complaint, citing the lack of pecuniary jurisdiction. The complainant appealed to the State Commission of Delhi, which allowed the appeal. Consequently, the builder filed a revision petition before the National Commission. Contentions of the Builder The builder argued that they requested installment payments for construction milestones, but the complainant failed to pay. Despite reminders, the complainant did not make the required payments, leading to the cancellation of the allotment. The builder argued they had the right to sell the flat to another party and that the complainant, being a defaulter, had no right to seek relief. They also claimed that the forum lacked jurisdiction due to the flat's value exceeding Rs. 20 lakhs and asserted that the complainant booked the flat for commercial purposes and is not a consumer. Observations by the National Commission The National Commission observed that according to the Apartment Buyer's Agreement, the payment plan was a “construction link payment plan,” totaling Rs. 3,106,875. The agreement required timely installments, and the complainant paid Rs. 1,734,768. The builder issued demands for payments linked to construction milestones, which the complainant did not fulfill, leading to the cancellation of the provisional allotment. Although the complainant sent a cheque for a partial payment after the cancellation, the builder did not cash it. The complainant argued that construction delays invalidated the cancellation but provided no evidence. The builder completed the construction and obtained an occupancy certificate. Thus, the cancellation was deemed lawful. However, the commission highlighted that the builder did not refund the balance amount after forfeiting the earnest money, making the cancellation incomplete. The complainant, being a defaulter, had his earnest money forfeited. The Supreme Court, in cases such as Fateh Chand Vs. Balkishan Das, Maula Bux Vs. Union of India, and Kailash Nath Associate Vs. Delhi Development Authority held that forfeiture must be reasonable and that actual damages must be proven if it acts as a penalty. The Commission emphasized that the damage was minimal since the flat remained with the builder. Citing precedents, the Commission held that 10% of the basic sale price was reasonable to forfeit as earnest money. The National Commission set aside the State Commission's order and allowed the appeal. It directed the builder to refund the entire basic sale price to the complainant with an interest rate of 9% after forfeiting 10% of the said amount. Case Title: TDI Infrastructure Vs. Bipin Gupta Case Number: F.A. No. 1117/2023Click Here To Read/Download Order

Forfeiture Of Earnest Money In Case Of Default Should Be Reasonable: NCDRC Holds TDI Infrastructure For Deficiency In Service

Ayushi Rani

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Forfeiture Of Earnest Money In Case Of Default Should Be Reasonable: NCDRC Holds TDI Infrastructure For Deficiency In Service

Ayushi Rani

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