2025 INSC 143
SUPREME COURT OF INDIA
(HON’BLE B.R.
GAVAI, J. AND HON’BLE S.V.N. BHATTI, JJ.)
GODREJ PROJECTS
DEVELOPMENT LIMITED
Petitioner
VERSUS
ANIL KARLEKAR
Respondent
Civil
Appeal No. 3334 OF 2023-Decided on 03-02-2025
Consumer
Consumer Protection
Act, 1986, Section 2(1)(r) - Consumer Protection Act, 2019, Section 2(46) – Consumer
- Unfair trade practice – Unfair
contract – Apartment booking –
Cancellation of booking by complainant – Forfeiture of earnest money – Refund of deposited amount –
Interest payment – Challenge as to - Agreement was entered into between the
Parties in the year 2014, only after the possession was offered by the
Appellant to the Respondents, they sought cancellation of the allotment - The
reason given by them is that on account of sharp decline in the prices, a
person would be able to buy a flat at a substantially lower price even in
Primary market - Held that it is quite
probable that the Respondents would have utilised the money which was payable
by them to the Appellant for purchasing another property at a lower rate - In the facts and circumstances the NCDRC was
not justified in awarding interest on the amount to be refunded by the
Appellant - In pursuance of our order dated 24th April 2023, the Appellant has
refunded an amount of Rs.22,01,215/- to the Respondents - After deducting an
amount of Rs.17,08,140/- (i.e. 10% of the BSP) from Rs.51,12,310/- (amount paid
by the Respondents to the Appellant), the amount comes to Rs.34,04,170/- -
Appellant is, therefore, required to pay balance amount of Rs.12,02,955/-
[Rs.34,04,170/- minus Rs.22,01,215/-] to the Respondents - Direct
the Appellant to pay the said amount of Rs.12,02,955/- to the respondents
within a period of six weeks from today.
(Para
41 to 44)
JUDGMENT
B.R. Gavai, J. :- The present appeal
takes exception to the final judgment and order dated 25th October, 2022 passed
in Consumer Complaint No. 262 of 2018, whereby the National Consumer Disputes
Redressal Commission (hereinafter, “NCDRC”) disposed of the Consumer Complaint
filed by the Respondents No. 1 and 2 (hereinafter referred to as,
“Complainants” or “Respondents”) thereby directing the Appellant to deduct
only 10% of the Basic Sale Price (“BSP” for short) towards cancellation of
the Complainants’ Apartment and refund the balance amount along with simple
interest @ 6% per annum from the date of each payment till the date of refund.
Aggrieved thereby, the present appeal has been filed under Section
23 of Consumer Protection Act, 1986.
2.
The facts, in brief, giving rise to the present appeal are as given below.
2.1
On 10th January, 2014 the Complainants had booked an Apartment with the
Appellant in the project by the name “Godrej Summit” situated at Sector 104,
Gurgaon, Haryana by an Application Form and submitted Rs. 10,00,000/- as
application money.
2.2
On 20th June, 2014 by an allotment letter, the Appellant allotted an Apartment
being Apartment No. C-1501 on the 14th floor in Tower ‘C’ to the Complainants
in the above-mentioned project, pursuant to which an Apartment Buyer Agreement
(hereafter referred to as “the Agreement”) was entered into between the
Parties.
2.3
On 20th June, 2017 the Appellant upon completion of construction applied to and
subsequently received the Occupation Certificate from the Director, Town &
Country Planning Department, Haryana.
2.4
On 28th June, 2017 the Appellant offered possession to the Complainants. The
Complainants, however, sought cancellation of the allotment and further sought
full refund of the amount paid.
2.5
On 29th September, 2017, the Complainants served a legal notice to the
Appellant for refund of the amount paid totaling Rs. 51,12,310/-.
2.6
Thereafter, on 14th November, 2017, the Complainants filed a Consumer Complaint
(No. 262 of 2018) before the NCDRC inter-alia praying that Appellant be
directed to refund the sum totaling Rs. 51,12,310/- paid by the Complainants so
far, with interest @ 18% per annum, calculated from the date of making each
payment till the date of realization of the sum.
2.7
Vide impugned order dated 25th October, 2022, the NCDRC disposed of the
Consumer Complaint by directing the Appellant to deduct only 10% of the BSP
i.e. Rs. 17,08,140/- only towards cancellation of the Complainants’
Apartment and refund the balance amount Rs.34,04,170/- (i.e. Rs. 51,12,310/-
minus Rs. 17,08,140/-) along with simple interest @ 6% per annum from the date
of each payment till the date of refund within three months.
2.8
On 5th December, 2022, the NCDRC also dismissed the Review Application filed by
the Appellant challenging the impugned order.
2.9
Aggrieved thereby, on 10th January 2023 the Appellant filed the present appeal
challenging only the order dated 25th October, 2022.
2.10
By an order dated 24th April, 2023, this Court while issuing notice had granted
stay of the impugned order on the condition that the Appellant refunds the
amount deposited by the Complainants after deducting 20% (earnest money
deposit) along with interest @ 6% per annum from the date of cancellation of the
contract.
3.
We have heard Shri Dhruv Mehta, learned Senior Counsel appearing on behalf of
the Appellant and Shri Ashwarya Sinha, learned Counsel appearing on behalf of
the Respondents.
4.
Shri Dhruv Mehta submits that the NCDRC has grossly erred in interfering with
the contractual terms as entered into between the Parties. It is submitted that
the Agreement between the parties specifically provided for a forfeiture
clause. The Agreement provided that the Appellant was entitled to forfeit the
entire earnest money and any other due payable by the buyer including interest
on delayed payment.
5.
He further submits that the NCDRC has specifically come to a conclusion that
the Appellant was entitled to cancel the Apartment and forfeit the amount as
per the terms and conditions of the Application Form and/or the Agreement
between the parties. He submits that having arrived at such a finding, the
NCDRC could not have come to a conclusion that the condition of forfeiture of
20% of BSP, being the earnest money liable for forfeiture in case of
cancellation, was unreasonable and interfered with the same by reducing it to
10% of the BSP.
6.
He further submits that, from the perusal of the email addressed by the
Respondents to the Appellant, it was clear that though the Appellant had called
upon the Respondents to take possession of the Apartment, they had opted
out of the deal only because there was a recession in the market. He submits
that since the Respondents themselves have cancelled the deal on account of
recession in the market, the Appellant was fully justified in forfeiting the
earnest money deposit.
7.
He relies on the judgments of this Court in the cases of Satish Batra v.
Sudhir Rawal[(2013) 1 SCC 345] and Desh
Raj and others v. Rohtash Singh[(2023) 3
SCC 714] in support of his submissions.
8.
Per contra, Shri Ashwarya Sinha, learned counsel for the Respondents, relying
on the judgments of the NCDRC in the cases of Komal Aggarwal v. Godrej
Projects Development Ltd. [Consumer Case
No.2139 of 2018 dated 9.11.2022] , DLF Ltd. v. Bhagwanti Narula[2015 SCC OnLine NCDRC 1613] and Ramesh
Malhotra and Another v. Emaar Mgf Land Limited and Another[2020 SCC OnLine NCDRC 789], submits that the NCDRC has
consistently held that the condition of forfeiture of 20% of the BSP was not
reasonable and reduced it to 10% of the BSP.
9.
He further relying on the judgments of this Court in the cases of Ireo
Grace Realtech Private Limited v. Abhishek Khanna and others[(2021) 3 SCC 241]
and Pioneer Urban Land and Infrastructure Limited v. Govindan Raghavan[(2019) 5 SCC 725] submits that the
condition of forfeiture of 20% of the BSP was one-sided and unconscionable and,
therefore, not enforceable in law.
10.
He lastly relying on “The Real Estate (Regulation and Development) Act, 2016”
and “The Haryana Real Estate Regulatory Authority Gurugram (Forfeiture of
earnest money by the builder) Regulations, 2018”, submits that in view of the
aforesaid Act and Regulations, the forfeiture of earnest money deposit cannot
be more than 10% of the BSP.
11.
In the present case, it is not in dispute that the Complainants had booked an
Apartment with the Appellant for BSP of Rs.1,70,81,400/- on 10th January 2014.
Accordingly, an Agreement was entered into between the Appellant and the
Complainants on 20th June 2014. The Complainants were also allotted an
Apartment on the 14th Floor in Tower ‘C’ on 20th June 2014. On 20th June
2017, the Appellant received the Occupation Certificate. On 28th June, 2017,
the Appellant issued an intimation to the Respondents calling upon them to take
possession. However, instead of taking possession, by email dated 22nd August
2017/31st August 2017, the Respondents refused to take possession and sought
cancellation.
12.
The Appellant vide communication dated 1st September 2017 informed the
Respondents that out of the amount deposited by the Respondents, the
Respondents were entitled to refund of Rs.4,22,845/-. However, the Respondents
filed a complaint seeking refund of an amount of Rs.51,12,310/- along with
other ancillary reliefs. The NCDRC, as aforesaid, passed the impugned order.
13.
It will be relevant to refer to clauses 2.6 and 8.4 of the Agreement entered
into between the Parties, which read thus:
“2.6 It has been
specifically agreed between the Parties that, 20% of the Basic Sale Price,
shall be considered and treated as earnest money under this Agreement (“Earnest
Money”), to ensure the performance, compliance and fulfillment of the
obligations and responsibilities of the Buyer under this Agreement.
It has been made clear
by the Developer and the Buyer has understood that the Sale Consideration and
Statutory Charges as mentioned in Schedule VI hereto have been computed on the
basis of Super Built Up Area of the Apartment. The Buyer agrees that the
calculation of Super Built Up Area in respect of the Apartment is tentative at
this stage and subject to variations till the Completion of Construction. In
case such variations are beyond +/- 5%, then the Developer shall take prior
consent of the Buyer.
*** *** ***
8.4 On and from the
date of such termination on account of Buyer’s Event of Default as mentioned
above (“Termination Date”), the Parties mutually agree that-
(i) The Developer
shall, out of the entire amounts paid by the Buyer to the Developer till the
Termination Date, forfeit the entire Earnest Money and any other dues payable
by the Buyer including interest on delayed payments as specified in this
Agreement.
(ii) After the said
forfeiture, the Developer shall refund the balance amount to the Buyer or to
his banker/financial institution, as the case may be, without any interest;
(iii) On and from the
Termination Date, the Buyer shall be left with no right, title, interest,
claim, lien, authority whatsoever either in respect of the Apartment or
under this Agreement and the Developer shall be released and discharged of all
its liabilities and obligations under this Agreement.
(iv) On and from the
Termination Date, the Developer shall be entitled, without any claim or
interference of the Buyer, to convey, sell, transfer and/or assign the
Apartment in favour of third party(ies) or otherwise deal with it as the
Developer may deem fit and appropriate, in such a manner that this Agreement
was never executed and without any claim of the Buyer to any sale proceeds of
such conveyance, sale, transfer and/or assignment of the Apartment in favour of
third party(ies).”
14.
It can thus be seen that as per the Agreement between the Parties, the
Complainants were required to pay earnest money deposit of 20% of the BSP,
which undisputedly has been paid. As per clause 8.4, on termination on account
of Buyer’s Event of Default, the Developer was entitled to forfeit the entire
earnest money deposit and other dues including interest on delayed payments as
specified in the Agreement.
15.
Undisputedly, only upon the Appellant calling upon the Respondents to take
possession, the Respondents informed the Appellant vide email dated 22nd August
2017 as under:
“Some of the promised connections from
internal roads to externals have been abandoned. Overall the place falls to
invite you, entice your And the most painful part is the fact that the market
prices have sharply fallen and a similar flat to a new buyer is available at a
substantially lower price, not only in secondary market but even by Godrej
themselves. This is unfair, and one feels cheated that an old customer of 4
years is a loser compared to the new one. Under the circumstances, am pained to
state that I want to cancel my booking of the said flat and demand that the
amount paid till date be refunded along with applicable interest. We shall
appreciate a prompt action on our request. Kindly share the cancellation
formalities, and the refund amount.”
16.
The stand taken by the Respondents was specifically borne out by the NCDRC from
the written statement filed by the Appellant.
17.
It is thus clear that the Respondents had cancelled the deal since there was
recession in the market. Not only that, but the NCDRC has specifically observed
as under:
“Hence, the action of
the OPs in cancelling the apartment and forfeiting the amount as per terms and
conditions of the application form and/or the BBA cannot be faulted with.
However, the condition of forfeiture of 20% of BSP, being the earnest money
liable for forfeiture in case of cancellation appears unreasonable. It will be
in the interest of justice and fair play to both sides, if OPs are allowed
to deduct only 10% of the BSP as earnest money i.e. Rs.17,08,140/- and refund
the balance amount to the complainants.”
18.
This Court in the case of Satish Batra v. Sudhir Rawal (supra), after
considering the earlier judgments of this Court, has observed thus:
“15. The law is,
therefore, clear that to justify the forfeiture of advance money being part of
“earnest money” the terms of the contract should be clear and explicit. Earnest
money is paid or given at the time when the contract is entered into and, as a
pledge for its due performance by the depositor to be forfeited in case of non-
performance by the depositor. There can be converse situation also that if the
seller fails to perform the contract the purchaser can also get double the
amount, if it is so stipulated. It is also the law that part-payment of
purchase price cannot be forfeited unless it is a guarantee for the due
performance of the contract. In other words, if the payment is made only
towards part- payment of consideration and not intended as earnest money then
the forfeiture clause will not apply.
16. When we examine
the clauses in the instant case, it is amply clear that the clause extracted
hereinabove was included in the contract at the moment at which the contract
was entered into.
It represents the
guarantee that the contract would be fulfilled. In other words, “earnest” is
given to bind the contract, which is a part of the purchase price when the
transaction is carried out and it will be forfeited when the transaction falls through
by reason of the default or failure of the purchaser. There is no other clause
that militates against the clauses extracted in the agreement dated 29-11-2011.
17. We are, therefore,
of the view that the seller was justified in forfeiting the amount of Rs
7,00,000 as per the relevant clause, since the earnest money was primarily a
security for the due performance of the agreement and, consequently, the seller
is entitled to forfeit the entire deposit. The High Court has, therefore,
committed an error in reversing the judgment of the trial court.”
19.
This Court has held that to justify the forfeiture of advance money being part
of “earnest money” the terms of the contract should be clear and explicit. It
has been observed that the earnest money is paid or given at the time when the
contract is entered into and, as a pledge for its due performance by the
depositor to be forfeited in case of non- performance by the depositor.
However, this Court clarified that if the payment is made only towards
part-payment of consideration and not intended as earnest money then the
forfeiture clause will not apply.
20.
Recently, this Court in the case of Desh Raj and others (supra),
after considering the earlier judgments, has reiterated the aforesaid legal
position.
21.
We, therefore, find that Shri Dhruv Mehta, learned Senior Counsel is justified
in placing reliance on the aforesaid judgments of this Court.
22.
However, the issue does not rest at that. It will be relevant to consider the
reciprocal obligations of the Appellant i.e., the Developer in case the
Developer does not comply with the timelines in the Agreement. Clauses 4.2 and
4.3 of the Agreement are as follows:
“4.2. The Apartment
shall be ready for occupation within 42 months from the date of issuance of
Allotment Letter. (“Tentative Completion Date"), however the Developer is
entitled for a grace period of 6 months over and above this 42 month's period.
Upon the Apartment being ready for possession and occupation the Developer
shall issue the Possession Notice to the Buyer of the Apartment.
Notwithstanding the
above, the Developer shall be entitled to an extension of time from the
Tentative Completion Date for issue of the Possession Notice, if the Completion
of Construction of the said Apartment or the part/portion of the Project
where the said Apartment is situated is delayed on account of any of the
following reasons –
(i) Non-availability
of steel, cement, other building materials, water or electric supply or labour,
or
(ii) Any change in the
Applicable Law or existence of any injunction, stay order, prohibitory order or
directions passed by any Court, Tribunal, Body or Competent Authority; or
(iii) Delay in
securing any permission, Approvals, NOC, sanction building plan, building
completion and/or occupation certificate, water, electricity, drainage or
sewerage connection from the Competent Authority for reasons beyond the control
of the Developer, or
(iv) Force Majeure
Event or any other reason (not limited to the reasons mentioned above) beyond
the control of or unforeseen by the Developer, which may prevent, restrict,
interrupt or interfere with or delay the construction of Project on the Subject
Lands or which may prevent the Developer in performing its obligations under
this Agreement;
In case there are is
any delay on account of the aforesaid reasons, the Developer shall keep the
Buyer fully informed about the same along with a revised tentative date of
possession.
4.3. Subject to the
provisions of Clause 4.2 herein above, in the event the Developer fails or
neglects to issue the Possession Notice on or before the Tentative Completion
Date and/or on such date as may be extended by mutual consent of the Parties,
then the Developer shall be liable to pay to the Buyer a compensation for the
entire period of such delay computed at the rate of Rs. 5/- (Rupees Five only)
per month per square feet of the Super Built Up Area of the Apartment.
In the alternative,
the Developer, at the request of the Buyer, may refund the total amounts
already received in respect of the said Apartment together with simple interest
at the rate of 15% per annum to the Buyer. It has been agreed between the
Parties that upon such repayment, the Agreement shall stand terminated and the
Buyer shall not be entitled to claim any loss and/or damages whatsoever. The
said refund by the Developer to the Buyer, sent through cheque/demand draft by
registered post acknowledgement due or by courier at the address of the Buyer
mentioned herein, shall be full and final satisfaction and settlement of all
claims of the Buyer under this Agreement, irrespective of whether the Buyer
accepts/encashes the said cheque/demand draft or not. Thereafter the Buyer
shall cease to have any interest or claim on the said Apartment and the
proportionate undivided interest in the Common Areas and Facilities and Limited
Common Areas and Facilities whatsoever or howsoever. The Developer thereafter
shall be entitled to sell the said Apartment along with undivided interest in
the Common Areas and Facilities and Limited Common Areas and Facilities to any
prospective buyer/third party of its choice.”
23.
If we consider the obligations of the Developer in the event it does not comply
with the timelines, a very meagre compensation is provided to the Apartment
purchaser. Not only that clause 4.2 of the Agreement, which provides that the
Apartment shall be ready for occupation within 42 months from the date of
issuance of Allotment Letter, also provides that the Developer would be
entitled for a grace period of 6 months over and above this 42 months’ period.
The said clause 4.2 further provides for various eventualities in case of which
the Developer would be entitled to further extension of period for handing over
the possession.
24.
In any case, clause 4.3 of the Agreement provides that, subject to the
provisions of clause 4.2 of the Agreement, if the Developer fails or
neglects to issue the Possession Notice on or before the Tentative Completion
Date and/or on such date as may be extended by mutual consent of the Parties,
the Developer shall be liable to pay to the Buyer a meagre compensation for
such a delay at the rate of Rs.5/- per month per square feet of the Super Built
Up Area of the Apartment.
25.
It can thus be seen that the Agreement is one-sided and totally tilted in
favour of the Developer.
26. In
the case of Central Inland Water Transport Corporation Limited and Another
v. Brojo Nath Ganguly and Another[(1986)
3 SCC 156], this Court, by taking recourse to Article 14 of the
Constitution of India, has held that the courts will not enforce an unfair and
unreasonable contract or an unfair and unreasonable clause in a contract,
entered into between Parties who are not equal in bargaining power. It will be
relevant to refer to the following observations of this Court in the said case:
“89. ……We have a
Constitution for our country. Our judges are bound by their oath to “uphold the
Constitution and the laws”. The Constitution was enacted to secure to all
the citizens of this country social and economic justice. Article
14 of the Constitution guarantees to all persons equality before the law
and the equal protection of the laws. The principle deducible from the above
discussions on this part of the case is in consonance with right and reason,
intended to secure social and economic justice and conforms to the mandate of
the great equality clause in Article 14. This principle is that the
courts will not enforce and will, when called upon to do so, strike down an
unfair and unreasonable contract, or an unfair and unreasonable clause in a
contract, entered into between parties who are not equal in bargaining power.
It is difficult to give an exhaustive list of all bargains of this type. No
court can visualize the different situations which can arise in the affairs of
men. One can only attempt to give some illustrations. For instance, the above
principle will apply where the inequality of bargaining power is the result of
the great disparity in the economic strength of the contracting parties. It
will apply where the inequality is the result of circumstances, whether of the
creation of the parties or not. It will apply to situations in which the weaker
party is in a position in which he can obtain goods or services or means of
livelihood only upon the terms imposed by the stronger party or go without
them. It will also apply where a man has no choice, or rather no meaningful
choice, but to give his assent to a contract or to sign on the dotted line in a
prescribed or standard form or to accept a set of rules as part of the contract,
however unfair, unreasonable and unconscionable a clause in that contract or
form or rules may be. This principle, however, will not apply where the
bargaining power of the contracting parties is equal or almost equal. This
principle may not apply where both parties are businessmen and the contract is
a commercial transaction.”
27.
This Court in the case of Pioneer Urban Land and Infrastructure
Limited (supra) was considering similar clauses in an Agreement between a
Developer and an Apartment Purchaser. This Court observed thus:
“6.4. A perusal of the
apartment buyer's agreement dated 8-5-2012 reveals stark incongruities between
the remedies available to both the parties. For instance, Clause 6.4(ii) of the
agreement entitles the appellant builder to charge interest @18% p.a. on
account of any delay in payment of instalments from the respondent flat
purchaser. Clause 6.4(iii) of the agreement entitles the appellant builder to
cancel the allotment and terminate the agreement, if any instalment remains in
arrears for more than 30 days. On the other hand, as per Clause 11.5 of the
agreement, if the appellant builder fails to deliver possession of the
apartment within the stipulated period, the respondent flat purchaser has to
wait for a period of 12 months after the end of the grace period, before
serving a termination notice of 90 days on the appellant builder, and even
thereafter, the appellant builder gets 90 days to refund only the actual
instalment paid by the respondent flat purchaser, after adjusting
the taxes paid, interest and penalty on delayed payments. In case of any
delay thereafter, the appellant builder is liable to pay interest @9% p.a.
only.
6.5. Another instance
is Clause 23.4 of the agreement which entitles the appellant builder to serve a
termination notice upon the respondent flat purchaser for breach of any
contractual obligation. If the respondent flat purchaser fails to rectify the
default within 30 days of the termination notice, then the agreement
automatically stands cancelled, and the appellant builder has the right to
forfeit the entire amount of earnest money towards liquidated damages. On the
other hand, as per Clause 11.5(v) of the agreement, if the respondent flat
purchaser fails to exercise his right of termination within the time limit
provided in Clause 11.5, then he shall not be entitled to terminate the
agreement thereafter, and shall be bound by the provisions of the agreement.
6.6. Section
2(1)(r) of the Consumer Protection Act, 1986 defines “unfair trade
practices” in the following words:
“2.(1)(r) “unfair
trade practice” means a trade practice which, for the purpose of promoting the
sale, use or supply of any goods or for the provision of any service, adopts
any unfair method or unfair or deceptive practice.…”, and includes any of
the practices enumerated therein. The provision is illustrative, and not
exhaustive.
xxx xxx xxx
6.8. A term of a
contract will not be final and binding if it is shown that the flat purchasers
had no option but to sign on the dotted line, on a contract framed by the
builder. The contractual terms of the agreement dated 8-5-2012 are ex facie
one-sided, unfair and unreasonable. The incorporation of such one- sided
clauses in an agreement constitutes an unfair trade practice as per Section
2(1)(r) of the Consumer Protection Act, 1986 since it adopts unfair
methods or practices for the purpose of selling the flats by the builder.
7. In view of the
above discussion, we have no hesitation in holding that the terms of the
apartment buyer's agreement dated 8-5-2012 were wholly one-sided and unfair to
the respondent flat purchaser. The appellant builder could not seek to bind the
respondent with such one-sided contractual terms.”
28.
The view taken by this Court in the case of Pioneer Urban Land and
Infrastructure Limited (supra) was followed in the case of Wing
Commander Arifur Rahman Khan and Aleya Sultana and others v. DLF Southern Homes
Private Limited (Now Known as Begur OMR Homes Private Limited)
and
others[(2020) 16 SCC 512].
29.
Further, a three-judge Bench of this Court in the case of Ireo Grace
Realtech Private Limited (supra) approved the legal position as laid
down in the case of Pioneer Urban Land and Infrastructure
Limited (supra).
30.
It is further to be noted that when the cases of Pioneer Urban Land and
Infrastructure Limited (supra), Wing Commander Arifur Rahman Khan and
Aleya Sultana and others (supra) and Ireo Grace Realtech Private
Limited (supra) were decided, they were decided based on the provisions of
the Consumer Protection Act, 1986. Relying on the provisions
of Section 2(1)(r) of the Consumer Protection Act, 1986, which
defines the term “unfair trade practice”, this Court held that the contractual
terms which are ex facie one- sided, unfair and unreasonable would constitute
unfair trade practice as per the aforesaid definition of “unfair trade
practice”.
31.
Now, Parliament in 2019 has enacted the Consumer Protection Act, 2019,
which has specifically provided a definition for “unfair contract”. It
will be apposite to refer to the relevant part of clause (46) of Section
2 of the Consumer Protection Act, 2019, which reads thus:
2. Definitions.- In this Act, unless the context
otherwise requires,-
xxx xxx xxx
(46) “unfair contract”
means a contract between a manufacturer or trader or service provider on one
hand, and a consumer on the other, having such terms which cause significant
change in the rights of such consumer, including the following, namely:-
(i) requiring
manifestly excessive security deposits to be given by a consumer for the
performance of contractual obligations; or
(ii) imposing any
penalty on the consumer, for the breach of contract thereof which is wholly
disproportionate to the loss occurred due to such breach to the other party to
the contract; or
xxx xxx xxx
(vi) imposing on the
consumer any unreasonable charge, obligation or condition which puts such
consumer to disadvantage;”
32.
No doubt that the aforesaid definition would be applicable after
the Consumer Protection Act, 2019 came into effect, however, even
prior to that while considering the term “unfair trade practice”, this Court
has found that such one-sided Agreements, as in the present case, would be
covered by the definition of term “unfair trade practice”.
33. Insofar
as the judgment in the case of Satish Batra (supra) is concerned, the
clause providing for “forfeiture of earnest money deposit” cannot be said to be
one-sided. It will be relevant to refer to the term which fell for consideration
before this Court in the aforesaid case, which reads thus:
“(e) If the
prospective purchaser fails to fulfil the above condition, the transaction
shall stand cancelled and earnest money will be forfeited. In case I fail to
complete the transaction as stipulated above, the purchaser will get double the
amount of the earnest money. In both conditions, the dealer will get 4%
commission from the faulting party.”
34.
It can thus be seen that in the aforesaid case though the term in the Agreement
provided for forfeiture of the earnest money in the event the prospective
purchaser fails to fulfill the conditions, it also provided for payment of
double the amount of earnest money by the vendor to the purchaser in case the
vendor fails to complete the transaction. As such, the said term cannot be said
to be one-sided.
35.
Similarly, in the case of Desh Raj and others (supra), this Court was
considering an Agreement to Sell with respect to the landed property. A perusal
of the judgment would reveal that it was a case of an Agreement between two
equal Parties and there are no terms in the Agreement which could be said to be
one-sided and tilted totally in favour of one of the Parties.
36.
We are, therefore, of the view that the present case would not be governed by
the law laid down by this Court in the cases of Satish
Batra (supra) and Desh Raj and others (supra), but would be
governed by the law as laid down in the cases of Pioneer Urban
Land and Infrastructure Limited (supra), Wing Commander Arifur Rahman
Khan and Aleya Sultana and others (supra) and Ireo Grace Realtech
Private Limited (supra).
37.
It will further be relevant to refer to the following observations by a Bench
consisting of three learned Judges of this Court in the case of Maula
Bux v. Union of India[(1969) 2 SCC 554]:
5. Forfeiture of
earnest money under a contract for sale of property — Movable or immovable — If
the amount is reasonable, does not fall within Section 74. That has been
decided in several cases: Chiranjit Singh v. Har Swarup; Roshan Lal v.
Delhi Cloth and General Mills Company Ltd. Delhi [1910 SCC OnLine All 98 :
ILR (1911) 33 All 166] ; Mohd Habibullah v. Mohd Shafi [1919 SCC OnLine All 87
: ILR 41 All 324] ; Bishan Chand v. Radhakishan Das.[1897 SCC OnLine All 52 :
ILR (1897) 19 All 490] These cases are easily explained, for forfeiture of
reasonable amount paid as earnest money does not amount to imposing a penalty.
But if forfeiture is of the nature of penalty. Section 74 applies. Where under
the terms of the contract the party in breach has undertaken to pay a sum of
money or to forfeit a sum of money which he has already paid to the party
complaining of a breach of contract, the undertaking is of the nature of a
penalty.”
38.
It can be seen that this Court has held that if the forfeiture of earnest money
under a contract is reasonable, then it does not fall within Section
74 of the Indian Contract Act, 1872, inasmuch as, such a forfeiture does
not amount to imposing a penalty. It has further been held that, however,
if the forfeiture is of the nature of penalty, then Section 74 would be
applicable. This Court has further held that under the terms of the contract,
if the party in breach undertook to pay a sum of money or to forfeit a sum of
money which he had already paid to the party complaining of a breach of
contract, the undertaking is of the nature of a penalty.
39.
Relying on the aforesaid observations of this Court, the NCDRC, in a series of
cases right from the year 2015, has held that 10% of the BSP is a reasonable
amount which is liable to be forfeited as earnest money. The NCDRC has
initially taken this view in the case of DLF Ltd. v. Bhagwanti
Narula (supra). The said view has been followed subsequently in various judgments
of the NCDRC. We see no reason to upset the view consistently taken by the
NCDRC based on the judgment of this Court in the case of Maula
Bux (supra).
40.
Though we are not inclined to interfere with the direction of the NCDRC for
refund of the amount in excess of 10% of the BSP, we however find that the
NCDRC was not justified in awarding interest on the amount to be refunded.
41.
As has been pointed out herein above, after the Agreement was entered into
between the Parties in the year 2014, only after the possession was offered by
the Appellant to the Respondents, they sought cancellation of the allotment.
The reason given by them is that on account of sharp decline in the prices, a
person would be able to buy a flat at a substantially lower price even in
Primary market.
42.
It is quite probable that the Respondents would have utilised the money which
was payable by them to the Appellant for purchasing another property at a lower
rate.
43.
In the facts and circumstances, therefore, we find that the NCDRC was not
justified in awarding interest on the amount to be refunded by the Appellant.
44.
In pursuance of our order dated 24th April 2023, the Appellant has refunded an
amount of Rs.22,01,215/- to the Respondents. After deducting an amount of Rs.17,08,140/-
(i.e. 10% of the BSP) from Rs.51,12,310/- (amount paid by the Respondents to
the Appellant), the amount comes to Rs.34,04,170/-. The Appellant is,
therefore, required to pay balance amount of Rs.12,02,955/- [Rs.34,04,170/-
minus Rs.22,01,215/-] to the Respondents. We, therefore, direct
the Appellant to pay the said amount of Rs.12,02,955/- to the respondents
within a period of six weeks from today.
45.
The appeal is partly allowed in the above terms.
46.
Pending application(s), if any, shall stand disposed of.
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