Forfeiture Clause – Valid But Limited to 10% of BSP – Contractual forfeiture of 20% BSP was excessive – Courts can interfere with unfair and one-sided agreements – Para 25

Unfair Trade Practice & One-Sided Agreement – Clause disproportionately favored the builder – Consumer courts can strike down terms imposing unfair obligations on buyers – Para 27

Interest on Refund – Not Justified – Buyers canceled due to falling property prices, not builder’s fault – No entitlement to interest on refund – Para 42

Applicability of Precedents:

Satish Batra v. Sudhir Rawal [(2013) 1 SCC 345] – Earnest money can be forfeited if contract terms are explicit – Not applicable here due to one-sided agreement – Para 33

Pioneer Urban Land v. Govindan Raghavan [(2019) 5 SCC 725] – Unfair contract clauses can be struck down – Applied to limit forfeiture – Para 27

Maula Bux v. Union of India [(1969) 2 SCC 554] – Forfeiture cannot be a penalty – Only reasonable forfeiture allowed – Para 37

Consumer Protection Act, 2019 – Stronger Safeguards – Recognized “Unfair Contract” concept – Builders cannot impose disproportionate penalties on buyers – Para 31

Final Decision:

• NCDRC’s ruling on 10% forfeiture upheld.
• Interest on refund set aside.
• Builder directed to pay ₹12,02,955 to buyers within six weeks.

Appeal Partly Allowed.

Major Acts & Sections Discussed:

• Constitution of India, 1950 – Article 14
• Consumer Protection Act, 1986 – Section 23 – Appeal against NCDRC Order
• Consumer Protection Act, 2019 – Section 2(46) – Unfair Contract
• Indian Contract Act, 1872 – Section 74 – Liquidated Damages and Penalty

Subjects:

Earnest Money Forfeiture – Consumer Complaint – One-Sided Contract – Builder-Buyer Agreement – NCDRC Jurisdiction – Interest on Refund – Recession in Real Estate

Facts:

a. Nature of the Litigation: Appeal against the NCDRC order reducing the forfeiture of earnest money from 20% to 10% of Basic Sale Price (BSP).

b. Who is Asking the Court and for What Remedy?
The appellant (Godrej Projects Development Ltd.) challenged the NCDRC order that directed a refund of the excess forfeited amount, arguing that the contractual clause permitted a 20% forfeiture.

c. Reason for Filing the Case:

• The respondents (buyers) booked an apartment in Godrej Summit, Gurgaon in 2014 and later sought cancellation in 2017, citing market recession and price drops.
• The appellant forfeited 20% of BSP (₹17,08,140) as per the Builder-Buyer Agreement.
• The NCDRC reduced the forfeiture to 10% of BSP and directed a refund of the remaining amount with 6% interest per annum.

d. What Has Already Been Decided Until Now?

• NCDRC ruled in favor of the buyers, limiting forfeiture to 10% of BSP.
• The appellant sought restoration of 20% forfeiture as per contract terms.

Issues Before the Court:

1. Whether the forfeiture of 20% of BSP as earnest money is justified under the contract?
2. Whether the NCDRC was correct in reducing the forfeiture to 10% of BSP?
3. Whether interest on the refunded amount was justified?

Submissions/Arguments:

Appellant (Godrej Projects Development Ltd.):

• Forfeiture Clause in Contract: The agreement explicitly allowed forfeiture of 20% BSP in case of cancellation.
• Buyers’ Own Decision to Cancel: Respondents canceled only due to market recession, not builder's fault.
• Reliance on Previous Judgments: Satish Batra v. Sudhir Rawal [(2013) 1 SCC 345] – upheld contractual forfeiture of earnest money.

Respondents (Buyers):

• Unfair and One-Sided Agreement: The contract allowed builders strict rights but imposed minimal penalties on delays.
• Consumer Protection Act, 2019 – Unfair Contracts: The forfeiture clause was excessive and unreasonable.
• Precedents Against One-Sided Agreements: Pioneer Urban Land v. Govindan Raghavan [(2019) 5 SCC 725] – Courts struck down unfair forfeiture clauses.

Decision:

• Forfeiture Valid but Limited to 10% of BSP: The Court upheld the NCDRC ruling that 20% forfeiture was excessive and reduced it to 10% BSP.
• No Interest on Refund: The Court set aside the NCDRC's order of 6% interest, holding that buyers willingly canceled due to price drops.
• Direction to Pay Balance Amount: The appellant was directed to refund ₹12,02,955 within six weeks.

Ratio:

1. Unfair Trade Practice & One-Sided Agreements: Agreements favoring builders disproportionately can be struck down under consumer law.
2. Forfeiture of Earnest Money: Contractual forfeiture is valid only if reasonable – 10% of BSP is deemed fair.
3. Interest on Refund: Buyers cannot claim interest when they cancel the contract for commercial reasons.