Case Note & Summary
The present appeal arises from a consumer complaint filed by the respondents (buyers) against the appellant (builder, Godrej Projects Development Limited) before the National Consumer Disputes Redressal Commission (NCDRC). The buyers had booked an apartment in the project 'Godrej Summit' in Gurgaon, Haryana, in January 2014, paying an application money of Rs. 10,00,000. An Apartment Buyer Agreement was executed on 20th June 2014, which contained a clause (clause 2.6) stipulating that 20% of the Basic Sale Price (BSP) would be treated as earnest money, and clause 8.4 allowed the builder to forfeit the entire earnest money upon buyer's default. The BSP was Rs. 1,70,81,400. The buyers paid a total of Rs. 51,12,310. The builder obtained the Occupation Certificate on 20th June 2017 and offered possession on 28th June 2017. However, the buyers, citing market recession and lower prices for new buyers, sought cancellation and full refund via email dated 22nd August 2017. The builder cancelled the allotment and forfeited 20% of BSP (Rs. 34,16,280) as earnest money, offering to refund only Rs. 4,22,845. The buyers filed a consumer complaint before the NCDRC seeking refund of the entire amount with interest. The NCDRC, by its order dated 25th October 2022, held that the forfeiture clause was one-sided and unconscionable, and directed the builder to deduct only 10% of BSP (Rs. 17,08,140) and refund the balance of Rs. 34,04,170 with simple interest at 6% per annum from the date of each payment. Aggrieved, the builder appealed to the Supreme Court under Section 23 of the Consumer Protection Act, 1986. The Supreme Court heard arguments from both sides. The builder argued that the NCDRC erred in interfering with the contractual terms, as the buyers had voluntarily cancelled due to market recession, and the forfeiture clause was binding. The buyers contended that the clause was unconscionable and that NCDRC had consistently reduced such forfeiture to 10%. The Supreme Court examined the facts and the agreement. It noted that the buyers had cancelled due to market recession, not due to any fault of the builder. The Court held that the NCDRC was justified in reducing the forfeiture from 20% to 10% of BSP, as the clause was one-sided and unconscionable. However, the Court modified the order to the extent that the interest rate of 6% per annum was upheld, but the forfeiture of 10% was confirmed. The Court also directed that the refund be made within a specified period. The appeal was partly allowed, modifying the NCDRC order to the extent that the forfeiture of 10% of BSP was upheld, and the balance amount with interest at 6% per annum was to be refunded.
Headnote
A) Consumer Law - Forfeiture of Earnest Money - Unconscionable Contract - Section 23, Consumer Protection Act, 1986 - The NCDRC reduced forfeiture from 20% to 10% of BSP, holding the clause one-sided and unconscionable. The Supreme Court upheld the reduction but modified the interest rate and forfeiture percentage, balancing the rights of the buyer and builder. Held that the NCDRC has jurisdiction to strike down unconscionable terms, but the quantum of forfeiture must be reasonable based on facts (Paras 13-20). B) Contract Law - Earnest Money - Forfeiture - Buyer's Default - The buyer cancelled due to market recession, not developer's fault. The Court held that the developer was entitled to forfeit earnest money as per contract, but the amount must not be unconscionable. Held that 20% forfeiture was excessive; 10% was reasonable (Paras 15-18). C) Real Estate - Forfeiture Regulations - The Real Estate (Regulation and Development) Act, 2016 and Haryana RERA Regulations limit forfeiture to 10% of BSP. The Court noted these regulations but did not apply them retrospectively (Para 10).
Issue of Consideration
Whether the NCDRC was justified in reducing the forfeiture of earnest money from 20% to 10% of the Basic Sale Price (BSP) under the Apartment Buyer Agreement, and whether the contractual forfeiture clause was unconscionable and liable to be interfered with.
Final Decision
The Supreme Court partly allowed the appeal. It upheld the NCDRC's order reducing forfeiture to 10% of BSP but modified the interest rate and forfeiture percentage. The Court directed the appellant to deduct 10% of BSP (Rs. 17,08,140) and refund the balance amount of Rs. 34,04,170 with simple interest at 6% per annum from the date of each payment till the date of refund, within a period of three months.
Law Points
- Forfeiture clause
- earnest money
- consumer protection
- unconscionable contract
- NCDRC jurisdiction
- Section 23 Consumer Protection Act 1986
