1996 (5) TMI 439 - SC - Indian Laws

Development authority justified in forfeiting full earnest money when allotees defaulted after accepting land allotment and making partial payments

SC held that development authority was justified in forfeiting earnest money when allotees defaulted after accepting land allotment and making partial ... Forfeiture of earnest money in land allotment - whether under the terms of allotment the allotees were required to deposit any amount as earnest money and if so when that earnest money could be forfeited by the authority? - HELD THAT:- The allotment letter further stipulated that in case the allotee accepts allotment then letter of acceptance should reach the authorities by registered post together with an additional amount as indicated in the letter, which deposit along with the earnest money deposited already should constitute 25% of the total tentative price. Clause (6) of the allotment letter also indicates that the balance amount of the tentative price of the plot could be paid either in lump-sum without interest within 50 days from the date of issue of the allotment letter or in six annual instalments the first instalment would fall due after expiry of one year of the date of issue of the letter. The law on the subject has been discussed fully in a recent case of Delhi Development Authority vs. Grishthapana Cooperative Group Housing Society Ltd,. This being the legal position and the allotee hating accepted the allotment and having made some payment on instalment basis then made the request to surrender the land, has committed default on his part and therefore the competent authority would be fully justified in forfeiting the earnest money which had been deposited and not the 10% of the amount deposited as held by the High Court. The High Court was totally in error in issuing the direction in question on the ground that the respondents were not in a position to deliver the possession of the land to the allotee. lt may be stated that in the letter of allotment no period was stipulated within which the possession of the land was to be delivered. The land in question was required to be developed and then to be delivered and in absence of any period in the letter of allotment, it was required to be delivered', within a reasonable period. It cannot be said that the reasonability had lapsed particularly when the allotees had not paid up the entire instalment due and merely paid a par thereof. In the premises as aforesaid the impugned judgment and direction of the High Court in each of the appeal are set aside and it is held that the appellant would be entitled to forfeit the earnest money which had been deposited along with the application form and on deducting the said 'earnest' the balance amount may be refunded to allotees. Issues:1. Interpretation of terms regarding forfeiture of earnest money in land allotment cases.Analysis:The Supreme Court considered three appeals against a judgment of the Punjab and Haryana High Court involving a common legal question. The issue was whether an allotting authority, in a land allotment scenario, could forfeit the earnest money deposited by an allotee who requests a refund after making initial deposits but expresses incapacity to pay the balance amount. The High Court had directed the authority to forfeit only 10% of the amount deposited by each allotee. The key contention by the appellants was that the authority should be entitled to forfeit the entire earnest money if the transaction falls through due to the allotee's default.The Court examined the terms of allotment, which required a 10% deposit of the tentative price as earnest money along with the application. The letter of allotment specified conditions for refusal and acceptance, including deadlines for communication. It was noted that if an allotee fails to communicate refusal within the stipulated period, the authority is entitled to forfeit the earnest money. Additionally, the balance amount could be paid in installments, as per the terms of the allotment.Regarding the concept of earnest money, the Court cited legal precedents to establish that earnest money serves as a guarantee to bind the contract and is forfeited if the transaction falls through due to the default of the purchaser. Therefore, if an allotee accepts the allotment, makes initial deposits, and later requests a refund, the authority is justified in forfeiting the earnest money deposited along with the application form. The Court emphasized that the High Court's direction to forfeit only 10% of the amount deposited was erroneous.Ultimately, the Supreme Court set aside the High Court's judgment and held that the authority could forfeit the earnest money deposited and refund the balance amount to the concerned allotees who requested a refund. The appeals were allowed, and no costs were awarded in the circumstances.