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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 ...
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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 payments before requesting surrender. HC erred in limiting forfeiture to 10% of deposited amount and directing refund based on non-delivery of possession. Allotment letter required 25% deposit including earnest money, with balance payable in lump-sum or instalments. No specific possession delivery period was stipulated, only reasonable time required. Since allotees accepted allotment, made partial payments, then defaulted by requesting surrender, full earnest money forfeiture was proper. HC judgment set aside; authority entitled to forfeit earnest money and refund balance amount.
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.
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