https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=765765 https://www.taxtmi.com/caselaws?id=765765 Reduction in the forfeiture price - Direction to Appellant to deduct only 10% of the Basic Sale Price (BSP) towards cancellation of the Complainants Apartment - refund of balance amount with interest - unfair trade practice - HELD THAT:- This Court in the case of Satish Batra v. Sudhir Rawal [ 2012 (10) TMI 595 - SUPREME 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 nonperformance 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. On considering 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 - 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. It can thus be seen that the Agreement is one-sided and totally tilted in favour of the Developer. In the case of CENTRAL INLAND WATER TRANSPORT CORPN. LTD. VERSUS BROJO NATH GANGULY [ 1986 (4) TMI 271 - SUPREME COURT ], 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. In the case of Desh Raj and others [ 2022 (12) TMI 1556 - SUPREME COURT] , 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 - the present case would not be governed by the law laid down by this Court in the case of Desh Raj and others. 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. 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 - Though it is not inclined to interfere with the direction of the NCDRC for refund of the amount in excess of 10% of the BSP, however it is found that the NCDRC was not justified in awarding interest on the amount to be refunded. Conclusion - i) The forfeiture clauses must be reasonable and not one-sided to be enforceable. ii) The NCDRC s reduction of the forfeiture to 10% of the BSP was upheld. iii) The award of interest on the refunded amount was overturned. Appeal allowed in part. Case-Laws Indian Laws Mon, 03 Feb 2025 00:00:00 +0530