Maharashtra REAT – Builder Not Entitled To Forfeit Money Paid By Homebuyer As Part Payment Of Consideration

Background Facts

The homebuyer purchased two flats, Flat No. 503 and Flat No. 504, in the builder's project named 'The Trees.' The total cost of each flat was Rs. 1,41,67,000/-. On 07.10.2016, an agreement for sale was executed between the builder and the homebuyer, and the homebuyer paid a total of Rs. 97,49,343/- towards the flats.

However, on 23.03.2018, the builder terminated the agreement for sale, citing the homebuyer's failure to make the required payments, and forfeited Rs. 56,66,800/- from the amount paid by the homebuyer.

Aggrieved by the termination and forfeiture, the homebuyer filed a complaint before the Authority, seeking a refund of the entire amount paid and compensation of Rs. 15,00,000/- for misrepresentation and fraudulent conduct by the builder.

In its order dated 13.08.2020, the Authority struck down the forfeiture clause in the agreement for sale as an unfair practice under Section 7 of RERA,2016 and directed the builder to refund Rs. 19,81,136/- for Flat 503 and Rs. 19,24,186/- for Flat 504.

Further aggrieved by the Authority's order dated 13.08.2020, both the homebuyer and the builder filed separate appeals before the Tribunal, with the homebuyer seeking a refund with interest and the builder seeking to set aside the Authority's order.

Observation and Direction by Tribunal

The Tribunal referred to Clause 13(b) of the agreement for sale, which briefly stipulated that the builder is entitled to the forfeiture of 20% of the total consideration of the flat along with interest in case of default by the homebuyer in making timely payments.

The Tribunal cited the Supreme Court order in the case of Satish Batra vs. Sudhir Raval [Civil Appeal No. 7588 of 2012], where it was held 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."

Referring to this case, Tribunal concluded that the builder cannot treat Clause 13(b), which allows forfeiture of 20% of the total consideration, as "earnest money" and is not entitled to forfeit the amount paid by the homebuyer as part of the purchase price.

The Tribunal observed that while the builder claimed to have suffered losses due to the termination of the sale agreements, the flats in question were further re-sold by the builder at a much higher price than initially agreed upon in the original agreements.

Therefore, the Tribunal allowed the homebuyer's appeal and dismissed the builder's appeal. The Tribunal directed the builder to refund Rs. 73,57,978 to the homebuyer and to pay interest to the homebuyer from the termination date until the actual payment date.

Case – M/s. Godrej Properties Limited Versus Mr. Amit Agarwal A/W 1 other

Citation - Appeal No. AT00600000052646/ A/W 1 Other