Forfeiture Of Earnest Money In Case Of Breach Should Be Reasonable And Based On Actual Damage: National Consumer Commission

The National Consumer Disputes Redressal Commission, comprising Subhash Chandra(President) and Bharatkumar Pandya (member), in a case relating to Oasis Landmarks, held that in the event of a contract breach, it is reasonable to forfeit only 10% of the fundamental sale price as “earnest money” and not more.

Brief Facts of the Case

The complainant reserved a flat in the mentioned project through one of the channel partners affiliated with Oasis Landmarks (the developer). They submitted a Rs.11 lakh cheque when booking and were assured a discount in subsequent installments by the channel partner. The channel partner conveyed that there was a disagreement with the developer, and the developer would provide the promised discount directly. The complainant sent a letter to the developer seeking the agreed discount, but the developer refused, recognizing the channel partner as their authorized affiliate. No official allotment letter for the flat was issued to the complainant by the channel partners. Later, the developer canceled the flat booking, claiming non-payment of the remaining amount and forfeiting the entire deposited sum. The complainant wrote to the developer, expressing concerns and requesting a refund. The developer responded, denying authorization to the channel partner. Despite multiple letters from the complainant seeking a refund, the developer did not return the money.

Contentions of the Opposite Party

The developer acknowledged the complainant's flat booking, deposit, and allotment but asserted they were not responsible for promises made by their channel partner without authorization. It was claimed that the complainant violated allotment terms by not making timely payments, leading to a termination letter. Despite the option for the complainant to restore the allotment by making overdue payments, they failed to do so. The developer offered another chance for payment and allotment restoration, which the complainant ignored. The complainant falsely claimed the developer hadn't issued an allotment letter, but the developer asserted it was issued, though the agreement wasn't executed due to non-payment. The developer denied knowledge or responsibility for the channel partner's discount promises, stating they never authorized such commitments. It was argued that the complainant wasn't entitled to a refund based on the application form's clause 13.

Observations by the Commission

The commission observed that there was no agreement between the parties, so they must adhere to the terms and conditions outlined in the application form and allotment letter. Despite receiving three payment reminders and a pre-termination letter from the developer, the complainant failed to pay the installment, leading to the termination of the allotment. The commission found that the developer followed the proper procedure for cancellation, and there was no deficiency in service. Regarding the forfeiture of earnest money (20% of the sale consideration), the Supreme Court rulings in Maula Bux Vs. Union of India and Sirdar K.B. Ram Chandra Raj Urs Vs. Sarah C. Urs emphasized that forfeiture should be reasonable and based on actual damage. The commission argued that, in this case, after the cancellation, the flat remained with the developer, causing minimal actual damage. The bench cited previous National Commission judgments, suggesting that forfeiting 10% of the basic sale price as “earnest money” is reasonable. However, the developer unjustly forfeited an additional amount of Rs. 59,000 from the complainant.

The Commission directed the developer to refund Rs. 59,000 to the complainant with an interest rate of 9% per annum till realization. However, there will be no order as to the cost of the proceedings

Counsel for the Complainant: Adv. Arjun Minocha

Counsel for the Opposite Party: Adv. Kunal Cheema