Mr. Kartik Goyal & Anr. vs DLF Urban Private Limited

A complaint was filed in FORM ‘M’ on 03.08.2021 by Mr. Kartik Goyal & Mr. Tarun Goyal (hereinafter referred to as “Complainants”) under section 31 r/w section 18 of RE (RD) Act, 2016 (hereinafter referred as Real Estate Regulations and Development Act, 2016) stating that they booked a 2BHK flat in the housing project ‘One Midtown’ at Shivaji Marg, New Delhi-110015 promoted by “DLF Urban Private Limited” (hereinafter referred to as “Respondents or Respondent Company”) and paid a total sum of Rs. 64,45,398/- (Rupees Sixty-Four Lakhs Forty-Five Thousand Three Hundred and Ninety-Eight Only) for the proposed flat.

The Complainants have alleged that on 18.01.2022, they entered into a contractual agreement with the Respondents for the purchase of Unit No. OMB2505 in the said project. This agreement was subsequently formalised by execution of an ‘Agreement for Sale’ (hereinafter referred as Agreement) on 10.11.2022.

It has been averred that both the Complainants and Respondents mutually agreed and executed the terms and conditions as delineated in the Application Form dated 18.01.2022, as well as subsequent Agreement.

The Complainants further asserted that in 21.11.2023, the Respondent unilaterally terminated the aforementioned Agreement, citing Complainants' failure to meet their financial obligations.

The Complainants have therefore have approached this Authority, contending that Respondents action in cancelling the Agreement was arbitrary and in contravention of the terms stipulated in the contract.

A preliminary hearing in the case was held on 21.12.2023. A notice to the Respondents was issued on 10.01.2024 through post and on 11.01.2024 via email.

The matter was subsequently heard on 30.01.2024, 06.03.2024, 30.04.2024 and 15.05.2024.

The Respondents filed their reply on 06.03.2024.

The Complainants filed rejoinder to the reply on 26.04.2024. Thereafter, the Complainants also filed their written arguments on 10.06.2024.

For the sake of convenience, the arguments and submissions made on behalf of the Complainants are summarized as under:

The Complainants are thus seeking the setting aside of the cancellation of allotment of their apartment as the relief.

For the sake of convenience, the arguments and submissions made on behalf of the Respondents are summarized as under:

Having carefully examined the facts and circumstances, it is evident that two issues emerge for determination before this Authority. The following two issues require detailed analysis.

This Authority shall address each issue in light of the factual matrix, the contractual terms, the statutory framework under the RE (RD) Act, 2016.

On Issue no. 1- Whether the cancellation of allotment of apartment unit OMB2505 by the Respondent was justified in light of the contractual terms and statutory provisions.

Upon examination of the facts, submissions, and documentary records presented in this case, we find it necessary to delve into the contractual relationship between the parties and the sequence of events that resulted in the disputed cancellation of allotment of the apartment.

The Agreement for Sale dated 10.11.2022 executed between the Complainants and the Respondent represents the cornerstone of their legal relationship. The agreement prescribes the procedure for termination of allotment in case of default. Clause 9.3 of the Agreement is particularly relevant to the present dispute as it provides the procedure for cancellation of allotment due to payment defaults.

The relevant extract of Clause 9.3 of the Agreement reads as under:

The Complainants had made a payment of Rs. 64,45,398/- (Rupees Sixty-Four Lakhs Forty-Five Thousand Three Hundred and Ninety-Eight Only) towards the purchase of the aforementioned apartment unit. However, as per the Respondent's submissions, the payment history of the Complainants reveals a pattern of defaults. The record indicates that the second instalment payment was delayed by over 6 months from its due date. For the third instalment, the Complainants paid approximately 20% of the amount due. Subsequent instalments as per the payment schedule remain entirely unpaid.

The Respondents documented their efforts to communicate with the Complainants regarding the outstanding payments. The record reveals a series of communications spanning several months. The first demand notice was issued on 29.01.2022, followed by a reminder on 10.04.2022. A second reminder was sent on 24.04.2022, followed by a post-Agreement reminder dated 11.11.2022. Further notices were dispatched on 03.12.2022 and 19.12.2022, in final demand notice dated 17.02.2023. An additional reminder was sent on 22.09.2023 before the ultimate cancellation.

Despite this extensive sequence of communications, the Complainants failed to fulfil their payment obligations under the Agreement. The Respondents issued cancellation letter dated 21.11.2023, approximately 9 months after the final demand notice. The gap between the final demand notice and eventual cancellation is significant, as it demonstrates that the Respondents provided the Complainants with ample opportunity far exceeding the contractual requirements to remedy their defaults before resorting to cancellation.

Section 11 of the RE(RD) Act, 2016 delineates the obligations of promoters, including the circumstances under which they may cancel allotments. It requires that any such action be in accordance with the terms of the Agreement and after providing reasonable notice to the allottee.

The relevant extract of Section 11 of the Act reads as under:

In the present case, the documents produced before us suggest that the Respondents some multiple notices and reminders to the Complainants over an extended period, thereby giving reasonable notice beyond the specific contractual requirement of 30 days’ notice period. The chronology of events establishes that the Respondents final demand notice on 17.02.2023 preceded the cancellation on 21.11.2023 by approximately 9 months, substantially exceeding requirement of 30 days as stipulated in the Agreement. This compliance along with all other statutory and contractual requirements reinforces the validity of the cancellation process undertaken by the Respondents.

The Complainants have raised several contentions to justify their payment defaults and challenge the cancellation. The first contention pertains to non-receipt of various demand notices and reminders. This contention, however, lacks credibility for several reasons. The Respondents have provided documentary evidence of multiple communications sent. The Complainants admit to having received some notices, which indicate that the communication channels were functioning. The number and frequency of communications make it implausible that all or most of them failed to reach the Complainants.

The second contention of the Complainants relates to Clause 9.2 of the Agreement, contending that they were entitled to withhold payments due to alleged delays in construction milestones. The Complainants have made generalized allegations of delay without providing specific evidence of which contractual milestones were missed or delayed. In the absence of any such evidence, the Authority cannot presume default on the part of the Respondents.

Based on the aforesaid analysis it can be concluded that the cancellation of the allotment of apartment unit OMB2505 in the 'One Midtown' project by DLF Urban Private Limited was legally justified and appropriate.

The Complainants have specifically contended that out of approximately Rs. 64,45,398/- paid by the them to the Respondents, only Rs. 10,29,799.28/- has been refunded and that the deduction of Rs. 54,15,598.73/- is unreasonably high and unjustified. They have challenged the forfeiture of 10% of the total consideration as booking amount, arguing that such a substantial deduction is disproportionate and contrary to the principles of equity and justice.

The Respondents, in their reply, have contended that the Complainants voluntarily entered into the Agreement with full knowledge of the terms and conditions, including clause 9.3 of the Agreement for Sale pertaining to forfeiture of booking amount in case of default. The Respondents have further argued that the contractual provision clearly stipulates that 10% of the total consideration would constitute the booking amount liable for forfeiture upon cancellation due to default by the allottee. The Respondents have justified the forfeiture of 10% of the total consideration as booking amount by relying upon the express terms of the Clause 9.3 of the Agreement for Sale.

Section 11(5) of the RE(RD) Act, 2016 read with Clause 9.3 of the Real Estate (Regulation and Development) (Agreement for Sale) Rules, 2016 for National Capital Territory of Delhi, provides the framework for cancellation of allotment and refund of money by the promoter.

Section 11(5) of the RE(RD) Act, 2016 provides as under:

Clause 9.3(ii) of the Real Estate (Regulation and Development) (Agreement for Sale) Rules, 2016 for National Capital Territory of Delhi provides as under:

The said provisions mandate that upon cancellation; the promoter shall refund the money paid by the allottee after deducting the booking amount and interest liabilities. However, these provisions do not define the booking amount that may be forfeited, thereby necessitating recourse to judicial precedents and established legal principles to determine the legitimate scope of such forfeiture.

It has to be appreciated that the RE(RD) Act, 2016 nowhere defines what should be the booking amount. For the same, we have to refer to various pronouncement of the Hon’ble Supreme Court of India.

In Shree Hanuman Cotton Mills and Others vs. Tata Air Craft ltd 1969 (3) SCC 522, the Hon’ble Apex Court quoted the following characteristics of the term earnest money;

The Hon’ble Apex Court in Shree Hanuman Cotton Mills supra also relied and quoted Earl Jowitt, who in his Dictionary of English Law, says "Giving an earnest or earnest-money is a mode of signifying assent to a contract of sale or the like, by giving to the vendor a nominal sum (e.g., a shilling) as a token that the parties are in earnest or have made up their minds."

The Hon’ble Apex Court in Shree Hanuman Cotton Mills supra also laid down the following principles to describe the meaning of the word ‘earnest’ in the following manner:

The above referred principles were later reiterated by the apex court in Satish Batra v Sudhir Rawal (2013) 1 SCC 345.

In light of the above, it can be substantiated that earnest money or booking amount, is a portion of the property's sale price paid by the buyer to the seller as a commitment to purchase. It is the initial payment made by a buyer to the property developer as a commitment showing the buyer's intent to purchase identified property. This amount is generally a small amount and is meant to reserve the property for the buyer while the Agreement is being finalized. The tender of such earnest money or booking amount is construed as consideration flowing from the purchaser, while the developer's corresponding act of withholding the property from the market constitutes reciprocal consideration, thereby creating a contractual nexus between the parties that enables commencement of requisite documentation and satisfaction of legal prerequisites.

In the matter at hand, the factual matrix reveals that the Complainants made an initial payment of Rs. 10,00,000/-. This initial payment, in accordance with the ratio decidendi established in Shree Cotton Mills supra, satisfies the cardinal requirements of earnest money, being "a tangible thing" given "at the moment at which the contract is concluded."

The Hon'ble Supreme Court of India has established that earnest money must come into existence at the time of making or conclusion of the contract as something given to bind the contract. In the instant case, this initial payment of Rs. 10,00,000/- marked the making of a legally binding contract wherein the Complainants agreed to purchase the property at a specified price, and the Respondents agreed to reserve the unit and transfer possession subject to complete payment. In furtherance of this executory contract, the Respondents also issued an Allotment Letter in the name of the Complainants.

As elucidated by Earl Jowitt, cited with approval by the Hon’ble Supreme Court, this initial payment represented "a token that the parties are in earnest or have made up their minds." The contract was thus concluded through this initial payment, functioning as the essential guarantee that the purchaser intended to fulfil the contract, though the obligations of both parties remained executory in nature. This aligns precisely with principles established by the Hon’ble Apex Court, namely that earnest money must be given at the moment the contract is concluded and that it represents a guarantee that the contract will be fulfilled.

The Respondents characterized the payment of Rs. 10,00,000/- as part of the booking amount. They have incorporated in their contract a provision that booking amount shall be 10% of the cost of the flat. This contractual stipulation demonstrates the common practice of developers to define booking amount as a percentage of the total consideration rather than limiting it to the actual initial payment made to secure the property.

It is a matter of grave concern that a prevalent practice has emerged in the real estate sector whereby developers charge a nominal sum for booking a unit while contractually designating a much larger percentage (such as 10% or 20% of the total consideration) as the "booking amount" or "earnest money." This appears to be a strategic commercial practice designed to attract purchasers with a smaller initial outlay while simultaneously securing the right to retain a substantially higher sum in the event of cancellation.

However, such commercial arrangements cannot override established legal principles. As per the settled position of law emanating from the Hon’ble Apex Court's pronouncements, only the initial payment made to secure the property can be characterized as the "booking amount" or "earnest money." Any subsequent payments made by the purchaser must be construed as part payments towards price of the property and cannot be confused with the booking amount.

In the present case the Complainants paid an initial amount of Rs. 10,00,000/-which was regarded as part of ‘booking amount’. However, the deposit of this amount marked the making of a legally binding contract where the Complainants agreed to purchase the subject property on a certain price and Respondents agreed to book the unit and transfer the possession subject to full payment.

The booking amount, by its very nature, must be the sum paid at the making of the contract to bind the bargain. Subsequent payments, regardless of how they are characterized in the contract, cannot assume the character of booking amount. Further it has to be seen that the contracts as between builder and buyer are seldom in the realm of meeting of minds, they are generally the builders’ whims and wishes enforced upon the buyer and the buyer must sign on the dotted line.

These judicial pronouncements, emanating from the Hon’ble Apex Court, serve as binding precedents under Article 141 of the Constitution and notwithstanding the express contractual provision designating ten percent as booking amount, the fundamental legal characteristics of earnest money as established by the legal precedents cannot be altered merely by contractual language.

The silence of the legislature on the meaning of ‘booking amount’ poses a situation of non liquet on this specific issue which necessitates recourse to principles as established by the highest court of India. In accordance with these principles, and applying the test laid down in Shree Cotton Mills supra and reaffirmed in Satish Batra supra, only the initial payment of Rs. 10,00,000/-can rightfully be regarded as the booking amount in the present case, as it alone satisfies the requisite characteristics of being paid at the making of the contract to bind the bargain. Any contractual attempt to designate a higher percentage of the consideration as booking amount must yield to these established legal principles, for parties cannot by private agreement alter the essential juridical nature of booking amount.

Consequently, any contractual term that attempts to extend the meaning of booking amount beyond established legal boundaries must be deemed void ab initio and thus forfeiture of 10% of the total consideration as booking amount is legally untenable and the same cannot be forfeited as per the terms of the Agreement. Thus, the Respondents can forfeit an amount of Rs. 10,00,000/-only as booking amount in the event of default by buyer leading to cancellation of allotment of the flat.

delay.

On the matter of deduction of interest on the delayed payments the peculiarity of the case requires examination of the timelines of various events, notices, payments, and the eventual cancellation of the allotment. Clause 9.3 of the the Agreement between the parties clearly stipulates the procedure for cancellation of allotment in case of default by the Allottee. According to the express terms of the Agreement, the Respondents were required to provide a 30-day notice period prior to termination, as explicitly stated in the proviso to Clause 9.3: "Provided that, the promoter shall intimate the allottee about such termination at least thirty days prior to such termination.”

Following this contractual guideline, the Respondents could have rightfully cancelled the allotment after the lapse of 30 days from the notice, which would fall on 19.03.2023. However, the Respondents chose not to exercise this right for approximately nine months, finally cancelling the unit on 21.11.2023. This delay between the accrual of the right to cancel and its actual exercise presents a situation that demands attention from the perspective of fairness, equity and balancing of interests.

While the Respondents forbearance in exercising their right to cancel may have been motivated by commercial goodwill or benevolent considerations, it inadvertently created a situation where they retained the substantial payments made by the Complainants for an extended period. During this nine-month period, the Respondents maintained control over the Complainants' funds, deriving potential financial benefits from the same. The principle of unjust enrichment becomes relevant here, as the Respondents continued to enjoy the interest value of the Complainants money while simultaneously retaining full rights over the property.

The RE(RD) Act, 2016 was enacted with the primary objective of establishing equilibrium in the traditionally unbalanced relationship between promoters and allottees in real estate transactions. It seeks to protect the interests of home buyers while ensuring the sustainability of trade in the real estate sector. The cardinal principle of equity underlying the Act is that neither party should gain unfair advantage at the expense of the other. In light of this principle, allowing the Respondents to claim interest for the entire period up to 21.11.2023 would disproportionately benefit the Respondents for a period during which they voluntarily chose not to exercise their contractual right.

Considering these principles, we hold that the calculation of interest payable by the Complainants must cease on the expiry of 30 days from the final notice dated 17.02.2023, i.e., on 19.03.2023. This achieves a fair balance between recognizing the Respondents' right to interest for delayed payments up to the point where cancellation could have legitimately occurred, while preventing unjust enrichment during the period when the Respondents voluntarily abstained from exercising their accrued right to cancel the allotment. This approach upholds the remedial objectives of the RE(RD) Act, 2016 while ensuring that contractual rights are exercised in accordance with principles of equity and good faith.

Thus, the Respondents are entitled for deduction of delay interest liability against the complainant arising out of the delay in payment of 3^rd instalment till the date 19-03-2023. Any amount over and above this and interest calculated beyond this date is not legally justified.

In light of the aforementioned findings, this Authority hereby orders as follows:

The case is disposed of accordingly.

No order as to costs.