Naveen Khatri vs M/S. Pareena Infrastructure & 2 Ors

None was present on behalf of the OPs when the matter is called after lunch. Though a letter was circulated by the learned counsel for the OPs seeking adjournment, the request was declined when the matter was called before lunch and the main counsel appearing on behalf of the OPs was requested to ensure representation on behalf of the OP when the matter is taken after lunch. However, there is no representation on behalf of the OP when the matter is taken up after 3:15PM. Therefore, I have heard the learned counsel for the complainant and have considered the record.

The complainant booked a residential flat with the OP-1 Pareena Infrastructure Private Limited in a project, namely, Coban Residences, which OP-1 was to develop in Sector 99A, Gurgaon. Unit No. T-1/902 in the aforesaid project was allotted for a basic sale-price of Rs.1,03,82,802.40ps. The parties then executed an apartment buyers agreement on 03.12.2013 incorporating their respective obligations. In terms of clause of agreement, the possession of the apartment was to be delivered to the complainant within four years of the start of construction or execution of the agreement whichever was later. Since construction is stated to have started in October 2014, the possession ought to have been delivered by October 2018.

Vide e-mail dated 14.10.2016, the complainant sought to withdraw from the project and refund of the amount paid by him on account of family emergency, which necessitated immediate requirement of fund. The OP did not refund the amount paid by the complainant despite several reminders sent to the opposite party through e-mail. The complainant thereafter sent a legal notice dated 21.11.2016 to the OP requiring it to refund the amount paid by him alongwith damages. Since the said legal notice was not complied, the complainant has approached this Commission seeking refund of the entire amount paid by him alongwith compensation interest etc.

The complaint has been resisted by the OP which has admitted the allotment of the unit to the complainant as well as the payment received from him. A preliminary objection was taken that the complainant is not a consumer, he having booked an apartment for investment purpose. It is also alleged that the complaint is barred by limitation prescribed under section 24(A) of the Consumer Protection Act, 1986. On merits, it is alleged that in view of clause 1.2(e)(i) of the agreement, the OP is entitled to forfeit 15% of the basic sale price, processing fee and interest, if any, paid by the allottee.

As far as the plea that the complainant is not a consumer, is concerned, no material has been placed by the OP on record to prove that the complainant had booked the apartment for speculative purpose and not for his bonafide use. Therefore, the allegation made in this regard remains totally unsubstantiated.

As far as the plea of limitation is concerned, the complaint having been filed within two years from the date on which the refund was sought, it is well within the limitation prescribed under section 24A of the Consumer Protection Act, 1986.

Clause 1.2(e)(i) and 7.1(a) of the buyers agreement reads as under:-

"12.e. i) That it is agreed between the parties that out of the amount(s) paid/payable by the Flat Allottee(s) towards the Basic Sale Price, the Developer shall treat 15% of the Basic Sale Price as earnest money (hereinafter referred to as the "Earnest Money"). The flat Allottee(s) hereby authorizes the Developer to forfeit the amounts paid/payable by him/her/them, as Earnest Money as aforementioned together with the processing fee, any interest paid, due or payable, any other amount of a non-refundable nature in the event of the failure of the Flat Allottee(s) to perform his/her/their obligations or fulfil all other terms and conditions set out in this Agreement.

ii) The Flat Allottee(s) agrees that the conditions for forfeiture of Earnest Money shall remain valid and effective till the execution and registration of the Conveyance Deed for the said Flat and the Flat Allottee(s) hereby authorizes the Developer to effect such forfeiture without any notice to the Flat Allottee(s) and the Flat Allottee(s) has agreed to this condition to indicate his/her/their commitment to faithfully fulfil all the terms and conditions contained in his/her/their application and this Agreement."

7.1 It is specifically made clear to the Flat Allottee(s) shall perform and comply with all covenants and obligations required to be performed or complied with under this Agreement and any default, breach of covenants, or non-compliance of any of the terms and conditions of this Agreement shall be deemed to be events of defaults liable for consequences stipulated herein. With a view to acquaint the Flat Allottee(s), some of the indicative events of defaults are mentioned below which are merely illustrative and are not exhaustive.

(a) Failure to make payments within the time as stipulated in the Schedule of Payments as given in Annexure-II, accepted by the Flat Allottee(s) and failure to pay the stamp duty, legal, registration, any incidental charges, any increases in security including but not limited to non-interest bearing maintenance security as demanded by the Developer, any other charges, taxes etc. as may be notified by the Developer to the Flat Allottee(s) under the terms of this Agreement, default in the payment of instalments under the Schedule of Payments Annexure-II, interest on instalments by whatever name called and all other defaults of similar nature.

The question as to whether how much amount can be deducted towards forfeiture of the earnest money in case where the buyers seek to withdraw from the project, came up for consideration in "DLF Ltd. vs. Bhagwanti Narula [RP No. 3860/2014 decided on 06.01.2015]" and the following view was taken in this regard:-

"7.It is also evident from a perusal of Clause 9 of the Agreement that in the event of failure of the complainant to make payment in terms of the agreement between the parties, the Petitioner Company was entitled to forfeit the entire amount of the earnest money and the Agreement to Sell was to stand cancelled. In view of the aforesaid Clause, it cannot be disputed that since the complainant had failed to make payment as per her Agreement with the Petitioner Company, the Agreement between the parties could be cancelled and the Petitioner Company was entitled to forfeit the earnest money. However, the question which primarily arises for consideration in this case is as what would constitute the "earnest money" and to what extent the Petitioner Company is entitled to forfeit the same. The contention of the petitioner is that as agreed by the parties in terms of Clause 8 of the Agreement, 20% of the sale price, irrespective of the stage at which the payment was made constitutes earnest money whereas the case of the complainant as submitted during the course of arguments was that only the amount of Rs.63,469/- which was paid at the time of booking the apartment can be said to be the earnest money and only that amount could be forfeited.

In Maula Bux Vs. Union of India - 1969 (2) SCC 554, the Hon'ble Supreme Court quoted the following observations made by the Judicial Committee in Kunwar Chiranjit Singh Vs. Har Swarup - AIR 1926 PC 1 -

"Earnest money is part of the purchase price when the transaction goes forward; it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee".

In Shree Hanuman Cotton Mills & Ors. Vs. Tata Air Craft Ltd. - 1969 (3) SCC 522, the Hon'ble Supreme Court quoted the following characteristics of the earnest money -

"15. Borrows, in Words & Phrases, Vol. II, gives the characteristics of "earnest". According to the author,

"An earnest must be a tangible thing. That thing must be given at the moment at which the contract is concluded, because it is something given to bind the contract, and, therefore, it must come into existence at the making or conclusion of the contract. The thing given in that way must be given by the contracting party who gives it, as an earnest or token of good faith, and as a guarantee that he will fulfil his contract, and subject to the terms that if, owing to his default, the contract goes off, it will be forfeited. If, on the other hand, the contract is fulfilled, an earnest may still serve a further purpose and operate by way of part payment."

After considering several decisions on the subject, the following principles were laid down by the Hon'ble Supreme Court regarding 'earnest':

(1) It must be given at the moment at which the contract is concluded.

(2) It represents a guarantee that the contract will be fulfilled or, in other words, 'earnest' is given to bind the contract.

(3) It is part of the purchase price when the transaction is carried out.

(4) It is forfeited when the transaction falls through by reason of the default or failure of the purchaser.

(5) Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest".

The above referred principles were reiterated in Satish Batra Vs. Sudhir Rawal - (2013) 1 SCC 345. It would, thus, be seen that only that amount would constitute earnest money which is paid at the time of contract is concluded between the parties. Any payment made after the contract is concluded, cannot be said to be part of the earnest money. In the case before us, admittedly, only a sum of Rs.63,469/- was paid to the Petitioner Company at the time the deal was concluded between the parties. Therefore, in view of the above said referred authoritative pronouncements of the Hon'ble Supreme Court, only the aforesaid forfeited amount can constitute earnest money.

In Maula Bux case (Supra), the Hon'ble Supreme Court took the following view with respect to forfeiture of the earnest money -

"5. Forfeiture of earnest money under a contract for sale of property-movable or immovable--if the amount is reasonable, does not fall within s. 74. That has been decided in several cases: Kunwar Chiranjit Singh v. Hat Swarup (t); Roshan Lal v. The Delhi Cloth and General Mills Company Ltd., Delhi (2); Muhammad Habibullah v. Muhammad Shafi (3); Bishan Chand v. Radha Kishan Das(4); These cases are easily explained, for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, s. 74 applies".

It would thus be seen that only a 'reasonable amount' can be forfeited as earnest money in the event of default on the part of the purchaser and it is not permissible in law to forfeit any amount beyond a reasonable amount, unless it is shown that the person forfeiting the said amount had actually suffered loss to the extent of the amount forfeited by him. In our opinion, 20% of the sale price cannot be said to be a reasonable amount which the Petitioner Company could have forfeited on account of default on the part of the complainant unless it can show it had only suffered loss to the extent the amount was forfeited by it. In our opinion, in absence of evidence of actual loss, forfeiture of any amount exceeding 10% of the sale price cannot be said to be a reasonable amount.

It was contended by the learned Counsel for the Petitioner Company that since the complainant had specifically agreed to deliver 20% of the sale price as earnest money, the forfeiture to the extent of 20% of the sale price cannot be said to be unreasonable, the same being inconsonance with the terms agreed between the parties. This was also his contention that so long as the Petitioner Company was acting as per the terms and conditions agreed between the parties, it cannot be said to be deficient in rendering services to the complainant. We, however, find ourselves unable to accept the aforesaid contention, since, in our view, forfeiture of the amount which cannot be shown to be a reasonable amount would be contrary to the very concept of forfeiture of the earnest money. If we accept the aforesaid contention, an unreasonable person, in a given case may insert a clause in Buyers Agreement whereby say 50% or even 75% of the sale price is to be treated as earnest money and in the event of default on the part of the Buyer; he may seek to forfeit 50% of the sale price as earnest money. An Agreement for forfeiting more than 10% of the sale price, in our view, would be invalid since it would be contrary to the established legal principle that only a reasonable amount can be forfeited in the event of default on the part of the Buyer. In Bharathi Knitting Company Vs. DHL Worldwide Express Courier Division of Airfreight Ltd.- (1996) 4 SCC 704, the Hon'ble Supreme Court accepted the contention that in an appropriate case, the Consumer Forum without trenching upon acute disputed question of facts may decide the validity of the terms of the contract based upon the fact situation and may grant relief, though, each case depends upon its own facts.

Learned Counsel for the Petitioner Company has referred to the decisions of the Hon'ble Supreme Court in Saurabh Prakash Vs. DLF Universal Ltd. - (2007) 1 SCC 228 and Shiv Kumar Sharma Vs. Santosh Kumari - (2007) 8 SCC 600. In Saurabh Prakash (Supra), the agreement between the parties, one of which was none other than DLF Universal Ltd., stipulated forfeiture of earnest money which was 10% of the sale price, as would be noted from paragraphs 4 and 14 of the judgment. Therefore, the decision is of no help to the Petitioner Company. The decision in Shiv Kumar Shama (Supra), does not contain any legal proposition contrary to the view being taken by us with respect to forfeiture of reasonable earnest money. The learned Counsel for the petitioner also referred to the decisions of this Commission in Sahara India Commercial Corporation Ltd. & Anr. Vs. C. Madhu Babu - II (2011) CPJ 3 (NC), Sahara India Commercial Corporation Ltd. Vs. P. Gajendra Chary - III (2010) CPJ 190 (NC) and M/s. DLF Commercial Developers Ltd. & Anr. Vs. S.C. Jain & Anr. in Appeal No. 611 of 2007 decided on 12.9.2014. However, none of these decisions contain any legal proposition contrary to the view taken by us and in none of them the earnest money was to the extent of 20% of the sale price.

For the reasons stated herein above, we hold that (i) an amount exceeding 10% of the total price cannot be forfeited by the seller, since forfeiture beyond 10% of the sale price would be unreasonable and (ii) only the amount, which is paid at the time of concluding the contract can be said to be the earnest money. The Petitioner Company, therefore, was entitled to forfeit only the sum of Rs.63,469/-, which the complainant had deposited with them at the time of booking of the apartment. We, therefore, direct the Petitioner Company to pay the balance amount of Rs.81,534/- to the complainant within 4 weeks from today, failing which, the said amount shall carry interest @ 12% p.a. from the date of this order till payment. However, in the facts and circumstances of the case, we find no justification for grant of any compensation or cost of litigation to the complainant. The orders passed by District Forum and State Commission stand modified accordingly."

In view of above referred decision of this Commission, the OP is not entitled to forfeit more than 10% of the price of the flat from the amount paid by the complainant. In the present case, the complainant paid a total sum of Rs.64,97,509/- to the OP. The total cost of the flat was Rs.1,27,02,257.80ps. The OP therefore is entitled to deduct only a sum of Rs.12,70,226/- from the aforesaid amount. The balance amount of Rs.52,27,283/- is required to be refunded to the complainant. Since the OP did not refund the aforesaid amount despite receipt of request letter dated 14.10.2016, it is required to pay appropriate interest on that amount. In the facts and circumstances of the case, the OP in my view should pay interest to the complainant @10% p.a. on the aforesaid amount with effect from 01.11.2016 till the date on which the said amount alongwith interest in terms of this order is paid. The OP is also directed to pay Rs.25,000/- as cost of litigation to the complainant. The payment in terms of this order shall be made within 3 months from today.