The National Consumer Disputes Redressal Commission held that a developer’s right to forfeit earnest money upon cancellation of a flat allotment is strictly limited to 10% of the basic sale price, rejecting Experion Developers’ claim to retain the entire amount paid by the complainants. The decision reinforces the principle that forfeiture must be reasonable and tied to actual loss, directing refund of excess sums with interest.
Background & Facts
The Dispute
The complainants, Anita Yadav & Anr., booked a residential apartment (Unit No. B-3/0704) in Experion Developers’ ‘The Heartsong’ project in Sector-108, Gurgaon, paying a booking amount of Rs.2,00,000 on 27 October 2012. They alleged that the developer represented the apartment’s carpet area as 1,758 sq. ft., but upon inspection on 1 March 2015 found the actual carpet area to be only about 930 sq. ft., prompting a demand for cancellation and refund.
Key Facts
- Booking amount: Rs.2,00,000 paid via Cheque No.760187 dated 27.10.2012.
- Provisional Allotment Letter dated 13.12.2012 described the unit as having a ‘Sale Area’ of approximately 163.32 sq. metres/1,758 sq. ft. and fixed the total sale consideration at Rs.1,09,66,150/-.
- Subsequent payments: Rs.5,00,000 on 12.12.2012 (DD No.026716 dated 07.12.2012); Rs.10,44,000 on 23.02.2013 (Cheque No.476203 dated 23.02.2013); Rs.7,00,000 on 09.04.2014 (Cheque No.512978 dated 09.04.2014); Rs.2,00,000 on 18.12.2014 (Cheque No.5019817 dated 14.12.2014). Total paid: Rs.26,44,000/-.
- On 01.08.2016 the complainants emailed Experion seeking cancellation and refund; the developer replied on 05.08.2016 asserting that the carpet area had been disclosed as Sale Area and that no cancellation/refund clause existed in the agreement.
- The developer issued payment reminders, charging interest at 18% per annum on outstanding dues, and served a Final Notice on 18.11.2016 requiring payment of outstanding amount with interest by 03.12.2016, failing which the allotment would be cancelled.
- Cancellation letter dated 28.02.2017 terminated the allotment under Clause 5.1 of the Apartment Buyer Agreement, purportedly forfeiting earnest money, delayed payment interest and brokerage/commission.
- The complainants renewed their demand for cancellation and refund on 07.03.2017 and 18.03.2017; the developer reiterated on 08.05.2017 that the forfeiture was contractual and denied any misrepresentation.
- The complaint was filed in 2019, admitted by the Commission on 18.07.2019, with notice served on 03.08.2019. Opposite Parties 2 and 3 proceeded ex-parte after 17.12.2019.
- During the pendency, Experion, by letter dated 11.11.2020, stated that it had received Rs.26,26,734/- from the complainants, had forfeited Rs.10,79,035/- (claimed as 10% of total cost) and refunded Rs.15,47,699/- via Cheque No.602375 dated 10.11.2020.
- The Unit Cost Details on record show a Basic Sale Price of Rs.96,69,000/-.
Procedural History
- 18.07.2019: Complaint admitted; notice issued to opposite parties.
- 03.08.2019: Notice served on all three opposite parties.
- 17.12.2019: Commission directed that Opposite Parties 2 and 3 be proceeded against ex-parte.
- Evidence: Affidavit of Complainant No.1, Ms. Anita Yadav, sworn.
- Judgment pronounced: 25.09.2026.
Relief Sought
The complainants sought cancellation of the allotment, refund of the total amount paid (Rs.26,44,000/-) with interest, and compensation for mental agony and litigation expenses.
The Legal Issue
The central question was whether, upon cancellation of a flat allotment for default in payment, the developer could lawfully forfeit the entire amount deposited by the complainants or an amount exceeding what may be reasonably treated as earnest money, and whether the contractual stipulation for forfeiture must conform to the legal principle limiting earnest money to 10% of the basic sale price in the absence of proof of actual loss.
Arguments Presented
For the Complainants
The complainants contended that Experion had misrepresented the carpet area as 1,758 sq. ft. in its brochure and verbal assurances, inducing them to book the unit; they argued that the subsequent discovery of a actual carpet area of about 930 sq. ft. constituted a deficiency in service under the Consumer Protection Act, 1986. They maintained that their decision to withhold further instalments was a direct response to the alleged misrepresentation, not an independent wilful default, and therefore the cancellation under Clause 5.1 was not justified. They asserted that the forfeiture of the entire deposited sum was excessive and arbitrary, citing the principle that earnest money must be a genuine pre-estimate of loss and cannot exceed 10% of the basic sale price absent actual loss, relying on prior NCDRC decisions and the Supreme Court’s observation in Godrej Projects Development Limited v. Anil Karlekar & Ors.
For Experion Developers
Experion denied any misrepresentation, asserting that all contractual documents - including the Booking Application, Provisional Allotment Letter and Apartment Buyer Agreement - consistently described the unit’s area as ‘Sale Area’ of approximately 1,758 sq. ft., and that the complainants were aware of the distinction between sale area and carpet area. It argued that the cancellation was lawful under Clause 5.1 of the agreement due to the complainants’ persistent failure to pay instalments despite repeated demands and reminders, and that the forfeiture of liquidated damages (equivalent to 15% of the basic price, car parking charges, PLC, statutory taxes, interest and brokerage/commission) was expressly permitted by the contract. The developer further pleaded limitation, contending that the first communication about the alleged shortage in carpet area was received only on 01.08.2016, despite the complainants’ claim of noticing the discrepancy on 01.03.2015, thereby barring the complaint. It also highlighted that it had already refunded a substantial portion of the amount paid, showing no intention to retain the complainants’ money unjustly.
The Court's Analysis
The Commission first examined the allegation of misrepresentation. It noted that the Provisional Allotment Letter dated 13.12.2012 expressly described the area as ‘Sale Area’ of approximately 163.32 sq. metres/1,758 sq. ft., and that the Unit Cost Details and floor plan on record bore the notation ‘SALE AREA - 1758 SQFT. (163.32 SQMT.)’. > "The documentary material, on the contrary, establishes that the contractual expression used by the parties was ‘Sale Area’." Accordingly, the claim that the developers had represented 1,758 sq. ft. as carpet area could not be accepted merely on the basis of the complainants’ subsequent perception.
Having found no misrepresentation, the Commission turned to the validity of the forfeiture. It acknowledged that the cancellation of the allotment under Clause 5.1 was contractually permissible once the complainants defaulted on payment, but stressed that the right to cancel does not confer an unfettered right to appropriate the entire deposited sum. > "We are equally unable to uphold the forfeiture effected by Opposite Party No.1 beyond the permissible limit of 10% of the Basic Sale Price." The Commission recalled its own jurisprudence holding that, in the absence of evidence of actual loss, forfeiture exceeding 10% of the sale price cannot be regarded as reasonable, a view affirmed by the Hon’ble Supreme Court in Godrej Projects Development Limited v. Anil Karlekar & Ors., Civil Appeal No.3334 of 2023, decided on 03.02.2025, where the Court declined to interfere with the NCDRC’s direction limiting forfeiture to 10% of the basic sale price.
Applying this principle, the Commission calculated the maximum permissible earnest money as 10% of the Basic Sale Price of Rs.96,69,000/-, i.e., Rs.9,66,900/-. The amount purportedly forfeited by Experion (Rs.10,79,035/-) therefore exceeded the lawful limit and must be restricted to Rs.9,66,900/-. The Commission further directed that the amount already refunded by Experion (Rs.15,47,699/- via Cheque No.602375 dated 10.11.2020) be first adjusted towards interest accrued on the refundable amounts at 6% per annum from the respective dates of deposit up to 10.11.2020, with any balance applied to the outstanding principal. Any principal remaining after this adjustment shall carry simple interest at 6% per annum from 10.11.2020 until realization, and if payment is not made within three months of the order, the outstanding amount shall attract interest at 9% per annum from the date of default.
The Commission emphasized that these directions operate without prejudice to Experion’s rights and are liable to be adjusted against any ultimate liability determined by the Commission.
The Verdict
The Commission partly allowed the complaint, holding that Experion Developers could retain only 10% of the basic sale price as earnest money, amounting to Rs.9,66,900/-. It directed that the Rs.15,47,699/- already refunded be first appropriated towards interest at 6% per annum from the dates of deposit to 10 November 2020, with any balance reducing the outstanding principal; the remaining principal shall carry interest at 6% from 10 November 2020 until payment, and if not paid within three months of the order, interest shall increase to 9% per annum from the date of default. No costs were awarded.
What This Means For Similar Cases
Forfeiture of Earnest Money Must Be Reasonable
Practitioners must ensure that any claim for forfeiture of earnest money in real estate transactions does not exceed 10% of the basic sale price unless actual loss is proved. The burden lies on the developer to demonstrate actual loss corresponding to the amount sought to be retained.
Contractual Terms Are to Be Read As Written
Where project brochures or verbal statements conflict with the written agreement, the contractual description (e.g., ‘Sale Area’) prevails. Claims of misrepresentation based on extrinsic materials are unlikely to succeed if the agreement clearly delineates the area term.
Refunds Are First Allocated to Interest
Any amount already refunded by the developer must first be adjusted against interest accrued on the refundable sum at the statutory rate (here 6% per annum) before being applied to outstanding principal, ensuring that interest is not lost in the settlement process.
