In a recent development, the Supreme Court disagreed to take account of a one-sided agreement between homebuyers and developers. The Hon’ble Court believes that the entire agreement in favour of the developer can’t be entertained. Going forward, the court said the developer has no right to deduct 10% of the basic selling price (BSP) if the homebuyer seeks cancellation.
A two-judge bench of Justice B R Gavai and S V N Bhatt said the contractual terms are unfair. It’s unreasonable criteria will enhance unethical business practices. Keeping this in mind, the court dismissed a plea by Godrej Projects Development Ltd that said it must allow a forfeit of 20% of the amount that was part of an agreement between a buyer.
While referring to various verdicts by the apex court, the bench said, “It can be seen that this Court has held that if the forfeiture of earnest money under a contact is reasonable, then it does not fall within Section 74 of the Indian Contract Act, 1872, in as much as such a forfeit does not amount to imposing a penalty. It has further been held that however, if the forfeit is of the nature of penalty, then Section 74 would be applicable. This court has further held that under the terms of the contract, if the party in breach undertook to pay a sum of money or to forfeit a sum of money which he had already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty.”
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The Court was hearing an appeal filled by the company challenging the order passed by NCDRC. The later body ordered that the developer cannot forfeit over 10% of the amount. It resisted that the forfeit of 20% was a part of the agreement and there wasn’t anything wrong to implement it.
However, the bench is of the view that the apex court and NCDRC allowed 10% forfeit in multiple cases. It sticks to the fact that any amount beyond it stands unreasonable to forfeit.
“Relying on the aforesaid observations of this Court, the NCDRC, in a series of cases right from the year 2015, has held that 10% of the BSP is a reasonable amount which is liable to be forfeit as earnest money. The NCDRC has initially taken this view in the case of DLF Ltd. v. Bhagwanti Narula. The said view has been followed subsequently in various judgements of the NCDRC. We see no reason to upset the view consistently taken by the NCDRC based on the judgement of this Court,” the bench said.
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Although the court sidelined the directives of NCRDC to refund the interest amount to the buyer. It is in context to the homebuyer who booked a flat in ‘Godrej Summit’ in Sector 104, Gurugram, Haryana.
However, he sought a refund at the time of receiving possession of the flat by the developer.
NCDRC granted the developer to deduct 10% of the BSP (Basic Selling price) which is Rs. 17.08 lakh towards cancellation and refund the balance amount.
