NEW DELHI: Holding that one-sided agreement between homebuyers and real estate companies which is totally tilted in favour of the developer cannot be enforced, Supreme Court on Monday said that developers cannot deduct unreasonable amounts if the buyer seeks cancellation and it should not be more than 10% of basic sale price (BSP).
A bench of Justices B R Gavai and S V N Bhatt said the contractual terms which are ex facie one-sided, unfair and unreasonable would constitute unfair trade practice as per the aforesaid definition of unfair trade practice and turned down the plea of real estate company Godrej Projects Development Ltd which said it should be allowed to forfeit 20% of the amount which was part of the agreement with a buyer.
Referring to various verdicts of the apex court, the bench said, “It can be seen that this Court has held that if the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the Indian Contract Act, 1872, inasmuch as, such a forfeiture does not amount to imposing a penalty. It has further been held that, however, if the forfeiture 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”.The court was hearing an appeal filed by the company challenging an order passed by NCDRC which had ordered that it cannot forfeit more than 10% of the amount. It contended that forfeiture of 20% was part of the agreement and there was nothing wrong to enforce it.
But the bench said that the apex court and NCDRC in many cases held that forfeiture of 10% is reasonable and above that amount should not be allowed. “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 forfeited 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 judgments of the NCDRC. We see no reason to upset the view consistently taken by the NCDRC based on the judgment of this Court,” the bench said.
It, however, set aside the direction of NCDRC in awarding interest on amount to be refunded to the buyer. In this case the buyer had booked a flat in the project “Godrej Summit” situated at Sector 104, Gurgaon, Haryana but he sought refund when possession of flat was given to him.
NCDRC had allowed the company to deduct only 10% of the BSP i.e. Rs. 17.08 lakh only towards cancellation and refund the balance amount.
