Part-Payment of Consideration cannot be considered Earnest Money: MREAT

Facts:

• The allottee (buyer) purchased two flats from the promoter (developer) for a total consideration of ₹1,41,67,000 per flat.
• The payment plan was: 25% on registration of the sale agreement, 60% on completion of the final floor slab, and 15% on possession.
• The allottee paid ₹97,49,343, which included part consideration, stamp duty, registration charges, GST, and MVAT.
• The promoter terminated the sale agreements on the ground that the allottee defaulted on the 60% balance payment and forfeited ₹56,66,800 (20% of the total consideration) as per the agreements.

Issues:

1. Whether the allottee is entitled to a refund of the amount paid to the promoter?
2. Whether the promoter’s forfeiture of 20% of the total consideration as “earnest money” is valid?

Decision:

1. The RERA Authority and the Real Estate Appellate Tribunal both held that the allottee is entitled to a refund of the amount paid, after deducting government taxes and brokerage charges.
2. The Appellate Tribunal held that the 20% forfeiture clause cannot be construed as “earnest money” and the promoter is not entitled to forfeit the amount paid by the allottee as part payment of consideration.

Analysis:

1. The Appellate Tribunal’s decision to order a refund of the amount paid by the allottee, except for government taxes and brokerage, is in line with the principles of fairness and equity.
2. The Tribunal’s reasoning that the 20% forfeiture clause is not a valid “earnest money” clause is sound. For a forfeiture clause to be valid, the terms of the contract must be clear and explicit, and the payment must be intended as a guarantee for the due performance of the contract, which was not the case here.
3. The Tribunal’s decision to grant interest on the refund amount is also justified, as the promoter had used the refund amount for commercial purposes, depriving the allottee of its rightful use.

Conclusion:

The Appellate Tribunal’s decision in this case is a welcome step towards protecting the interests of homebuyers and ensuring fairness in real estate transactions. The ruling sets a precedent that developers cannot arbitrarily forfeit payments made by allottees, and must refund the amount (except for legitimate charges) if the sale agreement is terminated.

Case Title: Godrej Properties Ltd. v. Mr. Amit Agarwal, M. A. No.574/20