The Supreme Court of India recently delivered a significant judgment in the case of Godrej Projects Development Ltd Vs Anil Karlekar and Ors on deducting money from Homebuyers, setting a precedent for fairness in real estate transactions.
The verdict, pronounced on February 3, 2025, clarified that developers can only deduct 10% of the Basic Sale Price paid by homebuyers upon cancellation of allotments.
Background of the Case in Godrej Projects Development Ltd Vs Anil Karlekar and Ors
The dispute arose when the respondents- homebuyers in a project developed by Godrej Projects Development Ltd., sought to cancel their apartment booking and demanded a refund.
The buyers had booked an apartment in the “Godrej Summit” project in Gurgaon, Haryana, and signed an agreement with the developer. However, after the possession was offered in June 2017, the buyers cancelled it due to a decline in property prices.
Upon cancellation, the developer invoked a forfeiture clause, deducting 20% of the Basic Sale Price (BSP), and treating it as earnest money. The buyers challenged this in the National Consumer Disputes Redressal Commission (NCDRC), which ruled that only 10% of BSP could be deducted as forfeiture, ordering the refund of the remaining amount with 6% simple interest per annum.
Dissatisfied with this decision, the developer approached the Supreme Court under Section 23 of the Consumer Protection Act, 1986.
Key Issues in Godrej Projects Development Ltd Vs Anil Karlekar and Ors
- Was the forfeiture of 20% of BSP reasonable and legally enforceable?
- Was the agreement one-sided and unfairly favouring the developer?
- Did NCDRC have the authority to interfere with contractual terms?
- Should the homebuyers be awarded interest on their refund?
Supreme Court’s Ruling on Deducting Money from Homebuyers
The Supreme Court, after examining the contract and legal precedents, partly upheld the NCDRC ruling, making the following determinations:
1. Limiting Forfeiture to 10% of BSP
The Court held that forfeiture of 20% of BSP was excessive and unreasonable. It ruled that only 10% of BSP should be retained by the developer in line with previous judgments, particularly Maula Bux v. Union of India (1969), which held that forfeiture should be reasonable and not punitive.
2. Buyers Canceled Due to Market Conditions
The Court acknowledged that the buyers opted for cancellation due to a market downturn, rather than any default by the developer. While cancellation was within their rights, they could not expect a full refund since the agreement included a forfeiture clause.
3. Agreement Declared One-Sided and Unfair
The Court examined the terms of the agreement and found it heavily skewed in favour of the developer. The builder was permitted to forfeit substantial amounts from buyers but was liable for only minimal penalties if the delay was performed by him.
The Court referred to landmark cases such as Pioneer Urban Land v. Govindan Raghavan (2019) and Ireo Grace Realtech v. Abhishek Khanna (2021), reinforcing that unfair contract terms are unenforceable under consumer law.
Additionally, the ruling noted that Section 2(46) of the Consumer Protection Act, 2019 defines “unfair contracts” as those imposing unreasonable obligations on consumers.
4. No Interest on Refund
The Supreme Court set aside the NCDRC’s order granting 6% interest on the refunded amount. Since the buyers voluntarily cancelled the booking, the Court reasoned that awarding interest was unjustified.
Legal and Consumer Implications
This judgment reinforces the principle that forfeiture clauses must be fair and proportionate. Key takeaways include:
- Forfeiture must be reasonable – Developers cannot arbitrarily withhold excessive amounts.
- One-sided agreements are unenforceable – Any contract that disproportionately favours the developer can be modified by consumer courts.
- Buyers cancelling due to market downturns may not be entitled to interest – The ruling clarifies that interest on refunds applies only when the developer is at fault.
- Consumer courts can intervene in unfair contracts – Even if a contract is signed, NCDRC and courts have the power to modify its terms if they are found to be unfair.
Final Order in Godrej Projects Development Ltd Vs Anil Karlekar and Ors
- Godrej Projects Development Ltd. must refund Rs. 34,04,170/- (after deducting 10% of BSP) within six weeks.
- No interest on the refunded amount.
- Appeal partly allowed.
Conclusion
This ruling underscores the judiciary’s commitment to protecting consumer rights in real estate transactions. It ensures greater accountability for developers while also recognizing buyers’ financial decisions in fluctuating markets.
By reinforcing fair and transparent dealings, the Supreme Court has set an important precedent in the area of “Deducting Money from Homebuyers” that will guide future real estate disputes.
Frequently Asked Questions
What is an unfair contract term?
Answer: An unfair contract term is a provision that is excessively one-sided and disadvantages one party. In real estate, this could include terms allowing the developer to keep a large amount of money if the buyer cancels while offering little compensation if the developer causes delays.
How does the Consumer Protection Act, 2019 protect homebuyers from unfair contract terms?
Answer: The Consumer Protection Act, 2019 defines “unfair contract” and protects against unreasonable terms. It allows consumers to challenge terms that significantly change their rights, such as excessive security deposits or penalties.
Can I challenge an unfair contract term in my apartment purchase agreement?
Answer: Yes, if you believe a term in your agreement is unfair and puts you at a disadvantage, you can file a complaint with the NCDRC. The Supreme Court’s decision in this case strengthens the rights of homebuyers and provides a legal basis for challenging unfair terms.
Is the forfeiture of earnest money always considered a penalty?
Answer: The Supreme Court clarified that contract terms must be clear and explicit to justify forfeiture of earnest money. If the payment is genuinely intended as earnest money, forfeiture is permissible if reasonable. However, if the forfeiture is deemed a penalty (unreasonable), then Section 74 of the Indian Contract Act, 1872, may apply to determine reasonable compensation, which in NCDRC’s view has been consistently around 10% of the BSP.
Why did the Supreme Court limit the forfeiture to 10% of BSP instead of 20%?
Answer: The Court found that 20% forfeiture was excessive and unreasonable, referencing previous legal precedents that capped forfeiture at 10% to ensure fairness.
The above case reporting/ article is based on the Hon’ble Supreme Court’s judgement on Godrej Projects Development Ltd Vs Anil Karlekar and Ors. Read the full judgement here.