Dated 3rd December, 2020
Facts of the Case:
It is the case of the complainants that they had booked the said flat in the respondent’s project on 01/07/2016 for total consideration amount of Rs.2,23,09,890/-. At the time of booking, they had paid a token amount along with taxes, in total Rs. 20,00,000/- to the respondent. However, within a period of 40 days from the date of booking i.e. on 10/08/2016 vide a letter addressed to the respondent they cancelled the said booking and sought refund of the amount paid by them to the respondent.
Thereafter the Purchasers made communications with the respondent several times to get the refund of the said booking amount. However, the respondent, inspite of its assurances, had not initiated the same, and said that the same has to be done in accordance with the terms and conditions and cancellation policy of the booking application form duly signed by the complainants. Hence the present complaint was filed.
The respondent further stated that there was no provision under RERA for refund of the booking amount. However, as per specimen agreement for sale, clause No. 7.5 prescribed under RERA regulation issued in the year 2019, the promoter is entitled to forfeit the booking amount, if the cancellation is done by the allottee without any fault of the promoter.
ORDER OF MAHARERA:
As per the written submissions, the respondent agreed to refund the booking amount by deducting 5% of the token amount. Hence the MahaRERA felt that the respondent had accepted the cancellation of the booking and refund of money to the complainants. However, the respondent did not take any action to comply for more than 2 years which was sufficient time for the respondent to sell out the said flat to new buyer and hence, the complainants were compelled to wait for refund for such an unreasonable period.
Moreover, there are no provisions in RERA and rules there under to forfeit the earnest money. The MahaRERA therefore felt that the balance of convenience was in favor of the complainants and hence they were entitled to seek relief from the MahaRERA. The MahaRERA directed the respondent to refund the full amount paid by the complainants without any interest.
Analysis:
In the case of Water Transport Corporation Limited Vs Boro Nath Ganguly (1986) 3 SCC 156 where the Hon’ble Supreme Court had upheld the purpose of Constitution to uphold Social and Economic Justice, and therefore establishing the duty of the court to refrain from enacting unfair and unreasonable contract. However, it is pertinent to consider at this point whether RERA ensures economic justice to all alike. It is true in this particular case that the period of two years to refund the amount paid cannot be deemed reasonable and there should have been a cap on the time period for sale after which the Promoter should have been bound to return and the decision was partly justifiable.
But light also has to be shed on the observation of MahaRERA that since there were no provision to initiate refund of earnest money, the Promoter shall not be liable for the same, and he was not allowed to even deduct a token amount of 5%. Such judicial temperament if appreciated and the precedent if followed would cause gross prejudice to the Plaintiffs. “Earnest money is part of the purchase price when the transaction goes forward: it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee.”[1] This definition has been approved and adopted by the Supreme Court in Maula Bux v. Union of India, In Shree Hanuman Cotton Mills v. Tata Aircraft Ltd[2].
It has to be duly considered what resort then shall be available to the Promoters or the builders where they are aggrieved by the Act of the Complainant who have continued to pay the installments, and in mid of the completion of the process of Sale due to any reason chose to discontinue. And the Promoters have made subsequent investments relying on the payment of installments or when the installments received have already been utilized in some other project, In such a case compelling the Promoter to pay back the earnest amount since forfeiture is not a provision under RERA cannot be held justifiable.
Giving an earnest or earnest-money is a mode to signify assent to a contract of sale, by giving to the Promoter a nominal sum as a token that the parties are in earnest or have made up their minds. And a right to forfeit the Earnest amount arises from its very definition, since it represents a guarantee that the contract will be fulfilled or, it is given to bind the contract. It is forfeited when the transaction falls through by reason of default or failure of the purchaser. Unless, there is anything to the contrary in terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest[3].
Whether or not the RERA lays down a provision of forfeiture of earnest amount, it is the inherent right of the Promoter to forfeit the same.
It has been held in the case of in Maula Bux v. Union of India, that forfeiture of earnest under a contract of sale of property if the amount is reasonable, does not fall even within scope of section 74 as and does not amount to imposing penalty yet is liable to be forfeited.
Therefore in the above case, as well as the case of Amit Aggarwal Vs. M/S Godrej Property Limited, a need to recognize the right to compensation or tlease a right to forfeit earnest amount wherever it is reasonable is highlighted.
REFERENCES
[1] Kunwar Chiranjit Singh v. Har Swarup, AIR 1926 PC 1
[2] 1970 AIR 1986, 1970 SCR (3) 127
[3] Narendra Kumar Nakhat vs Nandi Hasbi Textile Mills Ltd., AIR 1997 Kant 185, 1998 92 CompCas 461 Ka
“Article by Ms Damini Srestha under internship of Adv Shankarlal Raheja
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