Can Earnest money be forfeited with respect to RERA Act, 2016?


Every person wants to have his property for a safe shelter. Buying a house on your own is one of the biggest ambitions and achievements one has in his life. It is not just a financial as well as an emotional investment. Real estate property is not an affordable asset. Sometimes people invest all their savings to own this asset. To bring about a refinement in functioning in the real estate sector, the Real Estate Regulatory Authority Act has been enacted in 2016 in interests of effective consumer protection, uniformity and establishing a standard form of business practices and transactions.

Earnest Money

The amount deposited by the consumer to the seller to secure an interest in the property and to confirm a contract or an agreement can be called as the earnest money. With respect to real estate, it is an amount paid to the seller by the promoter which could be up to 20 percent of the total property cost. This amount is usually not refundable as it is a confirmation cost and the promoter is liable for this amount. If the promoter later changes his decision due to any reason even in unforeseen circumstances, this amount cannot be refunded and the chances are narrowed down if there is an insertion of the non-refundable clause in the agreement. The amount paid apart from the earnest money deposit depends upon the agreed terms and conditions between the parties. This can be refunded with an additional interest in the circumstances where the seller steps back from the deal and with delay in the project or breach of the agreement by a promoter.

Forfeiture of Earnest Money not applicable

It is a voluntary interest shown by the buyer to the promoter in buying the property. There could be multiple financial issues which can cause obstacles and redefine the concept of forfeiture of this amount. For example, a buyer can pay earnest money to the promoter and then apply for loan. Scenarios tend to happen where the buyer’s loan may not get accepted due to non-eligibility of criteria according to the bank. High possibility of delays caused by the bank and it may not be able to provide loan to the buyer at the required position of the construction where payment is due. There can be also an instance where the possession date of the proposed property arrives a lot earlier than anticipated as per the agreement between the promoter and the buyer. In such cases, the buyer may not be able to arrange money. This is not only limited to possession but could also involve other stages of payment such as slab completion in construction or could be any other amenity promised.

Misrepresentation can also play a major role as there are issues where the actual construction is not taking place according to the promised specifications by the promoter to the buyer. Such discrepancy may not fulfil the buyer’s requirement & may not be feasible for him later. Due to certain circumstances apart from ‘Act of God’, the promoter may not be able to deliver the project to the buyers in the scheduled time or maybe because of other crisis. According to RERA Act, such obstacle will be not exempted & will naturally take the situation towards the repayment of the amount received to the buyers.

Forfeiture of Earnest Money when applicable

Though, the buyer has an advantage in certain situations, it is not applicable to all conditions. If the buyer fails to perform his duties with respect to the promoter, he has the right to forfeit the earnest money. There can be an instance where the buyer has to withdraw from all other investments so that he can invest his money in the project of the promoter. If the promoter is enthusiastic towards modifying the agreement in favour of the buyer for certain clauses & yet he doesn’t want to go ahead with his decision of investing, then the promoter can forfeit the amount without any consent from the buyer. If the buyer doesn’t pay in the stipulated time, it can hamper the development process of the project because it is a mass calculation of the entire project cost and money from each buyer plays a vital role in the financial mechanics of the project. Here, the promoter can terminate the agreement and can forfeit the earnest money. Although, has to return the balance amount which the buyer may have paid earlier. The promoter will also have the right to sell the said flat to the new buyer which in the future. There has to be certainty that the payment made to the promoter is with respect to the earnest money. Payment made towards the part payment of consideration and not intended as earnest money shall make the forfeiture clause of earnest money applicable.


The forfeiture clause is not biased towards the promoter or the buyer. It is a clause to safeguard interests of both the parties & it thus pushes forward to perform their duties towards each other.  There are some restrictions imposed on the promoter though as he can’t ask for more than 20 percent of the total amount of the proposed property during the booking of the property by the buyer which is considered as earnest money provided it is mentioned in the clause of the sale agreement. If more than 20 percent amount is accepted by the promoter, it cannot be held legal as per RERA. It is also the duty of the seller to pay timely to the promoter as per proposed in the agreement. The motive of this clause was to maintain a security of the interest of the buyer towards the promoter & it was drafted in such a way that the promoter won’t take any advantage of it & also the buyer won’t hamper the financial construction process. Following the proper schedule of payment by the buyer also promotes the promoter to provide prompt service to the buyer by giving possession at the right time as promised to the buyer.

Article by Mr. Saurabh Pawar in June, 2021 while interning at the Chambers of Advocate Shankarlal Raheja.

Disclaimer: The views herein are personal and while careful attention has been given to ensure that the information is accurate the author assumes no liability or responsibility for any reliance thereon. This article is merely an information-sharing activity and is not a substitute for legal advice. It must be noted that we shall not be liable for any loss or damage caused due to any reliance thereof.