When is the builder right in for­feit­ing earnest money?

De­vel­op­ers can refuse to pay the money to buy­ers fail­ing to hon­our their com­mit­ment and not pay­ing in­stal­ments on time

HT Estates - - HTESTATES - Su­nil Tyagi

In a case de­cided in 2015, the Na­tional Con­sumer Dis­pute Re­dres­sal Com­mis­sion reaf­firmed the prin­ci­ple that no one can take ad­van­tage of a wrong done by him or her. Any­one who ap­proached a ju­di­cial fo­rum should do so with clean hands.

In this case, the com­plainant and his wife booked an apart­ment in a project by a re­puted builder and paid 10% of the to­tal cost as book­ing amount or earnest money. The builder raised sev­eral de­mands for sub­se­quent in­stal­ments and also asked the com­plainant to sign the buy­ers’ agree­ment. How­ever, t he com­plainant did not pay the in­stal­ments as de­manded, nor sign the buy­ers’ agree­ment de­spite re­peated let­ters and in­ti­ma­tions from the builder. Af­ter a de­lay of ap­prox­i­mately 18 months, the com­plainant through his lawyer sent a no­tice to the builder con­vey­ing his readi­ness to pay the in­stal­ments and in the al­ter­na­tive sought re­fund of the book­ing amount. The builder on the other hand is­sued can­cel­la­tion and for­feited the earnest money. The com­plainant then filed a com­plaint against the builder in the Dis­trict Fo­rum for de­liv­er­ing the apart­ment af­ter ac­cept­ing the sub­se­quent in­stal­ments or in the al­ter­na­tive, can­celling the al­lot­ment and re­fund­ing the earnest money. The Dis­trict Fo­rum ad­mit­ted the com­plaint and de­cided in favour of the com­plainant. On ap­peal, the State Com­mis­sion up­held the or­der of the Dis­trict Fo­rum.

The Na­tional Com­mis­sion re­lied on the Supreme Court’s ex­pla­na­tion re­gard­ing ‘earnest money’. Earnest money is that amount out of the to­tal pur­chase con­sid­er­a­tion which is a to­ken to bind the pur­chaser to the con­tract. Ac­cord­ingly, earnest money can be for­feited if the trans­ac­tion falls through by rea­son of the de­fault or fail­ure of the pur­chaser in per­form­ing his obligations - which ba­si­cally con­cern pay­ment of con­sid­er­a­tion, un­less there is any­thing to the con­trary in the terms of the con­tract. In this case, the com­plainant had de­faulted in pay­ment of in­stal­ment as per the sched­ule of pay­ment of the to­tal price of his apart­ment. Also, the com­plainant had not signed the buyer’s agree­ment or re­turned the signed copy to the builder within the time stip­u­lated for it de­spite re­peated re­minders for it. Thus, the Com­mis­sion held that the builder was not li­able to re­fund the earnest money as the trans­ac­tion had fallen through due to de­fault by the com­plainant.

Thus, in the present case the Na­tional Com­mis­sion de­cided in favour of the builder, up­hold­ing the for­fei­ture of earnest money as it was right­fully for­feited as per the agree­ment be­tween the builder and com­plainant and the de­fault in pay­ment of in­stal­ments as per the sched­ule of pay­ment. This case high­lights that the gen­eral per­cep­tion of builders be­ing wrong in all cases and that the right to for­feit earnest money de­pends on the con­duct of the par­ties ir­re­spec­tive whether he is a builder or a buyer.

IMAGESBAZAAR

De­vel­op­ers are not li­able to re­turn the book­ing amount to buy­ers who de­fault on pay­ments and want to opt out of a project

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