Order Name: Dhruv Upadhyaya Vs. M/S Capital Heights Pvt Ltd.
Case No.: C.C. No. 963/2017
The National Consumer Disputes Redressal Commission, led by Justice Ram Surat Maurya and Bharatkumar Pandya, recently ruled on an important case. They stated that any forfeiture of earnest money by a developer must be reasonable, not punitive, and should be backed by proof of actual damage.
Case Background
In this case, the complainant booked a flat in a Group Housing Project by M/s Capital Heights Private Limited. He trusted the developer and deposited Rs. 10 lakhs, receiving a 6% discount. The developer issued an allotment letter, promising possession within 36 months from the start of construction, with some grace periods. The complainant made additional payments, totaling Rs. 40,48,981. However, the construction was delayed significantly. During a site visit, only a partial structure was visible, with no electrical connections, entrance gates, lanes, or lifts. Essential facilities like a club, gym, and shops were missing, and there was no proper sewerage connection or road access. Frustrated by these delays, the complainant took the matter to the National Commission.
Developer’s Defense
The developer admitted to the booking, flat allotment, and the complainant’s payments. However, they argued that the complainant failed to make further payments, which they claimed caused the construction delays. They also pointed out an arbitration clause in the allotment letter and suggested that the complaint should not be maintainable in the current forum.
Commission’s Observations
The Commission noted that the allotment letter included a construction-linked payment plan, requiring payments at different stages. The complainant had stopped making payments after the initial 35%. The Commission reiterated that time is generally not the essence of building construction contracts. The allotment letter required reciprocal payment obligations, which the complainant breached after getting additional discounts. Thus, the earnest money was subject to forfeiture.
However, according to the Supreme Court rulings in Maula Bux v. Union of India and Kailash Nath Associates v. Delhi Development Authority, forfeiture must be reasonable and require proof of actual damage. The Commission observed that since the flat remained unsold with the developer, the actual damage was minimal. They also referenced previous cases where it was held that forfeiting 10% of the basic sale price is reasonable.
The complainant had also demanded an 18% interest, but the Supreme Court in Experion Developers Pvt. Ltd. v. Sushma Ashok Shiroor decided that 9% per annum is fair compensation for refunds, providing both restitution and compensation.
Commission’s Decision
The National Commission allowed the complaint and directed the developer to refund the entire amount deposited by the complainant, with interest at 9% per annum, after forfeiting 10% of the basic sale price.
Takeaway
This judgment underscores the importance of fairness in forfeiting earnest money. Developers cannot impose arbitrary penalties without demonstrating actual damage. For consumers, it highlights the significance of understanding reciprocal obligations in construction-linked payment plans.
