NCDRC Rules, 10% Forfeiture Of Earnest Money Reasonable In Default Of Payment Cases
Pranav B Prem
In a significant decision, the National Consumer Disputes Redressal Commission (NCDRC), presided over by AVM J. Rajendra (Retd.) and Justice Sudhir Kumar Jain, held that forfeiture of 10% of the earnest money in default of payment cases is a reasonable amount. The Commission dismissed a complaint of deficiency in service against Taneja Developers while reducing the forfeiture amount from 20% to 10%, holding that deductions beyond a reasonable amount amount to a penalty and are not legally sustainable.
Factual Background
The case arose from a residential plot booking by the complainant, Vishal Saxena, with Taneja Developers. An allotment letter was issued to him confirming Plot No. 795, and he was informed that a particular bank was an approved lender for the project. Acting on this, the complainant approached the said bank for a loan. However, the developer failed to issue the requisite No Objection Certificate (NOC) and did not sign the tripartite agreement necessary for the loan disbursement. Consequently, the loan could not be sanctioned, and the complainant was unable to continue with the scheduled payments.
Despite having already paid ₹5,21,250 towards the purchase of the plot, the developer cancelled the allotment, citing non-payment. The complainant filed a consumer complaint, alleging that the cancellation was unjustified and amounted to a deficiency in service.
The State Consumer Disputes Redressal Commission, Delhi partly allowed the complaint. It upheld the cancellation but directed the developer to refund ₹91,250 after deducting ₹4,30,000 (20% of the sale price) as forfeiture. In case of delay, the entire amount was to be refunded with 6% interest per annum. Dissatisfied with this partial relief, the complainant approached the National Commission in appeal.
Contentions of the Parties
The developer argued that the complainant was not a consumer under the Consumer Protection Act as the plot was allegedly booked for investment purposes. They maintained that the complainant failed to make the payments despite reminders, and that the NOC was to be obtained from a third-party bank, not from the developer. They asserted that the cancellation was valid and as per the terms of the allotment letter, which allowed forfeiture of 20% of the total consideration in case of cancellation due to default.
The complainant contended that the failure to issue the NOC and execute the tripartite agreement with the bank prevented him from securing the loan. He had submitted the NOC request in the format prescribed by the developer, but no response was provided. He argued that this amounted to a deliberate obstruction, and the cancellation was not justified. He further submitted that the forfeiture of such a high amount was punitive and disproportionate, especially when the delay in payment resulted from the developer's inaction.
Findings of the National Commission
The NCDRC held that the complainant qualified as a consumer and rejected the developer’s contention that the plot was booked for commercial purposes. It observed that the developer failed to provide any material to prove that the complainant regularly engaged in buying and selling properties for profit.
While the Commission did not interfere with the finding that the cancellation of the booking was justified due to the complainant’s failure to complete the payment schedule, it examined whether the amount forfeited by the developer was reasonable. It noted that the developer had forfeited ₹4,30,000, which constituted 20% of the total sale price of ₹21,50,000.
The Commission relied on the recent Supreme Court judgment in Godrej Projects Development Ltd. v. Anil Karlekar & Ors [2025], which reiterated that forfeiture of earnest money should not exceed 10% and any amount beyond that becomes a penalty under Section 74 of the Indian Contract Act, 1872. The Court in that case had held that while a reasonable forfeiture is not penal, a higher forfeiture is unenforceable. The NCDRC also referred to its earlier decision in DLF Ltd. v. Bhagwanti Narula, where a 10% forfeiture was held to be reasonable and binding. It concluded that the forfeiture of 20% of the sale consideration in the present case was excessive and could not be sustained.
Final Directions
The Commission reduced the forfeiture amount from ₹4,30,000 (20%) to ₹2,15,000 (10%) and directed the developer to refund the balance amount of ₹3,06,250 to the complainant. It also directed the refund to be paid with 9% interest per annum from the date of deposit till the date of actual payment. In the event of delay, the interest rate would increase to 12% per annum for the entire period of delay. In addition, the Commission awarded ₹50,000 as litigation costs to the complainant. With these modifications, the appeal was partly allowed, and the State Commission’s order was accordingly revised.
Appearance
For Appellant: Mr. Prateek Gupta & Mr. Raghav Tiwari, Advocates
For Respondents: Ms. Niharika Ahluwlaia, Adv. (VC) & Mr. Arpit Sharma, Advocate for R-1 Ms. Jaya Tomar, Advocate for R-2 (VC)
Cause Title: Vishal Saxena V. Taneja Developers & Infrastructure Limited
Case No: F.A. No. 683 of 2022
Coram: Hon'ble AVM J Rajendra AVSM, VSM (Retd) [Presiding Member], Hon’ble Mr. Justice Anoop Kumar Mendiratta [Member]
