Construction-Linked Instalments and Mandatory Proof of Demand-Notice Service as Preconditions to Cancellation, “Full & Final Settlement”, and Forfeiture
1. Introduction
In M/S R C SOOD & CO DEVELOPERS PVT LTD v. SHARAD MAHESHWARI & ANR (Delhi High Court, decided on
18-05-2026), the Appellant-developer (Eros Group) challenged a decree directing refund of
₹18,00,000 (with 6% p.a. pendente lite and future interest) to the Respondent-allottees.
The dispute arose from a villa allotment in the developer’s project “Rosewood City” (Gurgaon), where the allottees paid
substantial sums under an Agreement to Sell dated 27.02.2008, faced cancellation allegedly for non-payment,
and later received a partial refund stated to be in “full and final settlement”.
The case presented recurring issues in builder–buyer disputes: whether instalments were time-linked or
construction-linked, whether contractual demand notices were properly served, whether cancellation and
forfeiture clauses could be triggered without compliance, and whether a “full and final settlement” could bar a claim when
alleged to be extracted under coercion/unequal bargaining power.
Key Parties
- Appellant/Defendant: M/s R. C. Sood & Co. Developers Pvt. Ltd. (Eros Group), real estate developer.
- Respondents/Plaintiffs: Sharad Maheshwari and Vandana Maheshwari, villa allottees.
Core Issues (as crystallised by the High Court’s treatment)
- Were instalments under Schedule ‘A’ time-linked or construction-linked?
- Were Demand Letters a contractual prerequisite, and was their service proved as per Clause 45?
- Was the cancellation dated 09.03.2009 justified?
- Was the settlement dated 27.06.2009 voluntary and binding?
- Was deduction/forfeiture of ₹18,00,000 legally sustainable under Section 74 of the Indian Contract Act, 1872?
2. Summary of the Judgment
The Delhi High Court dismissed the developer’s appeal and affirmed the trial court’s decree. The Court held, in substance, that:
- Schedule ‘A’ showed instalments were construction-linked, because payment requests were to follow the construction schedule.
- Demand for instalments depended on issuance/service of a Letter of Demand; the developer failed to prove service as required by Clause 45 (Registered AD).
- Since default was not established, cancellation on 09.03.2009 for non-payment was illegal.
- The purported “full and final settlement” could not defeat the claim where the Court found acceptance occurred in a context of dominant bargaining power and protest, amounting to coercive circumstances.
- Retention of ₹18,00,000 operated as forfeiture and was impermissible absent proof of actual loss under Section 74.
3. Analysis
A. Precedents Cited
This authority (relied upon by the Appellant, but applied in principle by the Court’s approach to Section 74) stands for the
proposition that forfeiture of amounts styled as earnest/liquidated damages cannot be automatic; the party retaining money
must demonstrate loss/damage (save in narrow categories where loss is impossible to prove and the sum is a genuine pre-estimate).
The High Court’s reasoning on Section 74 aligns with this doctrine: absent pleading and evidence of loss, retention of ₹18,00,000
could not be justified merely by pointing to a forfeiture clause.
2) Rakesh Kumar v. Vinod Vats, RFA 181/2017
Cited by the Appellant for the proposition that sellers cannot forfeit beyond a nominal amount without proof of loss, this Delhi
High Court precedent reinforced the Section 74 discipline in property transactions. The Court in the present case treated the
developer’s retention as a forfeiture requiring proof of loss, effectively applying the same normative constraint.
The Appellant invoked Satish Batra to argue that earnest money can be forfeited when the purchaser defaults. The present
judgment distinguishes the factual and legal foundation needed to reach that result: the developer first had to establish a
purchaser default in accordance with the contract (construction-linked triggers and valid demand notice service). Since default
itself was not proved, the forfeiture rationale of Satish Batra could not carry the developer.
4) New India Assurance Company Ltd. v. Genus Power Infrastructure Ltd., (2015) 2 SCC 424
The Appellant relied on this case to contend that a bald plea of coercion/duress/undue influence is insufficient without cogent
material. The High Court, however, evaluated coercion as a question of fact from surrounding circumstances—particularly the
developer’s dominant position (holding the bulk of the buyer’s money), the disputed legality of cancellation, and the buyer’s
immediate email asserting payment was “under protest”. Thus, while acknowledging the general requirement of material to support
coercion, the Court found adequate contextual indicators to uphold the trial court’s finding.
5) Wishwa Mittar Bajaj & Sons v. BPTP Ltd., OMP (Comm.) No. 427/2017 dated 21.12.2017
Cited for the proposition that execution of an Indemnity-cum-Undertaking may bar later challenge on duress. The High Court did not
adopt an absolute bar. Instead, it treated “full and final settlement” as enforceable only if founded on free consent,
and held that the factual matrix here undermined voluntariness—thereby limiting the reach of such undertakings when circumstances
indicate coercive bargaining.
6) Mihir Buildcon Pvt. Ltd. v. Ajnara Infrastructure (P) Ltd., (2016) SCC Online Del 5367
Similar to Wishwa Mittar Bajaj & Sons, relied upon to argue that undertakings/indemnities foreclose later dispute. The Court’s
analysis signals that such documents are not self-validating: if the underlying cancellation/forfeiture is unlawful and the settlement
is not voluntary, the documents cannot be used to immunize illegal retention of money.
7) Ambika Construction v. Union of India, (2006) 13 SCC 475
Relied upon by the Respondents to support the maxim Necessitas non habet legem and the idea that necessity/compulsion can
explain why a party signs an adverse settlement. The High Court treated this principle as relevant to assessing whether the buyer
accepted the reduced amount due to lack of practical alternatives, rather than as a standalone rule invalidating settlements.
Cited to bolster the proposition that “no-claim” certificates and settlements do not automatically bar claims where coercion/undue influence
is present. The present judgment follows the broader Supreme Court approach: voluntariness and free consent are central; where a party’s
bargaining position is overwhelmingly weaker and the acceptance is under protest, “accord and satisfaction” may fail.
9) NTPC Limited v. Reshmi Construction (as referenced in the judgment)
The judgment also references this formulation while discussing the same doctrinal line: settlement/receipt language is not conclusive if the
circumstances show compulsion or lack of free consent.
B. Legal Reasoning
1) Instalments were construction-linked (not purely calendar-based)
The developer’s central submission was that the payment plan was time-linked—instalments payable on specified dates regardless of progress.
The Court rejected this by closely reading Schedule ‘A’: while timeframes were mentioned, the schedule ended with a decisive qualification:
“the sequencing mentioned above is indicative; payments will be requested according to the construction schedule.”
This clause transformed the plan into a construction-linked trigger mechanism—the developer could not insist on payment without
correlating demand to the actual stage of construction. The Court reinforced this interpretation by noting the developer’s own witness (DW-1)
admitted in cross-examination that payments were required to be made as per actual progress, yet the developer failed to produce the actual
construction schedule or evidence of the construction stage at the relevant time.
2) Demand Letters were a contractual prerequisite, and service had to be proved as per Clause 45
Two contractual layers governed “default”:
- Trigger: construction progress (as above); and
- Maturity: Schedule ‘A’ made payment due within 15 days of issuance of a Letter of Demand.
The Court then enforced Clause 45, which mandated service of notices by pre-paid Registered Acknowledgement Due Post.
The developer placed demand letters on record (27.09.2008, 20.12.2008, 19.02.2009) but produced no postal receipts or acknowledgements.
The allottees denied receipt. Consequently, the evidentiary burden to prove service was not discharged, and the Court held default could not be
attributed to the buyers.
3) Cancellation for non-payment was illegal in absence of proved default
The cancellation letter dated 09.03.2009 was admitted to have been served. However, its legality depended on whether the developer had
validly demanded instalments and whether the allottees were truly in default. Since:
- instalments were not shown to be due with reference to construction progress; and
- demand notices were not proved served as contractually required,
the Court concluded there was no valid basis for termination. Hence, cancellation was “illegal, arbitrary, and unjustified”.
4) “Full and final settlement” must be founded on free consent; protest and unequal bargaining power can negate accord and satisfaction
The developer argued that after cancellation, the allottees voluntarily sought cancellation/refund and accepted ₹44,00,000 as full settlement,
supported by undertakings/indemnity documents executed on 27.06.2009. The Court analysed the surrounding sequence:
- the developer held the buyers’ large payment (record reflects ₹62,00,000 paid; the judgment later notes ₹66,00,000, but the operative reasoning
addresses the disputed retained component of ₹18,00,000);
- cancellation and forfeiture were asserted by the developer as faits accomplis;
- negotiations for an alternative villa failed; and
- the buyer promptly emailed on 30.06.2009 that the payment was accepted “under protest”.
Against this backdrop, the Court treated the developer as occupying a dominant position and upheld the trial court’s finding that
acceptance of the reduced refund was vitiated by coercion/undue influence. Therefore, the settlement did not extinguish the residual claim.
5) Forfeiture of ₹18,00,000 required proof of loss under Section 74
Even assuming a contractual forfeiture clause, the Court placed the retention of ₹18,00,000 within Section 74 of the Indian Contract Act, 1872:
compensation stipulated in a contract cannot be retained punitively; the party seeking it must show loss/damage (subject to settled exceptions).
The Court found:
- the developer neither pleaded nor proved any actual loss; and
- the circumstances suggested the developer may have re-dealt with the villa (offering an alternative and refusing restoration), undermining any claim of loss.
Therefore, retention of ₹18,00,000 was treated as illegal forfeiture, warranting refund with interest.
C. Impact
1) Strengthening contractual discipline in builder–buyer demand and termination
The judgment reinforces that developers cannot invoke cancellation/forfeiture clauses in isolation; they must first prove compliance with contractual
prerequisites—especially where the contract prescribes:
- a specific mode of service for notices (Registered AD); and
- a requirement that instalments become due only after demand and/or construction milestones.
2) “Full and final settlement” is not a universal shield in consumer-facing real estate disputes
The Court’s approach cautions that receipts/undertakings and “no-claim” style documents will be tested against the reality of bargaining power,
contemporaneous protest, and the legality of the underlying developer action (cancellation/forfeiture). This is especially relevant in situations where
the developer holds a substantial portion of the buyer’s funds, creating practical compulsion.
3) Reaffirmation of Section 74 limits on forfeiture in property contracts
By treating the retained sum as forfeiture requiring proof of loss, the decision aligns builder–buyer disputes with the mainstream Section 74 framework.
The practical effect is to discourage windfall retention in the name of “earnest money” when loss is unproved.
4. Complex Concepts Simplified
“Construction-linked” vs “time-linked” instalments
- Time-linked: Pay on fixed calendar dates, irrespective of construction progress.
- Construction-linked: Pay when construction reaches defined stages; dates are indicative, but the trigger is progress and a corresponding demand.
Here, the schedule’s own qualifier—payments requested according to the construction schedule—tilted the contract toward construction-linked instalments.
Demand notice and proof of service (Clause 45)
When a contract says notices “shall be deemed served” only if sent by a prescribed method (Registered AD), the sender must be able to prove dispatch/service
(postal receipt/acknowledgement). Without that proof, the recipient’s “default” is hard to establish.
“Full and final settlement” / accord and satisfaction
A dispute may be settled if both sides freely agree to accept a revised outcome (e.g., lesser refund). But if acceptance is under protest, or the consent is
tainted by coercion/undue influence, the settlement may not extinguish the original claim.
Section 74 (Indian Contract Act, 1872) and forfeiture
A contract may specify an amount to be paid/retained upon breach, but courts generally require proof of loss or at least a basis for “reasonable compensation”.
Keeping money purely as a penalty—without showing damage—is typically impermissible.
“Necessitas non habet legem”
Literally “necessity knows no law”: used here to explain how a party may sign unfavorable documents when constrained by circumstances (e.g., needing partial refund
to mitigate loss), which can support a finding that consent was not truly free.
5. Conclusion
The Delhi High Court’s decision is significant for the rule-set it operationalizes in builder–buyer cancellation and refund disputes:
(i) instalment obligations must be interpreted in light of schedule qualifiers—here making them construction-linked;
(ii) where demand notices are a prerequisite, the developer must prove service in the contractually mandated mode;
(iii) cancellation for “default” fails if default is unproved;
(iv) “full and final settlement” language and undertakings do not automatically bar claims where the facts show dominant bargaining power and protest; and
(v) forfeiture/retention of money requires proof of loss under Section 74.
By affirming refund of the retained ₹18,00,000 with 6% interest, the Court underscores that contractual forfeiture clauses and settlement documentation cannot be
used to legitimize unsupported deductions—particularly where procedural and substantive prerequisites to cancellation were not met.