HON'BLE MR. JUSTICE V.K.JAIN, PRESIDING MEMBER (ORAL) IA/95/2020 (C/delay)
This is an application seeking condonation of delay in filing the consumer complaint. There is stated to be delay of 160 days in filing the consumer complaint if computed from the date of cancellation of the allotment. It is stated in the application that complainant No.2 Mrs. Asha Malhotra was suffering from Parkinson and was taking treatment for the said disease. The documents evidencing her ailment have already been filed alongwith IA/15174/2019 whereby preponment of the hearing was sought. The documents would show that Mrs. Asha Malhotra was treated at Paras Hospital, Fortis Hospital and Medanta Hospital for Parkinson. Complainant No.1 being her husband must obviously be with her in connection with her treatment. In these circumstances, the delay in institution of the consumer complaint stands fully explained, the first priority of the complainant obviously being to take treatment of Mrs. Asha Malhotra. Hence, the delay in institution of the consumer complaint is condoned. The IA stands disposed of.
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CC/220/2019
The complainants booked a residential apartment with the OP namely Ireo Grace Realtech Pvt. Ltd. in a project namely, 'The Corridors' which the OP was to develop in Sector- 67A of Gurgaon. They made an initial payment of Rs.12 lacs to the OP followed by a payment of Rs.16,14,882/- on 06.05.2013. The allotment letter to the complainants was issued on 07.08.2013. An agreement between the parties was thereafter, executed on 14.03.2014. The following was the payment plan agreed by the complainants with the OP:
| INSTALLMENT PAYMENT PLAN |
| S.NO. |
INKED STAGES |
% |
TOTAL (In Rs.) |
| 1 |
t the time of booking |
10% of Basic |
1365215.60 |
| 2 |
ithin 45 days of booking |
10% of Basic |
1365215.60 |
| 3 |
ommencement of xcavation |
10% of Basic + 25% of PLC + 50% of Development Charges |
2052208.42 |
| 4 |
asting of lower basement oof slab |
10% of Basic + 25% of PLC + 50% of Development Charges |
2052208.42 |
| 5 |
asting of 2nd Floor Roof lab |
10% of Basic + 25% of PLC |
1808910.67 |
| 6 |
asting of 4th Floor Roof lab |
10% of Basic + 25% of PLC |
1808910.67 |
| 7 |
asting of 6th Floor Roof lab |
10% of Basic + 50% of Club Membership |
1490215.60 |
| 8 |
asting of 8th Floor Roof lab |
10% of Basic |
1365215.60 |
| 9 |
asting of Top Floor Roof |
10% of Basic |
1365215.60 |
Slab
9 Casting of Top Floor Roof 10% of Basic 1365215.60
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Slab On completion of stone/tile 5% of Basic + 50% of
10 807607.80
flooring in apartment Club Membership 5% of Basic + 100% of
11 On offer of possession 905197.30 IFMS + 100% of IBRF
TOTAL 16386121.28
2. The complainants having not made any further payment after paying Rs.16,14,882/-, the allotment was cancelled vide letter dated 01.09.2016, which to the extent it is relevant, reads as under:
There is an amount of Rs.11209884/- outstanding against you (Rupees One Crore Twelve Lakhs Nine Thousand Eight Hundred Eighty Hundred only) which is due and payable by you in terms of the said agreement and the payment plan agreed to by you. We have made several requests to you to make the payment of the said outstanding amount. We have also sent you payment requests dated 18.03.2014, 03.03.2015, 03.02.2016, 23.03.2016, 02.06.2016, 26.04.2016 (payment requests for the payment of the said amounts).
We have already issued you the final notice dated 28.07.2016 giving you the final opportunity to make payment of the due amount, within 30 days from the date of the said final notice failing which you were informed that your allotment would be cancelled.
3. Being aggrieved from the forfeiture made by the OP, the complainants are before this Commission seeking refund of the amount of Rs.28,14,882/- with compensation etc.
4. The complaint has been resisted by the OP which has admitted the allotment made to the complainants, payment received from them as well as the agreements which the OP had executed with them. It is however, stated in the written version filed by the OP that the complainants had failed to pay further installments despite demand letters sent by the OP and therefore, the allotment was cancelled and in terms of clause 21.3 of the agreement, the earnest money, the interest on delayed payments, brokerage/commission charges and service tax were forfeited, the forfeitable amount being more than the amount actually paid by the complainants.
5. The first question which arises for consideration in this case is as to whether the cancellation of the allotment and forefeiture was justified or not. As noted earlier, in terms of the payment plan agreed by them, the complainants were required to pay a sum of
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Rs.20,52,208.42/- each on commencement of construction and on casting of lower basement roof slab, Rs.18,08,910.67/- each on the casting of 2ndfloor roof slab and 4thfloor roof slab. Further payments linked with the stage of construction were also required to be made by them.
6. A perusal of the cancellation letter dated 01.09.2016 would show that as much as Rs.1,12,09,884/- was outstanding against the complainants at the time the agreement was cancelled and the OP had been demanding payment vide its letters dated 18.03.2014, 03.05.2015, 03.02.2016, 23.03.2016, 02.06.2016 and 26.04.2016. The aforesaid letter also shows that the demand letters were followed by a final demand notice dated 28.07.2016.
7. The complainants have not disputed the receipt of the cancellation letter dated 01.09.2016 they themselves having filed a copy of the said letter. The complainants themselves have placed on record the emails exchanged between the parties after the cancellation letter dated 01.09.2016 was received by them. In their e-mail dated 19.09.2016, the complainants acknowledged receipt of the cancellation letter and stated that they were in a very critical crisis due to financial crunch and therefore, refund may be initiated. It was nowhere even claimed in the aforesaid e-mail that the letters dated 18.03.2014, 03.05.2015, 03.02.2016, 23.03.2016, 02.06.2016 and 26.04.2016 or the final demand notice dated 28.07.2016 had not been received by the complainants. There is no such averment even in the subsequent e-mails sent by the complainants to the OP, the said e-mails being dated 20.10.2016 (page no.119 of the paper-book), 02.12.2016 (page no.120 of the paper-book), 05.12.2016 (page no.121 of the paper-book), 07.12.2016 (page no.122 of the paper-book), 15.12.2016 (page no.123 of the paper-book), 07.01.2017 (page no.124 of the paper-book). The aforesaid conduct of the complainants is a clear indicator that the letters and the final notice referred in the cancellation letter had been duly received by them and that was the reason the receipt of the said letters and final notice was not denied by them in any of the e-mails referred above. The e-mails filed by the complainants would show that they themselves had also requested the OP even before the cancellation letter dated 01.09.2016 to cancel the allotment and refund the amount which they had paid to the OP. The refund was sought on compassionate grounds and on account of inability of complainants to make payments of further installments. These e-mails are dated 23.05.2016, 26.05.2016, 05.08.2016 and 10.08.2016. It appears from the e-mail dated 21.08.2015 that the complainants had sought refund on the ground that they were in a financial difficulty having no source of regular income and the complainant no.2 suffering from a chronic illness. It was clearly stated in the said e- mails that the complainants were not in a position to make further payments for the apartments. It is thus evident that the complainants were not interested in making any further payment to the OP and wanted refund of the amount which they had paid to the OP though they did not want any kind of deduction from that amount.
8. Clauses 21.1 and 21.3 of the agreement executed between the parties, to the extent they are relevant, read as under:
21.1 If the allottee neglects, omits, ignores or fails in the timely performance of its obligations agreed or stipulated herein for any reason whatsoever or acts in any manner, contrary to any undertaking assured herein or fails to exercise the options offered by the company within stipulated period or to pay in time to the company any of the installments or other amounts and charges due and payable by the allottee by respective due dates or in case of default by the allottee as described in clause 7.7
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herein, the company shall be entitled to cancel the allotment and terminate this agreement in the manner described hereunder.
21.3 The allottee understands, agrees and consents that upon such termination, the company shall be under no obligation save and except to refund the amounts already paid by allottee to the company without any interest, and after forfeiting and deducting the earnest money, interest on delayed payments,
brokerage/commission/charges/service tax and other amounts due and payable to it, only after resale of the said apartment upon termination of the agreement by the company, save for the right to refund, if any to the extent agreed hereinabove, the allotee should have no further right or claim against the company and/or the confirming parties which, if any, shall be deemed to have been waived of by the allottee and the allottee hereby expressly consents thereto.
9. In view of the aforesaid clauses contained in the agreement between the parties, the OP was entitled to forfeiture of earnest money, but the forfeiture can be made only to the extent it is permissible in law. The question as to how much amount can in such a situation be forfeited by the builder, came up for the consideration of this Commission in CC No.1831 of 2016 V. Siva Kumar Vs. M/s M3M India Private Limited & Anr. dated 29.03.2019. In the above referred case, the complainants had deposited a sum of Rs.10 lacs at the time of booking and the basic price of the unit was agreed at Rs.1,04,61,950/-. The complainants having defaulted in making payment in terms of the payment plan agreed by them with the builder, the allotment was cancelled. Being aggrieved, the complainants approached this Commission seeking refund of the amount by way of a Consumer Complaint. Upholding the cancellation of the allotment and permitting the forfeiture only to the extent of Rs.10 lacs, this Commission inter- alia held as under:
This issue came up for consideration before this Commission in RP No.3860 of 2014 - DLF Ltd. Vs. Bhagwanti Narula decided on 6.1.2015 and the following view taken by this Commission is relevant in this regard:-
"5. Clause 8, 9 and 40 of the Agreement, on which reliance is placed by the Petitioner Company read as under:
"8. THAT the Company and the Apartment Allottee hereby agree that the amounts paid on registration to the extent of 20% of the sale price of the said premises, and on allotment or in instalments as the case may be, will collectively constitute the earnest money.
9. THAT the time of payment of instalments as stated in schedule of payment (Annexure II) is the essence of this contract. It shall be incumbent on the Apartment Allottee to comply with the terms of payment and other terms and conditions of sale, failing which he shall forfeit to the Company the entire amount of earnest money and
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the Agreement of sale shall stand cancelled and the Apartment Allottee shall be left with no lien on the said premises. The Company shall thereafter be free to deal with the said premises in any manner whatsoever, at its sole discretion. The amount(s), if any, paid over and above the earnest money shall be refunded to the Apartment Allottee by the Company without any interest.
40. THAT all notices to be served on the Apartment Allottees as contemplated by this Agreement shall be deemed to have been duly served if sent to the Apartment Allottee by pre-paid post under certificate of posting at his address specified below viz. Mrs. Bhagwanti Narula
B-1/1585, Vasant Kunj
New Delhi
and it shall be responsibility of the Apartment Allottee to inform the Company by a registered (A.D.) letter about all subsequent changes, if any, in his address, failing which, all communications and letters posted at the first registered address will be deemed to have been received by him at the time when those would ordinarily reach at such address and the Apartment Allottee shall be fully liable for any default in payment and other consequences that may occur therefrom".
7. It is also evident from a perusal of Clause 9 of the Agreement that in the event of failure of the complainant to make payment in terms of the agreement between the parties, the Petitioner Company was entitled to forfeit the entire amount of the earnest money and the Agreement to Sell was to stand cancelled. In view of the aforesaid Clause, it cannot be disputed that since the complainant had failed to make payment as per her Agreement with the Petitioner Company, the Agreement between the parties could be cancelled and the Petitioner Company was entitled to forfeit the earnest money. However, the question which primarily arises for consideration in this case is as what would constitute the "earnest money" and to what extent the Petitioner Company is entitled to forfeit the same. The contention of the petitioner is that as agreed by the parties in terms of Clause 8 of the Agreement, 20% of the sale price, irrespective of the stage at which the payment was made constitutes earnest money whereas the case of the complainant as submitted during the course of arguments was that only the amount of Rs.63,469/- which was paid at the time of booking the apartment can be said to be the earnest money and only that amount could be forfeited.
8. In Maula Bux Vs. Union of India - 1969 (2) SCC 554, the Hon'ble Supreme Court quoted the following observations made by the Judicial Committee in Kunwar Chiranjit Singh Vs. Har Swarup - AIR 1926 PC 1 -
"Earnest money is part of the purchase price when the transaction goes forward; it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee".
9. In Shree Hanuman Cotton Mills & Ors. Vs. Tata Air Craft Ltd. - 1969 (3) SCC
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522, the Hon'ble Supreme Court quoted the following characteristics of the earnest money -
"15. Borrows, in Words & Phrases, Vol. II, gives the characteristics of "earnest". According to the author,
"An earnest must be a tangible thing. That thing must be given at the moment at which the contract is concluded, because it is something given to bind the contract, and, therefore, it must come into existence at the making or conclusion of the contract. The thing given in that way must be given by the contracting party who gives it, as an earnest or token of good faith, and as a guarantee that he will fulfil his contract, and subject to the terms that if, owing to his default, the contract goes off, it will be forfeited. If, on the other hand, the contract is fulfilled, an earnest may still serve a further purpose and operate by way of part payment."
After considering several decisions on the subject, the following principles were laid down by the Hon'ble Supreme Court regarding 'earnest':
(1) It must be given at the moment at which the contract is concluded.
(2) It represents a guarantee that the contract will be fulfilled or, in other words, 'earnest' is given to bind the contract.
(3) It is part of the purchase price when the transaction is carried out.
(4) It is forfeited when the transaction falls through by reason of the default or failure of the purchaser.
(5) Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest". The above referred principles were reiterated in Satish Batra Vs. Sudhir Rawal - (2013) 1 SCC 345. It would, thus, be seen that only that amount would constitute earnest money which is paid at the time of contract is concluded between the parties. Any payment made after the contract is concluded, cannot be said to be part of the earnest money. In the case before us, admittedly, only a sum of Rs.63,469/- was paid to the Petitioner Company at the time the deal was concluded between the parties. Therefore, in view of the above said referred authoritative pronouncements of the Hon'ble Supreme Court, only the aforesaid forfeited amount can constitute earnest money.
10. In Maula Bux case (Supra), the Hon'ble Supreme Court took the following view with respect to forfeiture of the earnest money -
"5. Forfeiture of earnest money under a contract for sale of property-movable or immovable--if the amount is reasonable, does not fall within s. 74. That has been decided in several cases: Kunwar Chiranjit Singh v. Hat Swarup (t); Roshan Lal v. The Delhi Cloth and General Mills Company Ltd., Delhi (2); Muhammad Habibullah v. Muhammad Shafi (3); Bishan Chand v. Radha Kishan Das(4); These cases are easily
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explained, for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, s. 74 applies".
It would thus be seen that only a 'reasonable amount' can be forfeited as earnest money in the event of default on the part of the purchaser and it is not permissible in law to forfeit any amount beyond a reasonable amount, unless it is shown that the person forfeiting the said amount had actually suffered loss to the extent of the amount forfeited by him. In our opinion, 20% of the sale price cannot be said to be a reasonable amount which the Petitioner Company could have forfeited on account of default on the part of the complainant unless it can show it had only suffered loss to the extent the amount was forfeited by it. In our opinion, in absence of evidence of actual loss, forfeiture of any amount exceeding 10% of the sale price cannot be said to be a reasonable amount.
13. For the reasons stated herein above, we hold that (i) an amount exceeding 10% of the total price cannot be forfeited by the seller, since forfeiture beyond 10% of the sale price would be unreasonable and (ii) only the amount, which is paid at the time of concluding the contract can be said to be the earnest money. The Petitioner Company, therefore, was entitled to forfeit only the sum of Rs.63,469/-, which the complainant had deposited with them at the time of booking of the apartment. We, therefore, direct the Petitioner Company to pay the balance amount of Rs.81,534/- to the complainant within 4 weeks from today, failing which, the said amount shall carry interest @ 12% p.a. from the date of this order till payment. However, in the facts and circumstances of the case, we find no justification for grant of any compensation or cost of litigation to the complainant. The orders passed by District Forum and State Commission stand modified accordingly."
10. Since the amount forfeited by the builder was much more than Rs.10 lacs, the forfeiture was sought to be justified on the basis of clause 7.3 of the agreement executed between the parties which reads as under:
"In the event the Company terminates this Agreement under the aforesaid Clause 7.2, any amount refundable to the Allottee shall be refunded, without interest or compensation only from the sale proceeds of the further sale/resale of the Commercial unit to another party."
Rejecting the contention and upholding the forfeiture only to the extent of Rs.10 lacs, that being the initial payment made by the complainants to the builder, this Commission inter- alia held as under:
11. In my opinion, the above-referred term contained in the Buyers Agreement being wholly one-sided and unjustified constitutes an unfair trade practice and therefore, is
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not binding upon the complainants. If the builder while retaining the earnest money which it has enjoyed for a substantial period also postpones the payment of the balance amount to him for an indefinite period till he is able to resell the said unit, that would be highly arbitrary and unreasonable since there would be no compulsion on the builder to resell the cancelled unit he knowing it that he will not have to refund the balance amount to the allottee till he resells the said unit.
12 For the reasons stated hereinabove, the complaint is disposed of with the following directions:-
1. The opposite party shall refund the entire amount received from the complainants against their unit after deducting a sum of Rs.10 lakhs from that amount.
2. The opposite party shall pay interest to the complainants @ 10% p.a. w.e.f. 14.11.2014 till 9.8.2016 on the amount of Rs.2253270/- w.e.f. 14.11.2014 till the date of refund on the balance amount.
11. This issue also came up for the consideration of this Commission in CC No.2765 of 2017 Sanjeev Rampal Vs. Experion Developers Pvt. Ltd. dated 13.09.2019 where the complainant had made an initial payment of Rs.7 lacs while submitting the application for booking an apartment. He having defaulted in payment of further installments, the complainants therein approached this Commission seeking refund of the entire amount paid by him to the builder. Rejecting the contention of the builder and upholding the forfeiture only to the extent of Rs.7 lacs, this Commission inter-alia held as under:
10. The learned counsel for the OP states that EDC and brokerage was also paid by the OP in respect of the flat allotted to the complainant and that should also be allowed to be forefeited. I however, find myself unable to accept the contention in view of the decision in Bhagwanti Narula (supra). As far as EDC is concerned, it is paid in respect of the entire project and the OP shall be entitled to charge it from the buyer to whom the flat in question is eventually sold. As far as the brokerage alleged to have been paid to the broker is concerned, that is an expense which the OP has to adjust out of the earnest money which it is allowed to forefeit.
11. For the reasons stated hereinabove, the OP is directed to refund the amount of Rs.33,19,586/- to the complainant alongwith simple interest on that amount @ 10% per annum w.e.f. the date on which the first default was committed by the complainant after restoration of the allotment.
12. In the present case, the complainants made initial payment of only Rs.12 lacs to the builder. Therefore, considering the view taken by this Commission in DLF Ltd. Vs. Bhagwanti Narula (supra), and other decisions referred hereinabove, the OP, in my opinion, could not have forfeited more than Rs.12 lacs though 10% of the total sale price of the flat would come to more than Rs.16 lacs.
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13. The next question which arises for consideration is as to whether in addition to the earnest money, the builder is also entitled to deduct interest on delayed payments, brokerage/commission charges and service charges from the amount which it had received from the complainants.
14. As noted earlier, dealing with a somewhat similar clause, this Commission had held in
Sanjeev Rampal (supra) that the EDC amount has to be recovered by the builder from the subsequent buyer to whom the flat is finally sold and the brokerage is an expense which the builder has to adjust out of the earnest money which it is allowed to forefeit.
15. In this case, the default on the part of the complainants happened when the third installment payable on commencement of excavation was not paid. In view of clause 21.1 of the agreement, the OP was entitled to cancel the allotment on account of the aforesaid default. If the OP did not cancel the allotment despite the default on the part of the complainants, it must necessarily pay interest on the amount which it was required to refund to the complainants w.e.f. the date on which the first default was committed. The OP, in my opinion, cannot simultaneously defer the cancellation of the allotment despite default by the allottee and also refused interest despite having utilized his money which it was bound to refund after deducting the permissible earnest money. Had the OP cancelled the allotment on the very first default committed by the complainants, there would have been no occasion for demanding any interest on the delayed payments. Therefore, the OP, in my opinion, is not entitled to any interest on the delayed payments. Once the default had happened, it ought to have cancelled the allotment, forfeited the permissible earnest money and refunded the balance amount to the complainants. As far as the service charges are concerned, the OP obviously would be entitled to recover it from the consequent purchaser of the flat and therefore, cannot be allowed to recover the same from the complainants and thereby making an unjust enrichment at the cost of the complainants. The brokerage/commission charges will have to be borne by the OP out of the earnest money which it is permitted to forfeit.
16. A perusal of the cancellation letter dated 01.09.2016 would show that the first demand letter after receiving the first two installments from the complainants, was sent by the OP on 18.03.2014. Giving a reasonable period of one month for making payment in terms of the said letter dated 18.03.2014, the default by the complainants came to be committed on 18.04.2014. Therefore, the OP, in my opinion, should pay interest on the balance amount payable to the complainants w.e.f. 18.04.2014. The learned counsel for the OP submits that the entire amount paid till the date of allotment would constitute earnest money or 20% of the price of the flat and could be forfeited. I however, cannot accept this contention in view of the decision of this Commission in Bhagwanti Narula (supra) which has been followed in the subsequent decision referred hereinabove.
17. For the reasons stated hereinabove, the Consumer Complaint is disposed of with the following directions:
(i) The OP shall refund an amount of Rs.16,14,882/- to the complainants alongwith interest on that amount @ 10% per annum w.e.f. 18.04.2014 till the date on which the said amount is actually refunded.
(ii) The payment shall be made within three months from today.
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(iii) No order as to costs.
......................J
V.K. JAIN
PRESIDING MEMBER
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