RAMESH MALHOTRA & 2 ORS. v. EMAAR MGF LAND LIMITED & ANR.

a reminder dated 11.12.2018 and additional payment was demanded from the complainants while offering possession. The complainants, however, are not interested in taking possession of the flat and have approached this Commission by way of this consumer complaint seeking refund of the amount paid by them to the builder along with interest and compensation etc. This is also their case that the flat in question was booked for complainant number 3 who is son of complainants number 1 and 2 and seeing the failure of the builder to complete the timely construction he has left for abroad and, therefore, they do not need this flat any more. The complaint has been resisted by the opposite party no. 1 which has, inter alia, stated in its written version that the possession had been offered to the complainants even before the institution of the consumer complaint and the complainants had defaulted in taking possession by paying the balance amount due from them.

3. The learned senior counsel appearing for the builder submits that the flat allotted to the complainants is still available with them and its possession can be given to the complainants on payment of the balance amount due from them. He also submits that the occupancy certificate was obtained by the developer on 17.10.2018 before offering possession to the complainants. Thus, in a nutshell, the developer is ready and willing to give possession on payment of the balance dues.

4. The learned senior counsel for the developer submits that since the construction started on 11.11.2013 the possession could have been delivered by them by 11.08.2017 on completion of 45 months which would include the grace period of three months. He further submits the possession having been offerred in October 2018, there is no unreasonable delay in offering possession of the allotted flat, the delay being only about one year and two months.

5. I am in agreement with the learned senior counsel for the builder that some delays in such large project was inevitable and in the facts and circumstances of the case the delay of one year and two months cannot be said to be unreasonable. Reliance in this regard is placed on the decision of this Commission in Vineet Kumar versus DLF Universal Ltd. I (2019) CPJ 444

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6. The complainants number 1 and 2, who are present through video conferencing, have consulted their counsel Mr. Tanuj Agarwal and having consulted the counsel they state that they do not want possession of the allotted flat and want only refund of the amount which they have paid to the builder along with interest and compensation. Though it has been pleaded in the consumer complaint that the flat in question was booked for complainant number 3 who is son of complainants number 1 and 2 and he having left for abroad, the complainants do not require the flat any more and want only refund of the amount paid to the builder with interest etc. The ground taken by the complainants for refusing to take possession of the flat does not seem to be justified, considering that the possession as per the agreement could be delivered by 11.08.2017, whereas the complainant number 3, according to the complainants number 1 and 2, left India way back in the year 2014. Therefore, the ground given by them for refusing to take possession does not seem to be justified.

7. The next question which arises for consideration is to what amount the complainants are entitled from the builder, despite there being no justification for refusing to take possession of the allotted flat, the delay in offering possession not being unreasonable. In my opinion, in such circumstances, the builder should be allowed to forfeit the earnest money which the buyer

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paid to it and it should refund the balance amount to the buyer, along with appropriate interest from the date on which first default in paying the unpaid installment was committed. The learned senior counsel for the developer submits that the installment which still remains unpaid was demanded by them on 25.05.2017 and should have been paid within 30 days meaning thereby that it could be paid by 24.06.2017. Therefore, the builder, in my opinion, should pay interest on the balance amount left after deducting the earnest money with effect from 25.06.2017.

8. The question as to what constitutes earnest money in such cases came up for 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 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.

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

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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 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".

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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 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."

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9. It is submitted by the learned senior counsel for the builder that as per the terms of the agreement, in a case where the buyer does not take possession after making the balance payment, the builder is entitled to deduct the earnest money as defined in the agreement as well as non-refundable advances and is liable to pay the balance amount, if any, without any interest, after selling the allotted flat.

10. In CC No. 220 of 2019 Karun Malhotra and Anr. Vs. M/S. IREO GRACE REALTECH PVT. LTD. & 2 ORS. dated 06.03.2020 clause 21.1 and 21.3 of the agreement executed between the parties 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 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.

Relying upon the above-referred clauses it was contended by the builder that they were entitled to forfeit the earnest money, interest on delayed payments, brokerage/commission charges and service tax. The contention was rejected by this Commission taking the following view:-

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 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.

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

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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.

11. In the present case, admittedly the complainants paid an initial amount of Rs. 10 lacs to the builder for booking a residential flat allotted to them. The said amount being the initial deposit made by them would constitute earnest money despite definition to the contrary given in the buyer agreement executed between the parties. The builder, in my opinion, should deduct only a sum of Rs. 10 lakhs out of the total amount received by it in the complainants either directly or through OP number 2 and the balance amount be refunded along with interest with effect from 25.06.2017.

12. As regards the terms of the agreement executed between the complainants and the builder, such agreements being wholly one sided constitutes an unfair trade practice and, therefore, cannot be bind the flat buyer. It has to be kept in mind that the initial payment was made by the complainants on 26.02.2013. The buyer's agreement came to be executed on 15.04.2013. The complainants had no option but to sign on the dotted lines they already having made initial payment to the builder even before the agreement came to be executed. A reference in this regard can be made to the decision of the Hon'ble Supreme Court in Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan, II (2019) CPJ 34 (SC)=III (2019) SLT 435=(2019) 5 SCC 725, which to the extent it is relevant, reads as under:

"6.6. Section 2(r) of the Consumer Protection Act, 1986 defines 'unfair trade practices' in the following words:

"'unfair trade practice' means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice …", and includes any of the practices enumerated therein. The provision is illustrative, and not exhaustive.

6.7. A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the

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builder. The contractual terms of the Agreement dated 8.5.2012 are ex facie one-sided, unfair, and unreasonable. The incorporation of such one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2(r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling the flats by the Builder."

13. The complainants have taken substantial loans from OP-2 HDFC Bank. The the amount with the complainants had raised by way of loan from HDFC Bank should be refunded by the builder along with same interest which the complainants had paid to the said Bank. The interest on the balance amount if any contributed by the complainants, considering all the facts and circumstances of the case should carry interest at the rate of 10% p.a.. The bank, of course, should be paid first before making any payment to the complainants. A reference is in this regard can be made to clause 8 of the tripartite agreement executed between the complainants, the Builder and the bank which reads as under:-

8. LOAN/FINANCE. The Company shall have the right and authority to raise finance, loan from any Financial Institution/Bank by way of mortgage /charge/securitization of receivables or in any other mode or manner by charge/ mortgage of the said Unit/Buildi9ng/Project subject to the condition that the said Unit shall be free from all encumbrances, at the time of, execution of Sale Deed. The Company/ Financial Institution/ Bank shall always have the first, charge on the said Unit for all their dues and other sums payable by the Allottee or in respect of any, loan granted to the Company.

14. The learned senior counsel states that the GST and service tax having already been deposited with the government should not be refunded. The aforesaid charges the builder would obviously be the recovering from the new buyer to whom the flat is inevitably sold by it and, therefore, I see no justification for permitting the builder to withhold the said amounts.

15. For the reasons stated hereinabove the complaint is disposed to with the following directions:-

(1) The opposite party shall be entitled to forfeit a sum of Rs.10 lacs out of the entire principal amount which it has received from the complainants either directly or through OP-2 HDFC Bank and shall refund the balance principal amount along with compensation in the form of interest on that amount, w.e.f. 25.06.2017 till the date of payment. The interest on the principal amount received by the builder from OP-2 HDFC Bank shall be paid at the same rate

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at which the bank has charged from the complainants. The balance principal amount, if any, shall be refunded to the complainants along with compensation in the form of simple interest on that amount at the rate of 10% with effect from 25.06.2017 till the date of payment. OP-2 Bank shall intimate to the OP-1 the amount payable by the complainants as on today within four weeks from today. The said amount shall be paid to the Bank at the earliest and in any case within six months from today. In the communication to be sent to OP1, the HDFC Bank shall give breakup of the principal amount as well as of the interest component along with rate at which interest was charged from time to time. Since the complainants have also been making payments to the bank in the interregenum, for the purpose of this order, the builder shall compute the interest on the principal amount received from the bank at the rate of interest conveyed to it by the bank. On the balance amount, which the complainants had contributed from their own funds, interest would be paid at the rate of 10% p.a.. As already stated interest would be payable with effect from 25.06.2017 till the date of payment.

(2) In the facts and circumstances of this case there shall be no order as to costs.

......................J

V.K. JAIN

PRESIDING MEMBER

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