Introduction
In Godrej Projects Development Ltd. v. Anil Karlekar & Ors., Civil Appeal No. 3334 of 2023 (judgment dated 3 February 2025), the Supreme Court adjudicated on the reasonableness of forfeiture clauses in builder-buyer agreements under the Consumer Protection Act. The Court struck down the 20% forfeiture clause in the builder’s contract as arbitrary and one-sided, holding that such clauses cannot operate to the detriment of consumers, particularly when contracts exhibit unequal bargaining power. While upholding the buyer’s right to a refund, the Court disallowed the award of interest, finding that the cancellation stemmed from market forces rather than any builder default.
1. Factual Background and Procedural History
The respondents (buyers) had booked a flat in the “Godrej Summit” project in Gurgaon by paying ₹10 lakhs in January 2014. On 20 June 2014, they were allotted Apartment No. C-1501 and entered into an Apartment Buyer Agreement with Godrej Projects. The project was completed and possession offered on 28 June 2017.
Citing recession in the real estate market and better pricing for similar flats, the buyers refused to take possession and sought cancellation with a full refund. Godrej agreed to refund only ₹4.22 lakhs, citing a contractual forfeiture clause that allowed retention of 20% of the Basic Sale Price (BSP), i.e., ₹17.08 lakhs. The buyers then filed Consumer Complaint No. 262 of 2018 before the National Consumer Disputes Redressal Commission (NCDRC), which allowed partial relief by reducing forfeiture to 10% and awarding 6% interest.
Aggrieved, the builder appealed to the Supreme Court.
2. Identification of Legal Issues
- Whether a forfeiture clause allowing deduction of 20% of BSP is legally valid and enforceable under consumer law.
- Whether the NCDRC was justified in interfering with the contractual terms by limiting forfeiture to 10%.
- Whether interest is payable when the buyer cancels the allotment voluntarily without fault on the part of the builder.
- Whether one-sided clauses in builder-buyer agreements amount to “unfair trade practices” or “unfair contracts.”
3. Arguments of the Parties
Appellant – Godrej Projects Development Ltd.:
- Argued that the buyer agreement clearly stipulated forfeiture of 20% BSP upon cancellation by the buyer.
- Relied on Satish Batra v. Sudhir Rawal (2013) 1 SCC 345 and Desh Raj v. Rohtash Singh (2023) 3 SCC 714 to support contractual enforcement of earnest money forfeiture.
- Claimed that cancellation was due to the buyer’s dissatisfaction with market prices, and not any fault by the developer.
Respondents – Buyers:
- Argued the clause was one-sided and unconscionable, thus unenforceable under consumer law.
- Relied on Pioneer Urban Land v. Govindan Raghavan (2019) 5 SCC 725, Ireo Grace Realtech v. Abhishek Khanna (2021) 3 SCC 241, and NCDRC rulings that capped forfeiture at 10%.
- Invoked the Consumer Protection Act and the Haryana RERA (2018) regulations that limit forfeiture to 10% of BSP.
4. Court’s Analysis and Reasoning
On Forfeiture Clause:
The Court held that the 20% forfeiture clause was one-sided, unconscionable, and unenforceable. Relying on Pioneer Urban, Wing Commander Arifur Rahman Khan, and Central Inland Water Transport Corporation v. Brojo Nath Ganguly, the Court affirmed:
“Courts will not enforce unfair clauses in contracts between parties with unequal bargaining power.”
The Court also endorsed the NCDRC’s consistent view since DLF Ltd. v. Bhagwanti Narula (2015) that 10% of BSP is a reasonable cap on forfeiture in such cases.
On Distinction from Satish Batra:
Unlike in Satish Batra, where the forfeiture clause was reciprocal and applied to both buyer and seller, the present clause benefited only the builder. Therefore, the ratio of Satish Batra was inapplicable.
On Nature of the Buyer’s Cancellation:
The buyer had clearly opted out due to market recession and declining prices. Though this wasn’t builder’s fault, it did not justify forfeiture beyond a reasonable cap. Since the builder wasn’t at fault, the Court denied interest on the refund.
On Interest Award:
The Court reversed the NCDRC’s order on interest, holding:
“Where cancellation is due to market forces and not builder default, no interest is warranted on the refunded amount.”
5. Final Conclusion and Holding
The Supreme Court partly allowed the appeal, upholding the NCDRC’s reduction of forfeiture to 10% of BSP, but setting aside the award of 6% interest on the refundable amount. The Court ordered the builder to pay ₹12,02,955 (balance after 10% deduction and prior refund) to the buyers within six weeks.
Key Holding:
“Unfair and one-sided forfeiture clauses in builder-buyer contracts are unenforceable. Maximum 10% of BSP may be forfeited, with no interest due if buyer cancels voluntarily.”
FAQs:
1. Can a builder forfeit 20% of the flat price if the buyer cancels?
No. The Supreme Court held that forfeiting more than 10% of the Basic Sale Price is unreasonable and amounts to an unfair trade practice.
2. What if the buyer cancels the flat due to falling market prices?
If the buyer cancels voluntarily and the builder is not at fault, the builder may retain up to 10% of BSP but must refund the rest. No interest is due in such cases.
3. Are one-sided builder-buyer contracts enforceable?
No. The Court has consistently held that one-sided or unconscionable clauses are unenforceable under consumer protection law and Article 14 of the Constitution.
4. Does the buyer get interest on the refund amount?
Only if the builder is at fault (e.g., delayed possession). If the buyer cancels due to personal or market reasons, interest is typically not awarded.
5. What is considered a reasonable forfeiture amount?
The Supreme Court and NCDRC have consistently held that 10% of the Basic Sale Price is a reasonable amount for forfeiture in case of buyer-initiated cancellation.
Stay informed with insights that matter. Follow us for more updates on key legal developments.
Disclaimer
The content provided here is for general information only; it does not constitute legal advice. Reading them does not create a lawyer-client relationship, and Mahendra Bhavsar & Co. disclaims all liability for actions taken or omitted based on this content. Always obtain advice from qualified counsel for your specific circumstances. © Mahendra Bhavsar & Co.