The Hon’ble Supreme Court in Godrej Projects Development Ltd. v. Anil Karlekar & Ors. (Civil Appeal No. 3334 of 2023) upheld the National Consumer Disputes Redressal Commission’s (NCDRC) view that forfeiting 20% of a flat’s cost as “earnest money” upon cancellation by the buyer is excessive and unfair. The Apex Court limited the forfeiture to 10% of the Basic Sale Price (BSP), reinforcing protections for consumers caught in imbalanced contractual arrangements.
The case centered around a flat booked in 2014 by Anil Karlekar and his wife in the “Godrej Summit” project in Gurugram. Despite the builder, Godrej Projects Development Ltd., obtaining an Occupation Certificate in June 2017 and offering possession shortly after, the buyers chose to cancel the booking, citing a significant market downturn and reduction in property prices—even from the builder itself. They sought a full refund of the INR 51.12 lakh they had paid.
While Godrej relied on its contract to retain 20% of the BSP (INR 17.08 lakh) as forfeiture, the NCDRC found the clause excessive and trimmed it to 10%, ordering a refund of the remaining amount with 6% interest. Godrej appealed to the Supreme Court, invoking prior case law (Satish Batra v. Sudhir Rawal) in its defense.
But the Apex Court, through Justice B.R. Gavai, took a broader, consumer-friendly view. It emphasized that real estate agreements—often drafted solely by developers—leave buyers with little bargaining power and are thus inherently unequal. Clauses allowing builders to penalize buyers harshly for cancellations while offering meagre compensation for project delays were deemed “one-sided, unfair, and unconscionable.”
The Court found that although the buyers cancelled the flat for market-driven reasons (not due to any fault by the developer), the agreement’s terms still failed to hold up under scrutiny for fairness. The builder’s right to delay possession was broadly defined, while the buyer faced heavy penalties for cancellation—even in a falling market. This disparity, the Court held, violated the principle of substantive fairness in contracts.
Importantly, the judgment leaned on earlier Supreme Court rulings like Pioneer Urban Land and Infrastructure Ltd. v. Govindan Raghavan and Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna, which decried one-sided builder-buyer contracts as unfair trade practices under consumer protection law. The Court also acknowledged the evolving legislative landscape, including the Consumer Protection Act, 2019 and RERA regulations that limit earnest money forfeiture to 10%.
However, while upholding the refund (INR 34.04 lakh), the Court disallowed the 6% interest awarded by the NCDRC, reasoning that the buyers had chosen to withdraw after possession was offered and likely used their funds to acquire cheaper property elsewhere.
This ruling reaffirms the judiciary’s evolving stance toward restoring balance in consumer contracts, particularly in real estate space.