The Hon'ble Supreme Court of India has recently in the case
of Satish Batra Vs. Sudhir Rawal held that the earnest
money given by the purchaser to the seller towards purchase of an
immovable property can be forfeited by the seller if the
transaction entered between them has not been completed due to
failure or fault of the purchaser.
Satish Batra ("Purchaser") had
entered into an Agreement for Sale
("Agreement") with Sudhi Rawal
("Seller") for purchase of an immovable
property in Delhi for a consideration of Rs. 70,00,000/-. While
entering into the Agreement, the Purchaser paid Rs. 7,00,000/-
("Earnest Money") to the Seller as a
token amount. The balance amount of Rs. 63,00,000/- was to be paid
within 3 months, pursuant to which parties had agreed to enter into
a sale deed for absolute transfer of the property in favour of the
purchaser. The Purchaser however failed to pay the balance amount
of Rs. 63,00,000/- in terms of the Agreement. The Agreement
entitled the Seller to forfeit the Earnest Money if the transaction
was not completed on account of fault or failure by the Purchaser
to pay the balance amount within the prescribed time. Accordingly,
the Seller terminated the Agreement and forfeited the Earnest
Being aggrieved with the forfeiture of the Earnest Money by the
Seller, the Purchaser approached the civil court for recovery of
the Earnest Money. The civil court held that the Seller has a right
to forfeit the Earnest Money if the transaction has not been
completed due to fault of the Purchaser. Thereafter, the Purchaser
filed an appeal against the order of the trial court before the
Hon'ble High Court of Delhi. In the appeal, the Delhi High
Court relying on the judgment of Fateh Chand v. Balkishan
Dass held that the seller is entitled to forfeit only a
nominal amount and not the entire amount of Earnest Money.
The Seller being aggrieved by the order of the Delhi High Court
approached the Hon'ble Supreme Court of India. The Hon'ble
Supreme Court of India relying on various judgments stated that to
justify the forfeiture of advance money being part of 'earnest
money' the terms of the contract/agreement for sale should be
clear and explicit. Earnest money is paid or given at the time when
the contract is entered into and as a pledge for its due
performance by the depositor, which is to be forfeited in case of
non-performance by the depositor. Accordingly, the Supreme Court
held that the Seller was justified in forfeiting the Earnest Money
as per the Agreement, since the Earnest Money was primarily a
security for due performance of the Agreement.
Important Observations of the Court:
The earnest money (irrespective of the amount) paid by a
purchaser of an immovable property as a guarantee for due
performance of the contract can be forfeited by the seller, if the
former fails to pay the balance amount. However, if the payment is
made only towards part payment of consideration and not intended as
earnest money, then such an amount cannot be forfeited.
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guide to the subject matter. Specialist advice should be sought
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On March 10, 2015, the controversial amendments to the land acquisition law were finally passed by the Lok Sabha after facing severe criticism both from the opposition parties as well as from the government's own allies.
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