In a significant win for homebuyers, the Supreme Court has ruled that builders cannot impose excessive forfeiture penalties on buyers who cancel their apartment bookings. The verdict, delivered by a bench of Justices B.R. Gavai and S.V. Bhatti, upholds consumer rights by declaring that such clauses in builder-buyer agreements constitute “unfair trade practices.”
The case revolved around a dispute between homebuyers and Godrej Projects Development Ltd. over a forfeiture clause in an Apartment Buyer Agreement (ABA). The buyers had booked a flat in the Godrej Summit project in Gurgaon in 2014 but later sought a refund, citing a market downturn. The builder invoked the agreement’s clause to forfeit 20% of the earnest money.
Challenging this move, the homebuyers argued that the penalty was excessive and amounted to an unfair contract term. The National Consumer Disputes Redressal Commission (NCDRC) sided with the buyers, ruling that the builder could retain only 10% of the basic sale price and must refund the rest with interest. The builder’s appeal to the Supreme Court was subsequently dismissed.
The Court reinforced that agreements where buyers have no real choice but to accept terms dictated by developers cannot be considered fair. It referenced previous rulings, including Pioneer Urban Land and Ireo Grace Realtech, to emphasize that such one-sided clauses violate consumer protection laws. The judgment also invoked Central Inland Water Transport Corporation v. Brojo Nath Ganguly, highlighting that contracts skewed heavily in favor of one party, particularly when there is an imbalance in bargaining power, will not hold up in court.
This ruling sets a strong precedent against exploitative real estate practices, ensuring that developers cannot unilaterally impose unfair financial penalties on buyers.