The Supreme Court of India has issued a landmark verdict that reinforces the rights of homebuyers against unfair contractual terms imposed by real estate developers. In a significant decision, the apex court has ruled that builders cannot deduct more than 10% of the basic sale price (BSP) when a homebuyer cancels their booking.
Protecting Homebuyers
The order, which was delivered on 3 February 2025, comes as a relief to homebuyers who have often found themselves at a disadvantage when dealing with real estate developers. A bench comprising Justices B. R. Gavai and S. V. N. Bhatti ruled that one-sided agreements, which are heavily skewed in favor of developers, cannot be enforced by law. The court emphasized that any contractual term that is unfair, unreasonable, or ex facie one-sided would amount to an unfair trade practice.
Background of the Case
The case in question involved Godrej Projects Development Ltd, which sought to forfeit 20% of the amount paid by a buyer who canceled their booking in Godrej Summit, Sector 104, Gurgaon. The builder argued that this percentage was agreed upon in the contract and should be enforceable. However, the Supreme Court upheld the decision of the National Consumer Disputes Redressal Commission (NCDRC), which had ruled that developers can only deduct up to 10% of the basic sale price as earnest money. However, the apex court disallowed the interest levied on the builder.
The case originated when a homebuyer, Anil Karlekar, booked a flat in the “Godrej Summit” project located in Sector 104, Gurgaon, Haryana. When the buyer later sought a refund, the developer attempted to deduct 20% of the total amount paid. The NCDRC ruled in favor of the buyer, allowing only a 10% deduction, a decision that was later challenged by the builder in the Supreme Court.
Key Takeaways from the Verdict
- Limit on Forfeiture / Deduction: Builders cannot deduct more than 10% of the basic sale price in case a homebuyer cancels the property sale booking.
- No Interest on Refunded Amount: While the buyer was entitled to a refund after the deduction, the court did not uphold the NCDRC’s directive for the builder to pay interest on the refunded amount.
- Protection Against Unfair Trade Practices: The court reinforced that contracts should not be excessively favorable to one party, especially in cases where there is a disparity in bargaining power.
- Precedents Considered: The ruling aligns with previous judgments of both the Supreme Court and the NCDRC, including the 2015 decision in DLF Ltd. v. Bhagwanti Narula, where it was established that a 10% deduction is reasonable.
Implications for the Real Estate Sector
This judgment sets an important precedent for future real estate transactions in India. Many developers have included high cancellation penalties / earnest amount / forfeiture clauses in their agreements, which often go unchecked. The Supreme Court’s decision now provides a clear guideline, ensuring fairness and protecting consumers from excessive financial losses due to cancellation.
For homebuyers, this ruling provides much-needed relief and clarity. Buyers can now be assured that even if they decide to cancel their booking, their losses will be limited to a reasonable 10% deduction, rather than facing disproportionate forfeitures imposed by builders.
