A bona fide purchaser may rescind and recover earnest money when undisclosed title claims cloud the sale.

The respondent–plaintiff agreed to purchase the property bearing No. C-2C/158, DDA MIG Flat, Janakpuri, New Delhi, from the appellant–defendant for ₹1,04,00,000. Pursuant to the Agreement to Sell dated 19.11.2016, she paid ₹12,00,000, while the balance ₹92,00,000 was payable on or before 25.03.2017.

Before completion of the transaction, the defendant’s brother, Anish Suri, asserted that he was a co-owner of the property and requested the Sub-Registrar not to register its sale, claiming that the defendant had obtained the conveyance deed on the basis of forged and fabricated documents.

The plaintiff consequently issued a legal notice, lodged a police complaint, and declined to proceed with the sale, seeking refund of the ₹12,00,000 paid.

The Trial Court decreed the suit for recovery of ₹12,00,000 with pendent lite and future interest at 6% per annum on 16.03.2026.

The defendant’s legal representatives preferred the present appeal under Section 96 read with Order XLI Rule 1 and Section 151 CPC.

The appeal was examined under Section 96 read with Order XLI Rule 1 and Section 151 CPC, governing a regular first appeal.

The Court applied the contractual principles relating to readiness and willingness, repudiation, and forfeiture of earnest money.

A purchaser who demonstrates financial capacity and bona fide readiness to complete the transaction may nevertheless be justified in withdrawing where a subsequent and credible third-party claim creates a substantial cloud over the vendor’s title and exposes the purchaser to potential litigation and uncertainty.

Forfeiture of earnest money cannot be sustained merely on the vendor’s assertion of breach; the vendor must establish that the purchaser unjustifiably failed to perform and, where loss is asserted as a basis for the defence, the alleged loss must be proved by reliable evidence.

The Court found that the plaintiff had established her bona fide readiness and willingness through bank statements showing sufficient funds and the sanction of a ₹30,00,000 loan.

Although the defendant relied on the 1995 relinquishment documents to contend that Anish Suri had no subsisting interest, Anish had in fact asserted co-ownership, personally warned the plaintiff, issued prior legal communications, and approached the Sub-Registrar seeking to prevent registration of the sale.

The Court held that the genuineness or ultimate legal validity of Anish’s claim was not decisive from the plaintiff’s perspective; the existence of a credible family-title dispute and the threatened possibility of litigation constituted sufficient justification for a prospective purchaser to avoid the transaction.

The defendant’s assertion that he had attended the Sub-Registrar’s office and was ready to execute the sale deed did not remove the title-related uncertainty.

Further, the alleged loss suffered by the defendant in a proposed purchase from Himanshu Jain was unsupported by documentary evidence, and Himanshu Jain was not examined as a witness.

Consequently, the plaintiff’s withdrawal was held to be bona fide and reasonably occasioned by subsequent events, rather than an intentional contractual default.

The defendant failed to establish a legally sustainable basis for forfeiting the ₹12,00,000 earnest money or to prove the alleged consequential loss.

The appeal was dismissed, the Trial Court’s decree for refund of ₹12,00,000 with pendent lite and future interest at 6% per annum was upheld, and the pending applications were disposed of.