Advance booking amounts without a specific forfeiture clause constitute part-payment and cannot be forfeited upon contract cancellation.

In brief

The question

Whether the amount paid for booking the flats constitutes "earnest money" (liable for forfeiture) or "advance payment" (refundable) in the absence of a formal contract.

The court held

The Court held that the defendant was not entitled to forfeit the advance booking amount because it was not proven to be "earnest money" intended as a performance guarantee.

It also directed

The High Court dismissed the appeal and confirmed the Trial Court’s judgment dated 28.04.2025, upholding the decree for the refund of ₹60,00,000 plus interest and costs to the plaintiff.

01Facts

The plaintiff (respondent) agreed to purchase three flats (Nos. 101, 201, and 4th floor) from the defendant builder (appellant).

While the 4th-floor transaction was completed, the plaintiff paid ₹30,00,000 each (total ₹60,00,000) as advance booking for Flat Nos. 101 and 201.

p. 2

Due to demonetization and alleged additional demands by the builder, the plaintiff sought a refund via notice in 2016.

p. 3

The defendant refused, claiming the amount was forfeited due to non-payment of the balance within 30 days.

p. 4

The Trial Court rejected the defendant’s leave to defend and decreed the suit in favor of the plaintiff for ₹60,00,000 with interest.

pp. 1-2

The defendant appealed, arguing the suit involved triable issues and did not fall under the summary scope of Order XXXVII CPC.

p. 5

02Issues

i.Whether the amount paid for booking the flats constitutes "earnest money" (liable for forfeiture) or "advance payment" (refundable) in the absence of a formal contract.

p. 7 / para. 9

ii.Whether the defendant was entitled to forfeit the said amount upon the plaintiff's failure to complete the transaction.

p. 31 / para. 13

03Law Applied

The Court primarily relied on the principles established in K.R. Suresh v. R. Poornima (2025 SCC OnLine 1014), which distinguishes between "earnest money" (a guarantee for performance) and "advance money" (part-payment of consideration).

pp. 8-9

It applied the doctrine that unless the contract explicitly stipulates a forfeiture clause as a guarantee for performance, part-payment cannot be forfeited.

p. 11, citing Satish Batra v. Sudhir Rawal

Furthermore, under Section 74 of the Indian Contract Act, 1872, for a forfeiture to be valid as a penalty, the party must generally prove reasonable compensation for actual loss.

p. 17, citing Fateh Chand v. Balkishan Dass

Provisions in the judgment · 5 · Linked ones open on LawLens

Code of Civil Procedure, 1908 Section 96

Indian Contract Act, 1872 Section 74 Section 73

Specific Relief Act, 1963 Section 22

Transfer of Property Act, 1882 Section 55

04Reasoning

The Court observed that no formal agreement existed between the parties beyond simple signed receipts acknowledging the "booking amount".

pp. 7-8

Following the K.R. Suresh precedent, the Court looked at the intention of the parties and surrounding circumstances, finding no explicit stipulation that the payment served as security for contractual obligations or was subject to a time-bound forfeiture clause.

pp. 30-31

The Court reasoned that since the receipts did not characterize the sum as a "guarantee" and no formal contract governed the breach, the amount was mere "advance payment" toward the purchase price.

p. 31

Additionally, the Court noted that the defendant had already sold the flats to third parties and received consideration, negating any claim of loss that would justify retaining the plaintiff's funds.

p. 32

05Holding

The Court held that the defendant was not entitled to forfeit the advance booking amount because it was not proven to be "earnest money" intended as a performance guarantee.

pp. 31-32

The High Court dismissed the appeal and confirmed the Trial Court’s judgment dated 28.04.2025, upholding the decree for the refund of ₹60,00,000 plus interest and costs to the plaintiff.

p. 32

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