Forfeiture of earnest money is enforceable upon bidder’s default in an “as-is-where-is” auction.

The Gorakhpur Development Authority (“GDA”) auctioned two commercial plots in Budh Vihar Part-A on an “as is where is” basis.

The petitioner participated in the e-auction, deposited registration amounts totalling ₹1,02,73,114, and was declared the highest bidder for both plots.

Allotment letters dated 27 October 2025 required payment of 40% of the bid amounts within one month, failing which the registration amount could be forfeited.

The petitioner did not make the stipulated payment despite reminders dated 18 December 2025, 20 February 2026 and 17 March 2026.

The GDA cancelled the allotments and forfeited the registration amounts by orders dated 2 April 2026.

The Court applied the principle that an alternative arbitration remedy does not invariably bar a writ petition, particularly where pleadings have been exchanged and the objection is not pursued.

Contractual terms must be read as a whole and harmoniously to ascertain their true meaning, as recognised in BPL Ltd. v. Morgan Securities & Credit Pvt. Ltd.

An “as is where is” condition places the responsibility upon the bidder to inspect the property and ascertain its location, condition and commercial impediments; the principles of caveat emptor therefore apply.

Registration money paid as earnest money to secure performance may ordinarily be forfeited upon the purchaser’s default, consistent with Shree Hanuman Cotton Mills v. Tata Aircraft Ltd. and K.R. Suresh v. R. Poornima.

Section 74 applies to stipulated compensation or penalties, but the Court held that forfeiture of genuine earnest money in the present commercial transaction was not penal in nature.

The Court further relied on BPL Ltd. for the principle that a party who enters a commercial arrangement with full knowledge of its terms cannot later avoid its consequences as unconscionable or arbitrary without specifically challenging the relevant contractual clause.

The Court held that the arbitration objection did not warrant dismissal because the respondents did not press it during arguments and the pleadings had already been exchanged.

On merits, the e-auction expressly operated on an “as is where is” basis.

The flyover had allegedly been sanctioned in 2022 and was stated by the GDA to have existed or been under construction before the 2025 auction.

The petitioner produced no material showing that it had inspected the plots or that the flyover was constructed only after the auction; consequently, the alleged diminution in commercial viability could not be treated as a breach by the GDA.

The petitioner’s breach occurred when it failed to deposit 40% of the bid amount by the stipulated deadline and continued to abstain despite three reminders.

Although the Court observed that the wording of the forfeiture clause did not clearly authorise forfeiture merely upon non-payment of the initial 40%, the petitioner had unequivocally stated that it did not wish to proceed with the allotments and sought only refund.

Thus, forfeiture was ultimately justified because the petitioner had withdrawn from the transaction and had no intention of paying the bid amounts or developing the plots.

The registration deposit was treated as earnest money securing performance, not as a penalty; Section 74 was therefore held inapplicable.

Further, because the petitioner had not challenged the validity or unconscionability of the forfeiture clause, its refund claim could not succeed.

It held that the forfeiture was justified, that Section 74 of the Indian Contract Act did not apply to the forfeiture of the earnest/registration money, and that the absence of any challenge to the forfeiture clause was fatal to the refund claim.

The writ petition was accordingly dismissed, and no order was made as to costs.