A) ABSTRACT / HEADNOTE

Godrej Projects Development Limited v. Anil Karlekar & Ors., Civil Appeal No. 3334 of 2023, decided 3 February 2025 by a Bench of B.R. Gavai and S.V.N. Bhatti, examines the lawfulness of a developer’s contractual forfeiture clause and the extent to which consumer fora may moderate such clauses under consumer-protection jurisprudence. The purchasers booked an apartment in 2014 and paid 20% of the Basic Sale Price (BSP) as earnest money under an Apartment Buyer Agreement that contained an express forfeiture clause (cl. 8.4) entitling the developer to forfeit the entire earnest money and interest on delayed payments on buyer default.

After possession was offered in June 2017 the buyers cancelled (citing a market recession) and sought full refund; the National Consumer Disputes Redressal Commission (NCDRC) allowed the complaint but reduced forfeiture to 10% of BSP and awarded simple interest @6% p.a. The Supreme Court upheld the NCDRC’s reduction to 10% of BSP (treating that as reasonable forfeiture consistent with NCDRC practice and the principles in Maula Bux), but held that awarding interest on the refundable balance was not justified given the buyers cancelled after possession was offered and might have re-deployed funds; accordingly the Court directed a concrete net refund (after accounting for interim refund already made).

The judgment balances contractual sanctity (courts will enforce clear earnest-money clauses Satish Batra, Desh Raj) with protection against one-sided, unconscionable standardized developer clauses that amount to unfair trade practice / unfair contract (per Pioneer Urban, Ireo Grace, and s.2(46) CPA 2019), and reaffirms NCDRC’s 10% practical rule while curtailing interest awards in the facts.

Keywords: Apartment Buyer Agreement; Earnest money; Forfeiture; Unfair contract; Unfair trade practice; Consumer Protection Act, 2019; Section 2(1)(r) CPA 1986.

B) CASE DETAILS 

i) Judgment Cause Title: Godrej Projects Development Limited v. Anil Karlekar & Ors..
ii) Case Number: Civil Appeal No. 3334 of 2023.
iii) Judgment Date: 3 February 2025.
iv) Court: Supreme Court of India.
v) Quorum: B.R. Gavai and S.V.N. Bhatti, JJ.
vi) Author: B.R. Gavai, J..
vii) Citation: 2025 INSC 143; 2 S.C.R. 343; full file.
viii) Legal Provisions Involved: Section 2(1)(r) Consumer Protection Act, 1986; Section 2(46) Consumer Protection Act, 2019; Section 74 Indian Contract Act, 1872; Contract Act, 1872; RERA and Haryana RERA Regulations (2018) — as referred.
ix) Judgments overruled by the Case (if any): None.
x) Related Law Subjects: Consumer Law; Contract Law; Real Estate Regulation; Civil Remedies.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The appeal challenges an NCDRC order directing the developer to refund amounts paid by purchasers after reducing the refundable sum by 10% of BSP as forfeiture and awarding 6% simple interest on the refunded balance. The purchasers booked in January 2014, entered into a detailed Apartment Buyer Agreement on 20 June 2014 and paid an amount equal to 20% of the BSP as earnest money. Construction was completed and an occupation certificate issued in June 2017; the developer offered possession on 28 June 2017.

The purchasers refused possession and sought cancellation and full refund on grounds including a post-booking market recession and alleged failures in promised connections. The NCDRC concluded that while the developer could cancel as per contract, the contractual provision permitting forfeiture of 20% of BSP was unreasonable and should be reduced to 10%, consistently with its prior practice; it also awarded 6% interest on the refundable balance.

The Supreme Court’s background review interrogates two competing impulses. On one hand are decisions upholding freedom of contract and enforcing express forfeiture provisions where parties bargained explicitly (e.g., Satish Batra, Desh Raj). On the other hand are a sequence of consumer-focused decisions (Pioneer Urban, Wing Commander Arifur Rahman Khan, Ireo Grace) recognizing that standardized apartment-buyer agreements drafted by powerful developers often contain disproportionate remedies in favour of builders and meagre reciprocal obligations for delay and thus constitute unfair trade practice or an unfair contract under the new statutory lexicon (s.2(46), CPA 2019).

The Court therefore examined contractual text (notably clauses 2.6, 4.2, 4.3 and 8.4), the practical asymmetry of remedies (developer’s high penalties against purchaser vs. developer’s paltry Rs.5/sq.ft/month delay compensation), and the regulatory landscape including RERA regimes limiting excessive forfeiture. It assessed whether forfeiture was reasonable and whether interest on the refundable amount was warranted given the purchasers cancelled only after possession was offered and the possibility they re-deployed their funds.

D) FACTS OF THE CASE

The purchasers applied on 10 January 2014 and paid Rs.10,00,000 as application money. An allotment and apartment buyer agreement followed on 20 June 2014 for BSP Rs.1,70,81,400 (super built-up basis) with 20% of BSP expressly treated as earnest money (cl. 2.6). The developer obtained an occupation certificate on 20 June 2017 and offered possession on 28 June 2017. The purchasers responded by email in August 2017 declining possession and citing market price fall and alleged incomplete external/internal connections; they demanded refund of Rs.51,12,310.

The agreement’s termination clause 8.4 provided that upon buyer default the developer could forfeit the entire earnest money and any other dues including interest and thereafter refund balance without interest; clause 4.3 offered the buyer either token delay compensation (Rs.5 per month per sq.ft) or an option to seek refund with 15% interest in the alternative. The NCDRC found clause 8.4 enforceable to the extent of permitting cancellation but considered 20% forfeiture unreasonable and directed a 10% forfeiture, ordering refund of the balance with 6% simple interest. The developer had earlier refunded Rs.22,01,215 pursuant to a court order; the Supreme Court ultimately ordered the developer to pay the remaining net balance after adjusting for that interim refund.

E) LEGAL ISSUES RAISED

1. Whether an express contractual clause permitting forfeiture of 20% of BSP (treated as earnest money) on buyer default is enforceable as written.

2. Whether a clause in an apartment buyer agreement that provides grossly asymmetric remedies and token compensation for developer default amounts to an unfair contract/unfair trade practice under the Consumer Protection Acts (1986 & 2019).

3. Whether the NCDRC was justified in reducing contractual forfeiture from 20% to 10% of BSP and awarding interest on the refundable balance.

4. Whether Section 74, Indian Contract Act, applies to an alleged penalty-type forfeiture in the real-estate booking context.

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for Appellant submitted that the parties freely entered into the Agreement containing clear forfeiture and forfeiture-related terms (cl. 8.4). The Appellant argued that earnest money was expressly defined as 20% BSP and functioned as security for performance; therefore forfeiture upon buyer default was contractually valid and should be enforced. Relying on Satish Batra and Desh Raj, learned counsel contended that where contract terms are clear and mutually agreed, courts should not rewrite them; the NCDRC erred in substituting its own assessment of the bargained terms. The Appellant pointed to the buyers’ own email acknowledging recession as motive for cancellation and argued that this self-induced cancellation disentitled the buyers to any greater refund than contract permitted.

G) RESPONDENT’S ARGUMENTS

The counsels for Respondents submitted that the apartment buyer agreement was a standard form contract drafted by a developer with significantly greater bargaining power and contained one-sided clauses that operate as unfair trade practice (CPA 1986) and now fall within unfair contract (CPA 2019, s.2(46)). They relied on NCDRC precedents (e.g., Komal Aggarwal, DLF v. Bhagwanti Narula, Ramesh Malhotra v. Emaar) and Supreme Court authority (Pioneer Urban, Ireo Grace) holding that disproportionate forfeiture-clauses and asymmetrical remedies may be struck down or moderated. They also invoked RERA and Haryana RERA Regulations (2018) as part of the regulatory context that disfavors excessive forfeiture and justifies the NCDRC’s 10% benchmark.

H) JUDGEMENT 

The Supreme Court partially allowed the appeal. The Court held that while the contractual text permitted forfeiture of 20% of BSP, the agreement must be read against the backdrop of established consumer jurisprudence treating manifestly one-sided apartment buyer clauses as unfair. Applying precedents, the Court concluded the present agreement was ex facie tilted in favour of the developer: clause 4.3 offered only Rs.5 per month per sq.ft as delay compensation while clause 8.4 allowed broad forfeiture and rights to resell without purchaser claim. That asymmetry imported unfairness.

The Court relied on Pioneer Urban, Wing Commander Arifur Rahman Khan, and Ireo Grace to hold such clauses susceptible to consumer-law moderation and also invoked Maula Bux to reason that a reasonable forfeiture does not amount to a penalty under Section 74, but an unreasonable forfeiture would.

The Court accepted NCDRC’s practical posture, noting its consistent adoption since 2015 of 10% of BSP as reasonable forfeiture in similar contexts and saw no reason to upset that settled approach. Consequently the Court sustained the NCDRC’s direction reducing forfeiture to 10% of BSP. However the Court disagreed with the NCDRC’s award of interest on the refundable balance. The Court reasoned that the buyers chose to cancel only after the developer offered possession and that it was plausible they used the funds elsewhere (e.g., to buy another unit at lower rates).

Given this commercial reality and absence of developer delay or fault as the triggering cause for refund, awarding interest on refunded balance was not justified. The Court therefore directed payment of the net balance after adjusting the interim refund already made (ordered balance Rs.12,02,955 to be paid within six weeks). The appeal was thus partly allowed.

a. RATIO DECIDENDI

The decisive legal principle is twofold. First, express forfeiture clauses in sale agreements will be enforced if they are clear, explicit and not manifestly one-sided (Satish Batra, Desh Raj). Second, where standardized apartment agreements create stark remedy asymmetries favouring developers and meagre reciprocal remedies to purchasers, consumer jurisprudence permits moderation of such terms as unfair trade practice (CPA 1986) or unfair contract (CPA 2019).

In application, a 10% of BSP forfeiture has been repeatedly treated by NCDRC as a reasonable liquidated forfeiture that is not a penalty under Section 74; the Supreme Court affirmed that position in this factual matrix but limited interest awards where the purchaser’s cancellation (post-possession offer) made an interest claim inequitable.

b. OBITER DICTA 

The Court reiterated that freedom of contract is not absolute where inequality of bargaining power yields standardized terms that are unconscionable; Article 14 values and consumer protection statutes counsel judicial scrutiny. The opinion emphasized that where developer delay or default triggers buyer remedies, the contract’s alternative refund provision (15% interest option in cl.4.3) would be significant; however, such reciprocal clauses are often illusory when other clauses operate to frustrate buyer remedies. The Court also observed the persuasive role of regulatory instruments like RERA and local RERA rules in tempering contractual forfeiture though it did not base the decree solely on regulatory fiat.

c. GUIDELINES

1. Courts and consumer fora should scrutinize apartment buyer agreements for manifest imbalance and not mechanically enforce standard forfeiture clauses.

2. Where forfeiture is reasonable (and not of the nature of a penalty), it will not attract Section 74; a practical benchmark adopted by NCDRC — 10% of BSP — is a permissible metric in typical cases.

3. Interest on refunds requires fact-sensitive inquiry; if cancellation follows purchaser’s voluntary decision after possession offer and there is no developer default causing delay, interest need not be awarded.

4. Developers should provide clear, fair reciprocal remedies for delay (meaningful liquidated damages and timelines) to avoid being tagged with unfair contract status.

5. Consumer fora may follow NCDRC consistent practice unless material differentiators exist.

I) CONCLUSION & COMMENTS

The judgment strike a pragmatic equilibrium between enforcing expressed contractual bargains and protecting consumers against form-contracts drafted by economically dominant real-estate developers. By affirming NCDRC’s 10% approach the Court endorses a stable, predictable benchmark that helps both buyers and builders calibrate risk and refunds. At the same time the Court’s refusal to automatically award interest on refunded balances underscores the necessity of causal linkage: interest remedies are equitable and must reflect which party’s conduct created the delay or loss of use of funds. Practically, the ruling signals that developers cannot rely on boilerplate forfeiture clauses without exposing themselves to judicial moderation where contracts are substantively one-sided.

For practitioners, the decision is a reminder to draft balanced agreements, to offer meaningful delay compensation and to avoid clauses that operate as penalties or as instruments of substantial wealth transfer from weaker buyers. For consumer advocates the judgment reaffirms the role of consumer fora in rewriting unconscionable contractual provisions, while simultaneously preserving contractual certainty where bargains are mutual and balanced. Overall, the decision harmonizes contract law principles (Section 74 analysis) with modern consumer protection norms (unfair contract under CPA 2019), providing workable guidance for future disputes in the sector.

J) REFERENCES

a. Important Cases Referred

1. Godrej Projects Development Limited v. Anil Karlekar & Ors., Civil Appeal No. 3334 of 2023, Supreme Court of India, 3 Feb. 2025. 2 S.C.R. 343; 2025 INSC 143.

2. Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan, (2019) 5 S.C.C. 725.

3. Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna & Ors., (2021) 3 S.C.C. 241.

4. Wing Commander Arifur Rahman Khan & Anr. v. DLF Southern Homes Pvt. Ltd. & Ors., (2020) 16 S.C.C. 512.

5. Satish Batra v. Sudhir Rawal, (2013) 1 S.C.C. 345.

6. Desh Raj & Ors. v. Rohtash Singh, (2023) 3 S.C.C. 714.

7. Maula Bux v. Union of India, (1969) 2 S.C.C. 554.

8. Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 S.C.C. 156.

9. DLF Ltd. v. Bhagwanti Narula, Consumer Case No. (NCDRC) 2015 (SCC OnLine NCDRC).

10. Komal Aggarwal v. Godrej Projects Development Ltd., Consumer Case No.2139 of 2018 (NCDRC) dated 9 Nov. 2022.

11. Ramesh Malhotra & Anr. v. Emaar MGF Land Ltd. & Anr., 2020 SCC OnLine NCDRC 789.

b. Important Statutes Referred

1. Consumer Protection Act, 2019, s.2(46) (definition of unfair contract).

2. Consumer Protection Act, 1986, s.2(1)(r) (definition of unfair trade practice).

3. Indian Contract Act, 1872, s.74 (liquidated damages / penalty analysis).

4. The Real Estate (Regulation and Development) Act, 2016 and Haryana RERA (Forfeiture of earnest money by the builder) Regulations, 2018 — referred in argument and background.