In a significant ruling, the Supreme Court of India reaffirmed the principle that contracts with unfair and one-sided clauses cannot be enforced, setting a precedent for consumer protection in real estate transactions. The bench, comprising Justice B.R. Gavai and Justice S.V.N. Bhatti, delivered the judgment in Godrej Projects Development Limited vs. Anil Karlekar & Ors. (Civil Appeal No. 3334 of 2023), partially upholding the National Consumer Disputes Redressal Commission (NCDRC) order that limited the forfeiture of the earnest money deposit to 10% of the Basic Sale Price (BSP). However, the Supreme Court overturned the NCDRC’s direction to pay interest on the refunded amount.
Background of the Case
The case revolved around a residential property transaction in Godrej Summit, a project developed by Godrej Projects Development Limited in Sector 104, Gurgaon, Haryana. The complainants, Anil Karlekar and another, had booked an apartment on January 10, 2014, by paying an application fee of ₹10 lakh. An allotment letter followed on June 20, 2014, and an Apartment Buyer Agreement was executed.
On June 20, 2017, the developer obtained an Occupation Certificate, and on June 28, 2017, possession was offered. However, the complainants opted to cancel the booking due to market recession and a sharp decline in real estate prices. They sought a full refund of ₹51,12,310.
Godrej Projects initially refused a full refund, citing a forfeiture clause in the agreement that permitted retention of 20% of the BSP (₹1.70 crore) as earnest money. The complainants then approached the NCDRC, which ruled in their favor, reducing the forfeiture to 10% of the BSP and ordering the balance refund with 6% interest per annum. The developer appealed against this order in the Supreme Court.
Legal Issues Involved
1. Enforceability of One-Sided Contracts: Whether an agreement allowing the developer to forfeit 20% of the BSP while offering minimal protection to the buyer could be considered valid.
2. Extent of Earnest Money Forfeiture: Whether the developer had the right to forfeit 20% of the BSP or whether a lower amount should be considered reasonable.
3. Entitlement to Interest on the Refund: Whether the complainants were entitled to interest on the refunded amount.
Supreme Court’s Observations and Ruling
The Supreme Court ruled that contracts with unfair and unreasonable clauses cannot be enforced if they impose unilateral and excessive obligations on consumers. The judgment reaffirmed the principles laid down in Pioneer Urban Land and Infrastructure Ltd. v. Govindan Raghavan (2019), which held that contracts must not be one-sided and should not disadvantage consumers.
Justice B.R. Gavai, writing for the bench, observed:
“The Agreement is one-sided and totally tilted in favor of the Developer. Courts will not enforce an unfair and unreasonable contract or an unfair and unreasonable clause in a contract entered into between parties who are not equal in bargaining power.”
While agreeing with the NCDRC’s conclusion that only 10% of the BSP could be forfeited as earnest money, the court struck down the order to pay interest on the refunded amount. The justices reasoned that since the complainants had chosen to cancel the booking based on falling market prices, they were not entitled to additional financial relief.
Key Takeaways from the Judgment
1. Unfair Contract Clauses Are Unenforceable: The court reinforced that builders cannot impose unfair terms that place excessive penalties on buyers while securing lenient obligations for themselves.
2. Reasonable Earnest Money Forfeiture: The court upheld the principle that only 10% of the BSP could be forfeited as earnest money, aligning with past judgments such as Maula Bux v. Union of India (1969).
3. No Interest on Refund for Buyer-Initiated Cancellation: The judgment clarified that if a buyer voluntarily cancels an agreement due to market fluctuations, they are not entitled to interest on the refunded amount.
Final Outcome
The Supreme Court directed Godrej Projects Development Limited to refund ₹34,04,170 (after deducting 10% of the BSP as forfeiture) to the complainants within six weeks. However, the requirement to pay 6% interest was set aside.
