Whether
the seller is entitled to forfeit the entire deposit amount where the sale of
an immovable property falls through by reason of the fault or failure of the
purchaser. HELD yes by the Apex Court.
Whether the seller is entitled to retain the
entire amount received towards earnest money or not. The fact that the
purchaser was at fault in not paying the balance consideration was also not
disputed. The question whether the seller can retain the entire amount of
earnest money depends upon the terms of the agreement. The Hon’ble Supreme
Court of India in Satish Batra Vs Sudhir
Rawal observed:
“Law is, therefore, clear
that to justify the forfeiture of advance money being part of ‘earnest money’
the terms of the contract should be clear and explicit. Earnest money is paid
or given at the time when the contract is entered into and, as a pledge for its
due performance by the depositor to be forfeited in case of non-performance by
the depositor. There can be converse situation also that if the seller fails to
perform the contract the purchaser can
also get the double the amount, if it is so stipulated. It is also the law that
party payment of purchase price cannot be forfeited unless it is a guarantee
for the due performance of the contract. In other words, if the payment is made
only towards part payment of consideration and not intended as earnest money
then the forfeiture clause will not apply”.
In the above case, the
Supreme Court held that the seller was justified in forfeiting the entire
amount of Rs.7,00,000/- as per the relevant clause, since the earnest money was
primarily a security for the due performance of the agreement and,
consequently, the seller is entitled to forfeit the entire deposit.
Prepared by:
S. Hemanth
Advocate at Hemanth & Associates
