Deposit forfeiture ruling boon for real estate sector

In the recent case of Satish Batra v Sudhir Rawal, the Supreme Court considered the issue of whether the seller of immovable property is entitled to forfeit the entire earnest money (advance payment or deposit) in cases where the transaction falls through by reason of the purchaser’s failure or neglect.

In this case, the agreement between the purchaser and seller provided: (a) that the earnest money would be forfeited in the event of a default by the purchaser; and (b) the purchaser would be entitled to a sum equal to double the earnest money on a default by the seller.

Due to the purchaser’s default in payment of the balance owing, the entire earnest money was forfeited. The purchaser filed a suit challenging the forfeiture. The matter eventually reached the Supreme Court, which held that the entire earnest money may be forfeited when the transaction falls through due to default of the purchaser but only if the agreement clearly provides for this.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners where Aditya Sikka is an associate.