Forfeiture Clause Cannot Be Mechanically Enforced on Cancellation Of Flat Booking: Maharashtra REAT

The Maharashtra Real Estate Appellate Tribunal has ruled that a developer cannot mechanically enforce a forfeiture clause to retain the entire amount paid by a homebuyer on cancellation of his booking.

This is particularly so when no Agreement for Sale was executed or registered between the parties.

Rejecting the developer's claim that its contractual terms allowed it to keep the payment, the tribunal observed,

“We are unable to accept the contention of the Appellant/Promoter that the mere existence of such a clause confers a right upon it to forfeit the entire amount paid by the Respondent/Allottee as part consideration amount. A forfeiture clause cannot be enforced mechanically, particularly where the transaction has not finally culminated in execution or registration of an Agreement for Sale. Further, the material placed on record does not demonstrate the financial loss corresponding to the entire amount sought to be forfeited.”

The ruling came from a Bench comprising Chairperson Justice S. S. Shinde and Administrative Member Dr. Rajagopal Devara.

They were hearing an appeal by Godrej Skyline Developers Pvt. Ltd. against MahaRERA's refund order in favour of homebuyer Joy Salve.

The dispute concerned Flat No. 903 in Tower B5 of the “Godrej Park Greens” project at Mamurdi, Pune. Salve booked the flat for about ₹40.88 lakh. He signed an application form and paid about ₹4.27 lakh, including GST of ₹31,642.52. The developer later issued an allotment letter. However, no Agreement for Sale was executed or registered.

Salve initially expressed an intention to upgrade the flat on June 20, 2019. He sought cancellation on July 31, 2019, citing unavoidable circumstances. The developer then issued reminders requiring him to complete the Agreement for Sale. It later sent a pre-termination letter on November 18, 2019 and a termination letter on December 12, 2019.

On May 15, 2020, Salve again sought cancellation and a refund. He cited loss of employment and circumstances arising from the COVID-19 pandemic. The developer rejected his request. It maintained that the allotment had already been terminated due to non-payment.

Salve approached MahaRERA, Maharashtra's real estate regulator. It directed a refund after allowing a deduction from the amount paid. The developer challenged that order before the appellate tribunal. The tribunal ultimately found the deduction fair and justified.

The developer relied on the application form and allotment letter. It argued that these documents permitted cancellation and forfeiture in case of default.

Salve had paid about 9.67% of the total price of the flat, it argued. He had also failed to execute the Agreement for Sale despite repeated notices.

The developer also claimed that cancellations cause financial loss. It referred to capital investment, statutory approvals, administrative expenses, infrastructure costs, brokerage, and other overheads.

The tribunal found no material showing the actual loss caused by this cancellation. There was also nothing to show that the flat could not have been sold or allotted to another purchaser.

The tribunal also rejected the developer's claim that the amount paid was earnest money. It found that the payment formed part of the agreed price of the flat.

“Therefore, we are of the view that, even if termination is contractually permissible, the extent of forfeiture ought to have been reasonable and fair to the Respondent/Allottee,” the tribunal observed.

It dismissed the appeal and found no irregularity or error in MahaRERA's order. The tribunal also directed payment of ₹25,000 as costs. It ordered the release of the amount deposited with its Registry in favour of the homebuyer.

For Appellant (Godrej Skyline Developers Pvt. Ltd.): Advocate Abhijeet K. Mangade.

For Respondent (Joy Salve): Advocate S.V. Darveshi.