Godrej Projects Development Limited vs Anil Karlekar 2025 INSC 143 - S 74 Contract Act - Forfeiture Of Earnest Money

Summary: Appeal against NCDRC order directing the Appellant to deduct only 10% of the Basic Sale Price (“BSP” for short) towards cancellation of the Complainants’ Apartment- Disposing appeal, SC observed: NCDRC, in a series of cases right from the year 2015, has held that 10% of the BSP is a reasonable amount which is liable to be forfeited as earnest money- We see no reason to upset the view consistently taken by the NCDRC.

Indian Contract Act, 1872 - Section 74 - If the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the inasmuch as, such a forfeiture does not amount to imposing a penalty - However, if the forfeiture is of the nature of penalty, then Section 74 would be applicable- Under the terms of the contract, if the party in breach undertook to pay a sum of money or to forfeit a sum of money which he had already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty- Referred to Maula Bux v. Union of India (1969) 2 SCC 554. (Para 38)

Contract Law -Contractual terms which are ex facie one- sided, unfair and unreasonable would constitute unfair trade practice as per the aforesaid definition of “unfair trade practice”. (Para 30) the 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. (Para 26)