Booking cancellation – Builder can’t deduct earnest money when no such agreement is signed

Real estate developers in India trap homebuyers with false promises. Most of the time apartments are sold without approvals and in some extreme cases, the developer does not even own the land being sold. When the buyers attempt to safeguard their interest by withdrawing the booking, they are harassed by the developers. Hefty charges are deducted from booking amount in the name of Earnest Money.

We earlier discussed earnest money in detail here: Booking cancellation – can the builder forfeit Earnest Money?

In a recent case, the NCDRC (National Consumer Disputes Redressal Commission) reduced the buyer from the garb of earnest money. When the buyer sought cancellation of his booking apartment, the developer deducted 50000/- from his booking amount and refunded the rest. NCDRC ordered a refund of 50000/- with 9% interest. The Commission observed that if the buyer doesn’t agree to the terms and conditions of the provisional allotment, he can seek a refund and no earnest money can be deducted in such cases.

Case Brief

The buyer deposited Rs.5 lakhs as booking amount and was later allotted an apartment at 9th floor along with provisional allotment letter and indicative terms and conditions. The buyer did not like the apartment at 9th floor and sought an alternate which was denied by the builder. Failing this, he  asked for a refund of his money which was refunded by the developer. However, the developer deducted 50000/- as earnest money from the booking amount and refunded only Rs.4,50,000/-

Aggrieved by the decision of the developer, a buyer approached District Consumer Forum Delhi and State Consumer Forum, Delhi for a refund of the deducted amount. Lower courts didn’t pass an order in his favor. Later, the buyer approached NCDRC for revision of order passed by lower courts.

Court’s Observations

On perusal of provisional allotment letter dated 26.2.2008, it transpires that vide this letter the petitioner was intimated about the allotment of Unit No.C-2/902 on the 9th floor of the building on provisional basis. The letter records that:

“The allotment of the said Unit is subject to your agreeing to the terms and conditions contained in Schedule – I enclosed with this letter and which forms part and parcel of this letter and upon signing and returning a copy of this letter, duly signed to us, within a period of thirty days from the date of receipt of this letter by you.”

The buyer did not sign the provisional allotment letter and accompanying terms and conditions meaning thereby he did not accept the counteroffer given by the developer.

Thus, it is clear that no valid contract between the parties came into existence and since the buyer was not agreeable to allotment of flat at 9th floor, he sought a refund of his money which should have been refunded by the builder without any deduction.

The Order

Refund a sum of Rs.50,000/- to the buyer with 9% interest. Copy of the order: Vinod Gandhi Vs Puri Constructions – NCDRC Order

Conclusion

In case an agreement containing earnest money clause is not signed between the buyer and the developer, the developer can’t deduct earnest money on booking cancellation. You can read about cases where the developer can deduct earnest money:  Booking cancellation – can the builder forfeit Earnest Money?

One thought on “Booking cancellation – Builder can’t deduct earnest money when no such agreement is signed

  • February 10, 2016 at 4:02 pm
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    Thanks for this case law reference about booking cancellation. This is very helpful. Pl keep up the good work.

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