Supreme Court’s Landmark Ruling on Real Estate Contracts: Balancing Consumer Rights and Developer Interests

Posted On - 4 April, 2025 • By - Antony Shyam Sundar

Introduction

On February 3, 2025, the Supreme Court of India delivered a landmark judgment in the case of Godrej Projects Development Limited vs. Anil Karlekar & Ors. The case addressed the issue of earnest money forfeiture in real estate contracts, particularly when a homebuyer cancels an apartment booking. The ruling, made by Justices B.R. Gavai and S.V. Bhatti, struck a balance between protecting consumer rights and upholding developers’ contractual terms.

Background of the Case

The dispute began when Anil Karlekar and others booked an apartment in the Godrej Summit project in Gurgaon on January 10, 2014. They paid ₹10,00,000 as an application fee, and the developer allotted them an apartment. On June 20, 2014, an Apartment Buyer Agreement was signed.

Upon the project’s completion, the developer received the Occupation Certificate on June 20, 2017, and offered possession to the buyers on June 28, 2017. However, the buyers decided to cancel the booking, citing dissatisfaction with the project and the declining property market. They demanded a full refund of ₹51,12,310, but the developer, invoking a contractual clause, forfeited 20% of the Basic Sale Price (BSP) as earnest money, offering only ₹4,22,845 as a refund.

The buyers were dissatisfied with this and filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC) in 2018, seeking a full refund along with 18% annual interest.

NCDRC’s Verdict

On October 25, 2022, the NCDRC ruled in favor of the homebuyers, reducing the developer’s forfeiture to 10% of the BSP. The commission directed the developer to refund ₹34,04,170, along with simple interest at 6% per annum. Dissatisfied with this ruling, the developer appealed to the Supreme Court, arguing that the NCDRC had improperly interfered with the contractual terms.

Supreme Court’s Analysis

The Supreme Court considered two main issues:

  1. Applicability of Consumer Protection Laws: The developer argued that the contract allowed for a 20% forfeiture of the BSP. However, the homebuyers referred to prior Supreme Court rulings and NCDRC decisions, which had found such clauses to be unfair and one-sided.
  2. Fairness of the Earnest Money Clause: The Court noted that the contract heavily favored the developer. While the homebuyers faced severe penalties for cancellation, the developer was only required to offer minor compensation for delays. The Court concluded that this imbalance was unfair to the consumers.

Judicial Precedents Considered

Referring to the case Pioneer Urban Land & Infrastructure Ltd. vs. Govindan Raghavan, the Court reaffirmed that developers cannot impose one-sided clauses on homebuyers. The Court stressed that agreements must be equitable and that a 20% forfeiture of BSP was excessive. It concluded that a 10% forfeiture was more reasonable. The Court also cited Ireo Grace Realtech Pvt. Ltd. vs. Abhishek Khanna, which affirmed that consumer courts have the power to modify unfair contract terms.

Final Judgment

The Supreme Court ruled in favor of the homebuyers, ensuring fairness in the contract. The developer could forfeit a maximum of 10% of the BSP (₹17,08,140), with the remaining ₹34,04,170 refunded. The Court also ruled that no interest would be paid on the refund, as the cancellation was due to market conditions, not developer fault. The developer was instructed to pay the remaining ₹12,02,955 within six weeks.

Implications of the Judgment

This ruling has significant implications for both homebuyers and developers. It protects consumers by limiting excessive forfeiture clauses and ensures that unfair terms can be modified by consumer courts. The judgment also clarified that homebuyers who cancel due to market fluctuations are not entitled to interest on refunds.

Conclusion

The Supreme Court’s ruling in Godrej Projects Development Limited vs. Anil Karlekar is a landmark decision that promotes fairness and transparency in real estate contracts. By capping the forfeiture at 10% and eliminating interest on refunds, the judgment ensures a fairer balance between the rights of consumers and developers. This ruling sets an important precedent for future real estate disputes, fostering a more equitable environment in the sector.