Builders can't deduct over 10% of base price in case of cancellation by homebuyers. SC
NEW DELHI: Holding that one-sided agreement between homebuyers and real estate companies which is totally tilted in favour of the developer cannot be enforced, Supreme Court on Monday said that developers cannot deduct unreasonable amounts if the buyer seeks cancellation and it should not be more than 10% of basic sale price (BSP).
A bench of Justices B R Gavai and S V N Bhatt said the 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 and turned down the plea of real estate company Godrej Projects Development Ltd which Said it should be allowed to forfeit 20% of the amount which was part of the agreement with a buyer.
Referring to various verdicts of the apex court, the bench said, "It can be seen that this Court has held that if the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the Indian Contract Act, 1872, inasmuch as, such a forfeiture does not amount to imposing a penalty. It has further been held that, however, if the forfeiture is of the nature of penalty, then Section 74 would be applicable. This Court has further held that 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”
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