District Consumer Commission, Bengaluru (Urban) · Order · 09.10.2023
A builder cannot keep 25% of the price as forfeiture on cancellation
A Bengaluru consumer commission held that a clause allowing the developer to forfeit 25% of the construction cost on the buyer’s default was one-sided and unfair, and ordered refund of ₹17.77 lakh deducted from the buyer’s advance, with 10% interest.
Key points
- A clause allowing the developer to forfeit 25% of the cost on the buyer’s default was ex facie one-sided and unreasonable, and including it was an unfair trade practice under Section 2(47) of the Consumer Protection Act, 2019.
- The developer had suffered no loss: it resold the flat for over ₹1.04 crore against the original price of about ₹86 lakh.
- The ₹17,77,422 deducted was ordered to be refunded with 10% interest from the date of agreement, plus ₹10,000 costs.
The facts
The buyer agreed in April 2017 to buy a flat in a Bengaluru project for about ₹86 lakh under a sale agreement and a construction agreement, and paid ₹30.81 lakh. He stopped paying after June 2017. The developer cancelled the agreements, sold the flat to another buyer in 2021 for ₹1.047 crore, and refunded only ₹13.04 lakh, deducting ₹17.77 lakh as 25% forfeiture under the agreement. The buyer accepted the cheque under protest and filed a complaint. The developer argued that the forfeiture was agreed as pre-estimated liquidated damages and that the commission lacked pecuniary jurisdiction.
What the Commission held
The Commission compared the clauses: the developer’s liability for its own delay was limited to interest at SBI MCLR + 2%, while the buyer faced forfeiture of 25% of the cost. Such terms were one-sided, and buyers often have no option but to sign on the dotted line. Since the developer resold the flat at a higher price and suffered no loss, the deduction was exorbitant and illegal. The commission had jurisdiction because the claim was only for the amount deducted. The developer and landowners were directed to refund ₹17,77,422 with 10% interest from 10 April 2017, plus ₹10,000 costs, within 60 days.
Why it matters
Buyers who cancel or default are frequently faced with heavy forfeiture clauses. Consumer forums across India have treated such clauses as unfair where the developer has not suffered a corresponding loss. In Maharashtra, the model agreement under RERA limits the deduction on cancellation, and MahaRERA and consumer forums can be approached. This order is from a district commission and is persuasive only.
Ten-page order in English. This page summarises the decision for general information; it is not a substitute for the full text and not legal advice. Check whether the decision has since been appealed, modified or overruled.
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