SATISH BATRA versus SUDHIR RAWAL

Citation: [2012] 9 S.C.R. 662 · Decided: 18-10-2012 · Supreme Court of India · Bench: K.S. RADHAKRISHNAN · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2012] 9 S.C.R. 662 
A 
SATISH BATRA 
B 
V. 
SUDHIR RAWAL 
(Civil Appeal No. 7588 of 2012) 
OCTOBER 18, 2012 
[K.S. RADHAKRISHNAN AND DIPAK MISRA, JJ.] 
Contract - Agreement to sell - Payment of earnest 
money - Agreement stipulating forfeiture of earnest money 
c by the seller on failure on the part of purchaser to pay the sale 
amount before specified date - Failure on the part of purchaser 
in payment of sale amount as per the agreement - Forfeiture 
of earnest money by seller- Propriety of - Held: Part payment 
of purchase price cannot be forfeited unless it is guarantee 
0 
for the due performance of contract - Forfeiture of entire 
amount of earnest money depends on the terms of the 
agreement - On facts, the earnest money was a security for 
the due performance of contract and hence the forfeiture 
thereof in its entirety was justified. 
E 
Appellant (seller) entered into an agreement for sale 
of an immovable property with the respondent 
(purchaser). The seller paid Rs. 7,00,0001- as earned 
money. As per the relevant clause of the agreement, the 
balance amount was required to be paid before -a 
F particular date and on failure to do so on the part of the 
purchaser, the seller would forfeit the earnest money. The 
purchaser could not pay the balance amount before the 
specified date. Therefore, the sale deed was not executed 
and the seller forfeited the earnest money. 
G 
H 
The purchaser filed suit for recovery of the earnest 
money. The suit was dismissed. In appeal, High Court 
took the view that the seller was entitled to forfeit only a 
nominal amount and not the entire amount. Hence the 
present appeal by the seller. 
662 
SATISH BATRA v. SUDHIR RAWAL 
663 
Allowing the appeal, the Court 
A 
HELD: 1. The question whether the seller can retain 
the entire amount of earnest money depends upon the 
terms of the agreement. To justify the forfeiture of 
advance money being part of 'earnest money', the terms 
of the contract should be clear and explicit. Earnest 
8 
money is paid or given at the time when the contract is 
entered into and, as a pledge for its due performance by 
the depositor to be forfeited in case of non-performance, 
by the depositor. There can be converse situation also 
that if the seller fails to perform the contract, the C 
purchaser can also get the double the amount, if it is so 
stipulated. It is also the law that part payment of purchase 
price cannot be forfeited unless it is a guarantee for the 
due performance of the contract. In other words, if the 
payment is made only towards part payment of D 
consideration and not intended as earnest money, then 
the forfeiture clause will not apply. [Paras 8 and 17] [666-
E-F; 673-H; 674-A-C] 
2. On examination of the clauses in the instant case, 
E 
F 
it is amply clear that the clause stipulating forfeiture of 
earnest money was included in the contract at the 
moment at which the contract was entered into. It 
represents the guarantee that the contract would be 
fulfilled. In other words, 'earnest' is given to bind the 
contract, which is a part of the purchase price when the 
transaction is carried out and it will be forfeited when the 
transaction falls through by reason of the default or 
failure of the purchaser. There is no other clause militates 
against that clause. Therefore, the seller was justified in 
G 
forfeiting the amount of Rs.7,00,000/- as per the relevant 
clause, since the earnest money was primarily a security 
for the due performance of the agreement and, 
consequently, the seller is entitled to forfeit the entire 
deposit. The High Court has, therefore, committed an 
H 
664 
SUPREME COURT REPORTS 
[2012] 9 S.C.R. 
A error in reversing the judgment of the trial court. [Paras 
18 and 19] [67 4-C-F] 
(Kunwar) Chiranjit Singh v. Har Swarup AIR 1926 P.C. 
1 ; Fateh Chand v. Balkishan Dass AIR 1963 SC 1405: 1964 
SCR 515 ; Shree Hanuman Cotton Mills and Ors. v. Tata Air 
B Craft Limited 1969 (3) SCC 522: 1970 (3) SCR 127; Delhi 
Development Authority v. Grihstrapana Cooperative Group 
Housing Society Ltd. 1995 Supp (1) SCC 751:1995 
(2) SCR 1'15; V. Lakshmanan v. B. R. Mangalgiri and Ors. 
(1995) Suppl. (2) sec 33: 1994 (6) Suppl. SCR 561 ; 
C Housing Urban Development Authority ahd Anr. v. Kewal 
Krishan Goel and Ors. (1996) 4 SCC 249: 1996 (2) Suppl. 
SCR 587; Videocon Properties Ltd. v. Dr. Bhalchandra 
Laboratories and Ors. (2004) 3 SCC 711: 2003 (6) Suppl. 
SCR 1197 - relied on. 
D 
E 
F 
G 
H 
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