In a landmark judgment the Supreme Court has said that the builders can now only deduct up to 10% of the base price for cancellations. A bench of Justice B R Gavai and S V N Bhatt said that the contractual terms which are one-sided, unfair and unreasonable can not be enforced and would constitute unfair trade practice. Unfortunately, the judgment has not been delivered against any small-time builder, but the corporate conglomerate Godrej Properties, which argued that it should be allowed to forfeit 20% of the amount as per agreement with the buyer.
Track2Realty finds there are even larger questions that remained unanswered about builders’ arbitrary cancellations, forfeit of money and unfair contract.
The Supreme Court of India has categorically stated that real estate developers cannot deduct more than 10% of the base sale price (BSP) when a home buyer cancels his purchase agreement. This decision was given in a case against Godrej Properties, which sought to retain 20% of the payment as cancellation fees. The bench, consisting of Justices B R Gavai and S V N Bhatt, deemed such one-sided contractual terms as unfair and unreasonable, falling under the category of unfair trade practices.
The home buyer had booked an apartment with project Godrej Summit, at Sector-104, Gurugram. But he later sought to cancel the purchase. The buyer’s request for a refund prompted Godrej Projects to argue for the enforcement of a 20% forfeiture clause, which was deemed unreasonable by the court. The court was hearing an appeal filed by Godrej Projects challenging the verdict of apex consumer court, NCDRC, which had ordered that the builder can’t forfeit more than 10% of the amount. The builder contended that forfeiture of 20% was very much part of the agreement and there was nothing wrong to enforce it.
The Justices pointed out that if a forfeiture is seen as a penalty rather than a reasonable charge, it would be subject to scrutiny under the Indian Contract Act, 1872. The court held the view that the NCDRC in many of the cases since 2025, including the famous DLF Ltd V/S Bhagwanti Narula, has held the view that 10% is a reasonable amount to be forfeited in case of booking cancellation. And there is no reason to upset this set principle of law.
The court emphasized that contractual agreements leaning excessively in favor of developers could not be enforced, thereby ensuring greater protection for homebuyers. This precedent serves to enhance consumer rights within India’s real estate sector, where disputes over cancellation fees have often led to protracted legal battles.
The implications of this ruling extend beyond this single case. In the absence of Uniform Builder Buyer Agreement, every builder has his own definition of standard agreement. Even the earlier remarks of the Supreme Court of India for an Uniform Builder Buyer Agreement has found no favours within the power corridors. Now the benchmark set by the court reinforces consumer rights and promotes fairer dealings in the property market.
The larger question is whether the home buyers would now feel more empowered with this judgment. Will it reduce the trust deficit in the business? Will developers stop the practice of one-sided & arbitrary agreements?
More importantly, why is BBA shown to the home buyer only after having made the payment of initial 10%? What if the buyer is not satisfied with the terms of the builder and hence wants to cancel the booking? Will the applicable deduction be jut 10% of the booking amount or 10% of the entire sales consideration? 10% deduction of the sales consieration would amount to buyer losing out his entire initial payment for no fault. There are, unfortunately, more questions than what anyone could answer at this point of time.
Ravi Sinha
X: ravitrack2media
Ravi Sinha is a journalist with over two decades of cross-discipline media exposure. He is the CEO of real estate thinktank group Track2Realty. He has been writing extensively on the real estate sector for more than a decade now. Evaluation of real estate brand performance is his core domain expertise and he has immense insight into consumers’ psychograph. He has conceptualised Track2Realty BrandXReport as India’s 1st & only objective & non-paid brand rating journal that is industry-accepted benchmark of brand equity & ranking of the Indian real estate companies.
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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