The Supreme Court ruled that a buyer who failed contractual obligations cannot claim a refund. It upheld the forfeiture of Rs 20 lakh, stating “law aids the vigilant, not those who sleep over their rights.”
New Delhi: The Supreme Court of India recently gave a strong message while dealing with a property-related case from Bengaluru.
The top court said that “the law aids the vigilant, not those who sleep over their rights” while upholding a Karnataka High Court verdict regarding the forfeiture of ₹20 lakh in a property sale dispute.
A bench of Justices J B Pardiwala and R Mahadevan was hearing an appeal concerning the payment of ₹20 lakh as the first installment for a property deal. The buyer (appellant) had defaulted in completing the full payment under the agreed timeline. Due to this failure, the sellers (respondents) had forfeited the ₹20 lakh paid by the buyer.
In its judgment, the Supreme Court clarified the difference between “advance money” and “earnest money” and how this distinction was important for the case. According to the court, the amount paid by the buyer was “earnest money,” not just a simple advance. The bench explained that:
“The word ‘advance’ means money in whole or in part, forming the consideration of an agreement paid before the same was completely payable.”
“On the other hand, the term ‘earnest’ was a sum of money given for the purpose of binding a contract, which is forfeited if the contract does not go off and adjusted in price if it goes through.”
The court concluded that the ₹20 lakh amount was essentially “earnest money,” which worked as a guarantee that the buyer would fulfill his part of the deal. Since the buyer failed to pay the remaining balance within four months as per the agreement, the seller was right to forfeit the amount.
“Consequently, when the appellant-purchaser failed to comply with the contractual stipulation of paying the balance sale consideration within a period of four months from the date of the agreement, the respondents 1-4 were justified in forfeiting the advance money.”
The court also noted that the appellant never requested more time to fulfill the contract nor did the sellers grant any such extension.
The forfeiture clause in the agreement was considered fair and balanced:
“The forfeiture clause was fair and equitable rather than one-sided and unconscionable, as it imposed liabilities on both the purchaser and sellers, in which the seller was obligated to pay twice the advance amount paid by the buyer in case of his default.”
The main legal question before the court was whether the buyer was entitled to get a refund of ₹20 lakh. However, the appellant did not ask for this refund through a proper alternative prayer during the original trial or even in the High Court appeal. The bench said that it is a well-settled rule of law that courts can allow amendments to a suit at any stage, but they cannot do so on their own unless the party asks for it.
“It was a settled position of the law that the plaint might be amended at any stage of the proceedings to enable the plaintiff to seek an alternative relief, including that of the refund of earnest money, and the courts were vested with wide judicial discretion to permit such amendments.”
The court referred to the Specific Relief Act, 1963, and clarified:
“The provision of the Act… was adequately broad and flexible to allow the appellant to seek an amendment of the plaint for the said relief, even at the appellate stage.”
But in this case, the buyer never made any such request.
“However, no such application for an amendment of the plaint was moved either before the trial court or during the course of the first appeal before the high court. That is to say, the appellant never prayed for the refund of the advance money.”
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Because of this failure, the court could not grant any relief.
“Here, it would be redundant to state that the law aids the vigilant, not those who sleep over their rights.”
In conclusion, the Supreme Court upheld the High Court’s decision, stating there was no illegality in the verdict. It said that since the appellant did not fulfill the contract terms, nor made a proper plea for a refund, the sellers were justified in forfeiting the earnest money. The court found the forfeiture clause to be reasonable and saw no legal fault in the earlier rulings.
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