• FastrackGovind
• RERA
• May 20, 2026

A builder cannot mechanically forfeit the entire booking amount merely because the homebuyer cancels the booking. Under RERA, a promoter cannot accept more than 10% of the cost of the apartment, plot or building as advance payment without first entering into a written agreement for sale. In builder-buyer disputes, forfeiture must also satisfy the test of reasonableness under contract law and consumer law. The Supreme Court in Godrej Projects Development Ltd. v. Anil Karlekar & Ors., 2025 INSC 143 upheld the view that forfeiture beyond 10% of the Basic Sale Price may be unreasonable where the forfeiture clause is one-sided, penal or unfair

Introduction

Booking a flat, plot or commercial unit usually begins with payment of a booking amount, application money, token amount or earnest money. Trouble begins when the homebuyer later cancels the booking and the builder refuses refund by relying on a forfeiture clause.

Many builders take the position that once the buyer signs the application form or builder-buyer agreement, the entire booking amount stands forfeited. This is not the correct legal position in every case.

The legality of forfeiture depends on several factors: the terms of the agreement, the amount collected, whether a registered agreement for sale was executed, who committed default, whether the forfeiture is reasonable, whether actual loss is shown, and whether the clause is one-sided or unconscionable.

In real estate law, the issue is governed by a combination of RERA, Indian Contract Act, 1872, and consumer protection jurisprudence.

What Is Booking Amount or Earnest Money?

In real estate transactions, the expressions “booking amount”, “application money”, “token money” and “earnest money” are often used loosely. Legally, they are not always identical.

Earnest money is generally treated as an amount paid to show seriousness of the buyer and to secure performance of the contract. If the buyer commits breach, reasonable earnest money may be forfeited if the contract clearly permits it.

However, every amount paid at the time of booking is not automatically earnest money. If the amount is merely part-payment of sale consideration, and not truly earnest money, the builder cannot automatically forfeit it by changing its label.

The substance of the transaction is more important than the label used by the builder.

RERA and the 10% Advance Payment Rule

Section 13 of the Real Estate (Regulation and Development) Act, 2016 provides that a promoter shall not accept more than 10% of the cost of the apartment, plot or building as advance payment or application fee without first entering into a written agreement for sale and registering the same.

This provision is important because many builders collect substantial amounts at the booking stage without executing a proper agreement for sale. If the builder has collected more than the statutory threshold without complying with Section 13, the buyer may have a strong ground to challenge the forfeiture.

Section 13 is not merely a procedural provision. It is a consumer-protective safeguard intended to prevent builders from collecting large sums without binding themselves to clear statutory obligations.

Also Read The Ultimate Guide to Understanding RERA 2023

Can a Builder Forfeit the Entire Booking Amount?

No, not as an automatic rule.

A builder may rely on a forfeiture clause only if:

1. The clause is clear and specific.
2. The amount is genuinely earnest money.
3. The forfeiture is reasonable.
4. The buyer is in breach.
5. The clause is not one-sided or unfair.
6. The forfeiture does not operate as a penalty.
7. The builder has complied with RERA and the agreement.

If these conditions are not satisfied, the forfeiture can be challenged before RERA or the Consumer Commission.

Contract Law Position: Section 74 of the Indian Contract Act

Section 74 of the Indian Contract Act, 1872 deals with compensation where a contract names a sum to be paid in case of breach or contains a stipulation by way of penalty. The provision does not permit punitive or excessive recovery merely because the contract says so. The party complaining of breach is entitled only to reasonable compensation, subject to the statutory framework.

This principle is central to booking amount disputes. A builder cannot use a forfeiture clause as a penalty. If the amount forfeited is excessive, arbitrary or unrelated to any actual loss, the buyer may challenge it.

Supreme Court on Forfeiture: Godrej Projects Development Ltd. v. Anil Karlekar

The most important recent judgment on builder forfeiture is Godrej Projects Development Ltd. v. Anil Karlekar & Ors., 2025 INSC 143.

In that case, the apartment buyer agreement treated 20% of the Basic Sale Price as earnest money. The buyer cancelled the booking and sought refund. The builder claimed entitlement to forfeit the amount as per the agreement. The NCDRC allowed deduction of only 10% of the Basic Sale Price and directed refund of the balance. The Supreme Court did not interfere with the direction permitting forfeiture only to the extent of 10% of the Basic Sale Price, although it modified the interest component.

The judgment is significant because it recognises that a builder-buyer agreement cannot be enforced mechanically where the forfeiture clause is one-sided, unfair or penal.

Why One-Sided Builder-Buyer Clauses Can Be Challenged

Builder-buyer agreements are often standard-form contracts drafted entirely by the developer. The buyer usually has no meaningful bargaining power. He signs on the dotted line because refusal would mean losing the unit, losing the booking opportunity or facing pressure from the sales team.

The Supreme Court in Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan, (2019) 5 SCC 725, held that one-sided and unfair clauses in builder-buyer agreements cannot be blindly enforced against flat purchasers. The Court recognised that such clauses may amount to unfair trade practice, especially where the builder reserves wide rights for itself while imposing harsh consequences on the buyer.

This principle is directly relevant to forfeiture clauses. If the builder can delay possession with minimal consequences but the buyer loses a large amount for cancellation, the clause may be attacked as unfair and unconscionable.

Haryana RERA Position on Forfeiture

The Haryana Real Estate Regulatory Authority, Gurugram, issued the Haryana Real Estate Regulatory Authority, Gurugram (Forfeiture of Earnest Money by the Builder) Regulations, 2018. These regulations state that the forfeiture amount of earnest money shall not exceed 10% of the consideration amount of the apartment, plot or building where cancellation is made by the builder unilaterally or where the buyer intends to withdraw from the project. Any contrary agreement clause is stated to be void and not binding on the buyer.

This is highly relevant for Gurugram real estate disputes. However, buyers must remember that RERA practice differs from State to State. The applicable State RERA Rules, Regulations and orders must be verified before filing.

When Forfeiture May Be Legally Justified

A builder may have a stronger case for forfeiture where:

1. A valid agreement for sale was executed.
2. The agreement clearly identifies earnest money.
3. The buyer defaulted without lawful justification.
4. The builder was ready and willing to perform.
5. Possession was offered lawfully and within time.
6. The forfeiture is reasonable.
7. The builder can show prejudice or loss.
8. The clause is not oppressive or one-sided.

Even in such cases, the builder cannot assume that any amount mentioned in the agreement will automatically be upheld.

When Forfeiture Can Be Challenged by the Homebuyer

A homebuyer can challenge forfeiture where:

1. The builder failed to deliver possession on time.
2. The project is delayed or stalled.
3. The builder did not execute a registered agreement for sale.
4. More than 10% was collected before agreement in violation of Section 13 RERA.
5. The forfeiture clause is one-sided.
6. The builder has not shown any actual loss.
7. The cancellation was caused by builder default.
8. The builder made false promises or misleading representations.
9. The builder changed layout, specifications or possession timeline.
10. The builder retained money without legal basis.

In such cases, the buyer’s claim should be drafted as a challenge to illegal forfeiture, unfair trade practice, RERA violation and unreasonable penalty.

Difference Between Buyer Default and Builder Default

This distinction is crucial.

If the buyer cancels without builder default, some reasonable forfeiture may be permissible depending on the agreement and facts.

However, if cancellation is caused by builder default, the builder’s right to forfeiture becomes weak. A builder who has itself failed to perform cannot ordinarily profit from its own breach.

For example, if possession was promised by 2021 and the project remains incomplete in 2026, the builder cannot simply say that the buyer cancelled voluntarily and therefore the amount is forfeited. The cancellation in such a case may be a consequence of prolonged builder default.

Booking Amount Paid Without Agreement for Sale

Many homebuyers pay booking money after seeing brochures, advertisements, sample flats or sales representations. Later, the builder either delays the agreement or sends a one-sided agreement with harsh clauses.

Where no proper agreement for sale has been executed, the builder’s right to forfeit becomes far weaker. This is particularly so where the builder collected more than 10% of the property cost without complying with Section 13 RERA.

The buyer should preserve all emails, WhatsApp messages, payment receipts, booking forms and communications showing that the builder collected money before executing the statutory agreement.

Can Processing Fee, Brokerage or GST Be Forfeited?

Builders often deduct several heads at the time of refund, such as:

1. Earnest money.
2. Administrative charges.
3. Processing fee.
4. Brokerage.
5. GST.
6. Interest.
7. Cancellation charges.
8. Documentation charges.

Each deduction must be legally tested. The builder cannot create artificial deductions to defeat the refund. If GST has actually been deposited and is not refundable under tax law, that may require separate treatment. But vague deductions like “administrative charges” or “processing fee” must be supported by contract and law.

The buyer should demand a complete refund calculation from the builder.

RERA Complaint or Consumer Complaint?

The correct forum depends on the facts.

A RERA complaint may be preferable where the issue involves:

1. Violation of Section 13 RERA.
2. Delayed possession.
3. Refund due to builder default.
4. Project registration issues.
5. Promoter obligations.
6. Statutory interest and refund.

A consumer complaint may be preferable where the case involves:

1. Unfair trade practice.
2. One-sided builder-buyer agreement.
3. Deficiency in service.
4. Mental harassment.
5. Compensation beyond simple refund.
6. Unfair contract terms.

In many cases, both RERA and consumer law principles are relevant, but the homebuyer should not blindly file multiple proceedings for identical reliefs.

Documents Required to Challenge Forfeiture

The homebuyer should collect:

1. Booking form.
2. Application form.
3. Allotment letter.
4. Builder-buyer agreement or agreement for sale.
5. Payment receipts.
6. Bank statements.
7. Loan documents, if any.
8. Builder’s cancellation letter.
9. Refund rejection letter.
10. Emails and WhatsApp communication.
11. Brochure and advertisement.
12. RERA registration details.
13. Construction status proof.
14. Legal notice, if issued.
15. Builder’s refund calculation.
16. Proof of delay or builder default.

A forfeiture case is won on documents. Oral allegations are not enough.

Legal Notice Before Filing Complaint

A legal notice is not always mandatory, but it is usually advisable. The notice should clearly state:

1. Amount paid by the buyer.
2. Date of booking.
3. Project and unit details.
4. Builder’s default, if any.
5. Violation of Section 13 RERA, if applicable.
6. Why forfeiture is illegal or excessive.
7. Demand for refund.
8. Interest and compensation claimed.
9. Time granted for compliance.
10. Proposed legal action.

A properly drafted legal notice helps crystallise the cause of action and reduces ambiguity.

Reliefs That May Be Claimed

Depending on facts, the buyer may seek:

1. Refund of illegally forfeited amount.
2. Interest on retained amount.
3. Compensation for financial loss.
4. Compensation for mental harassment, where applicable.
5. Declaration that forfeiture clause is unfair or not binding.
6. Direction to provide complete statement of account.
7. Litigation costs.
8. Penalty or regulatory action, where maintainable.

The prayer should be drafted carefully. If the case is framed wrongly, the builder may raise objections regarding jurisdiction, limitation and maintainability.

Common Mistakes Made by Homebuyers

Homebuyers often weaken their claims by:

1. Cancelling without recording reasons.
2. Not preserving builder communications.
3. Accepting partial refund as full and final settlement.
4. Signing cancellation forms with harsh waiver clauses.
5. Not objecting to illegal deductions immediately.
6. Filing complaint without checking RERA jurisdiction.
7. Claiming excessive compensation without proof.
8. Not distinguishing booking amount from earnest money.
9. Ignoring limitation.
10. Not calculating interest properly.

Before signing any cancellation or refund settlement, the buyer should carefully read whether it contains a waiver of future claims.

Practical Legal Position

The practical legal position may be summarised as follows:

A builder may forfeit a reasonable earnest money amount where the buyer is clearly in default and the agreement lawfully permits forfeiture.

However, a builder cannot use a one-sided clause to impose an excessive penalty, particularly where the builder is itself in default or where statutory safeguards under RERA have been violated.

The 10% principle has gained strong recognition in real estate forfeiture disputes, especially after the Supreme Court’s decision in Godrej Projects Development Ltd. v. Anil Karlekar & Ors. and the regulatory approach of Haryana RERA Gurugram. But facts remain decisive, and every case must be examined on its own documents.

Conclusion

A builder’s right to forfeit booking amount is not absolute. It is controlled by RERA, contract law, consumer law and judicial principles of fairness.

Where the builder has collected more than the permissible amount without agreement, delayed the project, imposed one-sided clauses, or failed to show actual loss, the homebuyer can challenge the forfeiture and seek refund.

The correct legal route depends on the project location, agreement terms, amount paid, reason for cancellation, builder default and the relief required.

For more legal resources on real estate disputes, RERA complaints and builder-buyer litigation, visit <a href=”https://www.fastracklegalsolutions.com”>Fastrack Legal Solutions</a>.

FAQs

1. Can a builder forfeit the entire booking amount?

Not automatically. Forfeiture must be reasonable, supported by the agreement, and must not operate as a penalty or unfair trade practice.

2. Can a builder take more than 10% before agreement for sale?

Under Section 13 RERA, a promoter cannot accept more than 10% of the cost of the apartment, plot or building without first entering into a written agreement for sale.

3. Is 10% forfeiture always valid?

No. The 10% principle is a strong benchmark, but the facts of each case matter. If the builder is in default, even 10% forfeiture may be challenged depending on the circumstances.

4. Can a buyer claim refund after cancelling booking?

Yes, if the forfeiture is illegal, excessive, unsupported by contract, caused by builder default, or contrary to RERA and consumer law principles.

5. Which forum is better for refund of forfeited amount?

RERA may be better where the case involves RERA violation, delayed possession or statutory promoter default. Consumer Commission may be better where the case involves unfair trade practice, one-sided clauses, deficiency in service and compensation.

Disclaimer

The contents of this article are intended solely for general information, legal awareness and educational purposes. The article does not constitute legal advice, legal opinion, advertisement, solicitation, or an invitation to create an advocate-client relationship.

RERA disputes, booking amount refund claims, forfeiture disputes, cancellation matters and builder-buyer disputes depend upon the specific facts of each case, the agreement terms, payment record, correspondence, limitation, project status, State RERA Rules and applicable judicial precedents.

Readers should not act solely on the basis of this article and are advised to seek independent legal advice from a qualified legal practitioner before initiating proceedings before RERA, Consumer Commission, Civil Court, Appellate Tribunal, `High Court` or any other forum.

The legal position discussed herein is based on statutory provisions and judicial precedents available at the time of writing and may be subject to subsequent amendments, notifications, rules, regulations or judicial pronouncements.

Fastrack Legal Solutions does not solicit work through this article. Any person seeking legal assistance must do so voluntarily and on the basis of independent choice.