Earnest money cannot be forfeited: MREAT

By Adv Fiona Mehta

In the matter of Rekha Navani vs Omkar Ventures Pvt. Ltd (2019) (AT006000000021465)

Facts of the Case: The dispute concerns the reservation of an apartment in Omkar Ventures’ project in Andheri, Mumbai. While booking the flat at an exhibition, the channel partner of Respondent promised that in case she is found ineligible for housing loan, the amount paid will be refunded. The Appellant received a letter of allotment from the Respondent on December 5, 2017, after which the Respondent sent demand notices for the remaining amount due on the property. Since the Appellant was unable to obtain a loan from a bank, she requested that the Respondent cancel the reservation and reimburse the entire money. Despite numerous follow-ups, the Respondent only repaid Rs.1 lakh, with the remaining Rs.6.95 lakhs forfeited.

As Respondent did not oblige, the Appellant filed a complaint (“Complaint”) with the Maharashtra Real Estate Regulatory Authority (“MHRERA”) against the Respondent, requesting a refund of the entire amount plus interest under Section 19(4) of the Real Estate (Regulation and Development) Act, 2016 (“RERA Act”). The Appellant specifically stated in

the lawsuit that Respondent could not forfeit any sum paid to it because no such clause was included in the assignment letter, and so she was entitled to a refund under Sections 18 and 19 of the RERA Act.

On the other hand, Respondent argued that even though Respondent was entitled to forfeit 10% amount of the consideration price of the booked flat as per the Clause 3(l)(ii) of the Allotment letter, Respondent forfeited 5% amount as Appellant had paid only 5% amount of the total consideration, After observing that, since no agreement for sale is executed, Section 18 would not apply to the matter to grant refund to Appellant the Authority disposed of the complaint vide impugned order by directing refund of amount, if any, to Appellant subject to terms and conditions of Allotment letter.

However, Respondent purposefully interpreted the Application Fee as total consideration for the flat in the allotment letter, and later interpreted the “EOI” and “Application Fee” together as earnest money in the allotment letter, making it difficult for the Appellant to understand the implications of such terminologies mentioned in the allotment letter/application form, and such arbitrary and one-sided implications have made the contractual obligations unfair and inequitable.

MahaRERA’s Judgement: MHRERA, disagreeing with the Appellant’s arguments, dismissed the case, stating that the Appellant was not entitled to any refund under Section 18 of the RERA Act because there was no agreement of sale between the parties. Appellant filed an appeal against MHRERA’s Order with MHREAT after being aggrieved.

Appeal: According to the Tribunal’s ruling on 29^th June 2020, the terms listed in the application form and allotment letter sent to the homebuyer do not adhere to the regulations of the Real Estate (Regulation and Development) Act, 2016, and they are also ambiguous, one-sided, and inequitable.

MHREAT’s Judgement: The MHREAT while dealing with the issue that “Whether the Appellant is entitled for refund of the paid amount paid along with interest”, held that the terms prescribed by Respondent in its allotment letter and application form are not only in derogation of the provision of RERA Act and rules framed thereunder but are also one-sided, ambiguous and inequitable. The MHREAT further held that RERA Act is a welfare legislation enacted to safeguard the interest of the allottees, and as such Respondent cannot be allowed to act against the RERA Act by formulating formats which are one-sided, ambiguous and inequitable.

Final Judgement: The MHREAT vide its Judgment dated June 29, 2020 allowed an appeal setting aside an Order passed by the MHRERA, and directed Respondent to refund the forfeited amount to the Appellant. This ruling would force RERA authorities across the country to adhere to the RERA Act’s stipulations and reconsider their decision not to provide refunds.