A One-Sided Contract Cannot Bind Consumers: Supreme Court 

Supreme Court Rules Against Unfair Contract Clauses in Real Estate Deals

 

In a landmark ruling, the Supreme Court of India reinforced consumer rights by declaring that unfair and one-sided contract clauses in real estate agreements are unenforceable. The judgment came in Godrej Projects Development Ltd. vs. Anil Karlekar & Ors. (Civil Appeal No. 3334 of 2023), where the court partially upheld a National Consumer Disputes Redressal Commission (NCDRC) order, capping the forfeiture of earnest money at 10% of the Basic Sale Price (BSP). However, it overturned the NCDRC’s direction to pay interest on the refunded amount.

 

Case Background

 

The dispute arose over an apartment booking in Godrej Summit, a Gurgaon-based project by Godrej Projects Development Ltd. The buyers, Anil Karlekar and another, booked the apartment in 2014, paying ?10 lakh as an application fee. However, in 2017, following a market downturn, they opted to cancel the purchase and sought a refund of ?51,12,310.

 

Citing a forfeiture clause in the agreement, the developer retained 20% of the BSP (?1.70 crore). The buyers took the matter to the NCDRC, which ruled in their favor, reducing the forfeiture to 10% of the BSP and ordering a refund of the balance with 6% interest. The developer then appealed to the Supreme Court.

 

Supreme Court’s Ruling

 

The apex court reaffirmed that contracts with excessive and one-sided obligations, favoring developers at the cost of buyers, are legally untenable. Citing Pioneer Urban Land and Infrastructure Ltd. v. Govindan Raghavan (2019), the court emphasized that agreements must be fair, especially in cases where parties do not have equal bargaining power.

 

Justice B.R. Gavai, delivering the verdict, stated:

 

> "The agreement is one-sided and tilted in favor of the developer. Courts will not enforce an unfair or unreasonable contract or clause, particularly when there is a disparity in bargaining power."

 

 

 

The court upheld the NCDRC’s decision that only 10% of the BSP could be forfeited as earnest money, referencing Maula Bux v. Union of India (1969). However, it denied interest on the refund, reasoning that since the buyers canceled the booking due to falling property prices, they were not entitled to additional financial relief.

 

Key Takeaways

 

1. Unfair contract terms are unenforceable – Developers cannot impose harsh penalties on buyers while protecting their own interests.

 

 

2. Reasonable forfeiture limits – Forfeiture of earnest money is capped at 10% of the BSP, ensuring fairness in property transactions.

 

 

3. No interest on buyer-initiated cancellations – If a buyer cancels due to market conditions, they are not entitled to interest on the refunded amount.

 

 

 

Final Order

 

The Supreme Court directed Godrej Projects to refund ?34,04,170 to the complainants within six weeks, after deducting 10% of the BSP as forfeiture. However, the requirement to pay 6% interest was set aside.

 

This ruling strengthens consumer protection in real estate, discouraging developers from enforcing exploitative contract terms.