Earnest money paid by a purchaser of an immovable property can be forfeited by the seller if the former fails to pay the remaining sum, the Supreme Court has held.
A bench of Justice KS Radhakrishnan and Justice Dipak Misra said the earnest money is given to bind the contract and the seller is entitled to forfeit it if the sale of an immovable property falls through due to the fault of the purchaser.
“Earnest money is paid or given at the time when the contract is entered into and as a pledge for its due performance by the depositor and it is to be forfeited in case of non-performance by the depositor,” the bench said.
The bench gave the ruling setting aside a Delhi High Court order, which had held that the seller is entitled to forfeit only a nominal amount and not the entire sum.
The bench said irrespective of the amount, the purchaser is entitled to forfeit the entire sum.
“There can be converse situation also that if the seller fails to perform the contract, the
purchaser can also get the double the amount, if it is so stipulated.”
The court passed the order on a man’s plea against the high court’s order directing him to forfeit only a nominal amount of R50,000 out of R7 lakh earnest money paid by a purchaser after he failed to pay the rest of R63 lakh to get the property.