In a landmark ruling, the Hon’ble Supreme Court of India has delivered a decisive blow to one-sided real estate contracts, reinforcing the rights of homebuyers against unfair practices by developers.
The case of Godrej Projects Development Limited vs. Anil Karlekar & Ors. has set a precedent that will reshape the real estate sector, ensuring that consumer protection remains at the forefront of contractual agreements.
The dispute began in 2014 when the respondent booked an apartment in Godrej’s Summit a Gurgaon based project, paying over Rs. 51 lakhs. By 2017, after construction was completed, the buyer sought to cancel his booking, however, the builder instead of refunding the amount chose to refund only 4 lakhs, compelling the allottee to approach the consumer fora.
NCDRC ruled in favor of the homebuyer, allowing only a 10% deduction as earnest money and ordering a refund of the remaining amount with interest.
However, there was no ruling on a similar issue by the apex court therefore to further exploit the homebuyer, the builder challenged the verdict passed by the NCDRC, arguing that the contract explicitly allowed a 20% forfeiture.
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Ruling of Supreme Court at Godrej vs. Karlekar Case
The Supreme Court, however, sided with the homebuyers, slamming the developer for imposing “unreasonable and one-sided” terms.
The Court held that while developers could forfeit earnest money, the amount must be reasonable and not punitive. In the case at hand, the 20% forfeiture clause was deemed excessive, especially since the buyers had no corresponding protection against delays or defaults by the developer.
The Court’s decision was rooted in the principles of fairness and equity. It noted that the contract heavily favored the developer, leaving buyers vulnerable to harsh penalties without any recourse. The Supreme Court held that such lopsided agreements constitute unfair trade practices, and this judgment reaffirms that position.
The Court while referring to the Consumer Protection Act, 2019 made reference as regards the unfair contracts as those imposing unreasonable obligations on consumers.
The court opined that although the Act was not in force when the agreement was signed, the Court emphasized that its principles were consistent with established legal precedents.
In a significant move, the Court upheld the National Commission’s decision to reduce the forfeiture to 10% of the basic sale price.
The Court emphasized the importance of balancing the interests of both parties, ensuring that the builder was held accountable for the delay while also recognizing the practical realities faced by the buyers in such transactions.
This decision underscores the judiciary’s role in fostering fairness and equity in real estate disputes.
This judgment sends a clear message to the real estate sector, affirming that developers can no longer hide behind one-sided contracts.
The Supreme Court tried to send out a categorical message to the builders’ lobby, emphasizing that the era of unchecked exploitation and imbalanced agreements must come to an end.
Conclusion
The ruling underscores the need for balanced agreements that protect both parties, especially in an industry where buyers often have limited bargaining power. It also aligns with the broader push for consumer protection, ensuring that homebuyers are not left at the mercy of exploitative practices.
For the real estate industry, this decision is a wake-up call. Developers must now ensure that their contracts are fair, transparent, and equitable.
For homebuyers, it’s a victory that reaffirms their rights and sets a precedent for future disputes.
The Supreme Court has once again demonstrated its commitment to justice, striking a delicate balance between the interests of developers and consumers in an increasingly complex real estate market.
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