Forfeiture Valid for Buyer’s Default Under Sale Agreement | SC

Case Details: K.R. Suresh v. R. Poornima - [2025] 174 taxmann.com 1145 (SC)

Judiciary and Counsel Details

• J.B. Pardiwala & R. Mahadevan, JJ.

Facts of the Case

In the instant case, Respondent Nos. 1 to 4 (vendors) entered into an agreement to sell (ATS) in favour of the appellant for the sale of the suit property for a total sale consideration of Rs. 55.50 lakhs.

The appellant paid Rs. 20 lakhs as an advance sale. Thereafter, the appellant claimed to have discovered that respondent no. 1 attempted to alienate the suit property in favour of respondent nos. 5 and 6 respectively while the ATS was subsisting.

Respondents no. 1 to 4 issued a reply denying the allegations in the legal notice, stating that the advance amount paid by the appellant was forfeited, and consequently, the ATS was cancelled on account of the appellant’s default in making the payment for the balance sale consideration within the specified four months.

Aggrieved by the foregoing, the appellant instituted a suit before the Trial Court. The Trial Court dismissed the suit, and the appeal against the order of the Trial Court was dismissed by the High Court. Thereafter, an appeal was made before the Supreme Court.

It was noted that an explicit forfeiture clause existed in ATS. Further, it was pointed out that the amount termed “advance money” in ATS was essentially “earnest money” and was meant to be adjusted against total sale consideration if the transaction was carried out. Also, it was liable to be forfeited if the transaction fell through due to the purchaser’s default.

Supreme Court Held

The Supreme Court held that respondent nos. 1-4’s forfeiture of the entire amount of advance money was justified because the appellant breached the contract, which led to financial losses for the respondent. 1-4. Such losses, as specifically pleaded and proved by evidence led before the Trial Court, far exceeded the amount forfeited under ATS, a position that was duly noted and accepted by the Trial Court.

Further, since the appellant had not sought an alternative prayer for refund of advance sale consideration in the suit as mandated by Section 22 of the 1963 Act, the appellant was not entitled to such refund.

List of Cases Reviewed

• Welspun Specialty Solutions Ltd. v. ONGC, reported in (2022) 2 SCC 382 (Para 39) affirmed.
• Order passed by the High Court of Karnataka at Bengaluru dated 05.08.2021 in R.F.A. No. 386/2013 (SP) (Para 65) affirmed.
• Kailash Nath Associates v. DDA, reported in (2015) 4 SCC 136 (Para 48) distinguished

List of Cases Referred to

• Desh Raj v. Rohtash Singh (2023) 3 SCC 714 (para 19 and 58)
• Kamal Kumar v. Premlata Joshi (2019) 3 SCC 704 (para 19)
• Pydi Ramana v. Davarasety Manmadha Rao (2024) 7 SCC 515 (para 20)
• Shree Hanuman Cotton Mills v. Tata Air Craft Ltd. (1969) 3 SCC 522 (para 32)
• Videocon Properties Ltd. v. Bhalchandra Laboratories (2004) 3 SCC 711 (para 33)
• Satish Batra v. Sudhir Rawal (2013) 1 SCC 345 (para 34)
• Central Bank of India v. Shanmugavelu (2024) 6 SCC 641 (para 36)
• Chand Rani v. Kamal Rani (1993) 1 SCC 519 (para 38)
• Welspun Specialty Solutions Ltd. v. ONGC (2022) 2 SCC 382 (para 39)
• Maula Bux v. Union of India (1969) 2 SCC 554 (para 46)
• Kailash Nath Associates v. DDA, reported in (2015) 4 SCC 136 (para 48)
• Sahida Bibi v. Sk. Golam Muhammad 1982 SCC OnLine Cal 59 (para 56).