Sudha Gupta v. DLF Ltd.
Background
Sudha Gupta, appearing in person, booked a plot with DLF in 1991 and paid about Rs. 4.9 lakh in instalments, but later defaulted on payments over several months. DLF cancelled the allotment in 1993, forfeited about Rs. 1.55 lakh as "earnest money," and refunded the balance with 9% interest, which Gupta refused to accept. The Competition Appellate Tribunal had earlier rejected her claims for possession/registration of the plot and for compensation, while upholding DLF's refund-with-forfeiture approach; she appealed that order to the Supreme Court.
Decision Breakdown
The Supreme Court held that specific performance (possession and registration of the plot) could not be granted since the plot had long since been validly sold to another buyer, and that buyer's acquisition was legally sound. However, the Court found that DLF had failed to produce documents (the instalment schedule) despite being directed to do so, and drew an adverse inference against it; applying the law from Kailash Nath Associates vs. DDA on forfeiture clauses, the Court held that forfeiting Rs. 1,55,105 was unjustified since DLF had suffered no actual loss (it later resold the plot for a much higher price). Balancing both sides' faults, Gupta's persistent default and DLF's withheld evidence, the Court directed DLF to pay Gupta Rs. 30 lakh within six weeks (with 12% interest on delay) in final settlement, and disposed of the appeal.
Lesson Learnt
A seller cannot simply keep a buyer's "earnest money" as a penalty when the seller suffered no real financial loss from the buyer's default: courts will strike down one-sided forfeiture clauses that amount to an unreasonable penalty, even years after the dispute arose.