There is need for buyers to understand cancellation rules before entering into a purchase agreement with a developer.
The Haryana Real Estate Regulatory Authority (Rera) recently denied a refund to a homebuyer whose allotment was cancelled due to non-payment of instalments.
The buyer had paid less than 10 per cent of the total sale consideration.
A case like this underscores the need for buyers to understand cancellation rules before entering into a purchase agreement with a developer.
Rules on cancellation and refund
Rera does not explicitly define cancellation provisions.
"The builder-buyer agreement (based on the Rera-prescribed model format) governs cancellation rights and consequences," says Adnan Siddiqui, partner, King Stubb & Kasiva, Advocates and Attorneys.
Refunds are enforced under Rera Section 18 for delay or default, and Section 19(4) for non-compliance with the agreement.
When can developer forfeit
A developer may cancel the allotment and forfeit the earnest money if the buyer fails to pay instalments for over three months or does not sign the agreement despite reminders.
While Rera does not fix a forfeiture limit, judicial precedent and authorities such as Haryana Rera have held that it must be reasonable.
"Courts generally cap it at 10 per cent of the total sale consideration, unless higher forfeiture is specifically agreed upon and justified," says Siddiqui.
The refund amount depends on the allotment terms and stage of construction.
"Besides the booking amount, the developer can also deduct interest applicable on the delayed component," says Vimal Nadar, national director and head, research, Colliers India.
Developers cannot arbitrarily forfeit funds even when there is no registered agreement.
"Rera prescribes that once a buyer pays 10 per cent or more of the total consideration, the agreement between the developer and buyer should be registered," says Harsh Parikh, partner, Khaitan & Co.
Siddiqui adds that forfeiting over 10 per cent without a formal contract may be challenged before Rera or consumer court.
When are buyers eligible for refunds?
A homebuyer is entitled to cancel the booking in certain cases: delays in project completion, misrepresentation, unauthorised layout changes, non-compliance with statutory approvals, and so on.
"A developer is not allowed to make deductions in such cases, according to Section 18 of Rera, which mandates a full refund with interest," says Pradeep Mishra, chairman and managing director, ORAM Developments.
He adds that if a cancellation occurs before an agreement is signed, and it is due to the developer's failure, a full refund must be made.
Penalties for delay in refund
If a developer fails to refund within 45 days, the buyer is entit-led to the principal plus interest -- typically the SBI prime lending rate plus 2 percentage points.
"In case of continued delay, the buyer can file a complaint before the Rera authority or the adjudicating officer, who may direct the developer to make the payment along with penal interest and, where applicable, impose monetary penalties.
"If the developer fails to comply with the authority's order, the buyer may seek execution of the order as a decree of the court," says Soumya Banerjee, partner, Aquilaw.
Some state regulators may also initiate recovery as land revenue arrears, making the refund timelines legally enforceable.
Legal remedies
Buyers can seek relief under both Rera and the Consumer Protection Act, 2019, if a refund is denied despite valid grounds.
"Rera has empowered homebuyers to claim timely refunds with interest if a developer defaults.
"Legal remedies under Rera and consumer law are strong deterrents against unfair developer practices," says Shweta Tiwari, associate partner, IndiaLaw LLP.
Do's and don'ts for buyers
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Feature Presentation: Ashish Narsale/Rediff
