In Godrej Projects Development Limited v. Anil Karlekar & Ors (Civil Appeal No. 3334/2023), the Supreme Court ruled that forfeiture of earnest money in property transactions is valid if reasonable and does not fall under Section 74 of the Indian Contract Act, unless it forms part of the consideration. The court emphasized that unfair and one-sided contract terms could be considered an unfair trade practice under the Consumer Protection Act, 1986, and that Article 14 of the Constitution ensures fairness in contracts, particularly in cases of unequal bargaining power. In this case, the buyer canceled the contract due to a market recession, and the developer forfeited 20% of the amount as earnest money. The NCDRC reduced the forfeiture to 10% and ordered a refund with 6% interest per annum. The Supreme Court upheld the reduced forfeiture but removed the interest component, reinforcing the principle that forfeiture clauses must be reasonable and not excessive.
