Builder Refuses Allotment Cancellation Refund: Which Rule Applies to Your Money

Reviewed on: 2026-06-12.

Everything in a cancellation refund fight turns on one question: who defaulted? Run your facts through this flow before writing a single letter.

If the builder defaulted, possession is past the agreement date, the project is stalled, registration was suspended, or what is being delivered is not what was promised, Section 18 of the RERA Act applies: you can withdraw and claim a full refund of everything paid, with interest at the state-prescribed rate, plus compensation. No forfeiture clause survives a builder default.

If you are cancelling for your own reasons, a job move, finances, a better project, the agreement's cancellation clause applies, and the builder may forfeit the earnest money. But forfeiture has limits: forums have repeatedly cut it down to a reasonable earnest amount, commonly 10 per cent of the consideration, and the balance must come back to you.

If the builder cancelled your allotment, over a disputed demand or alleged delay on your side, test whether his cancellation was lawful before accepting his forfeiture math. An unlawful cancellation is treated like a builder default.

If your allotment came from a housing board or development authority, DDA, a state housing board, an industrial township authority, the body's own cancellation regulations apply, and because it is a public authority, RTI works directly on your file.

Section 18(1) is blunt. If the promoter fails to complete or is unable to give possession in accordance with the agreement for sale, the allottee who wishes to withdraw is entitled to the return of the entire amount paid, with interest at the prescribed rate, and compensation. In most states the rate is SBI's highest MCLR plus 2 per cent, computed from each payment date. On a Rs 45 lakh paid-up amount stuck for three years, the interest alone is substantial, which is why builders fight to recharacterise their default as your “voluntary cancellation”. Do not sign any cancellation form the builder offers in this situation. Withdraw by your own letter citing Section 18, stating the default, and demanding refund with interest within 30 days. Then file at RERA.

If your reason for exiting is that the project itself changed under you, layout altered, amenities dropped, that is builder-side conduct too. See builder changed layout, amenities or carpet area.

Worked example. Flat price Rs 60 lakh. You paid Rs 18 lakh (30 per cent) and cancelled for personal reasons. The builder's letter says the entire Rs 18 lakh is forfeited under clause 9. That clause rarely survives scrutiny.

• Earnest money in Indian contract practice is the booking or token component, and courts allow forfeiture only of a reasonable earnest sum, not every rupee paid. Forfeiting amounts beyond a genuine pre-estimate of loss is penal.
• Several RERA authorities and the consumer commissions have capped forfeiture at around 10 per cent of the basic sale consideration. MahaRERA and NCDRC orders have both followed this line, and some state model agreements write the cap in.
• On these numbers: 10 per cent of Rs 60 lakh is Rs 6 lakh. The refundable balance is Rs 12 lakh. Amounts collected as GST that the builder can adjust, and charges for services never rendered, strengthen the refund side further.

Also check whether the builder resold the flat. If unit 1404 was resold within weeks at the same or higher price, his actual loss is near zero, and forums weigh that heavily against forfeiture.

To: [Promoter], [address]
Subject: Refund on cancellation of Unit [no.], [Project],
RERA Regn No. [XXXX]

1. I booked the above unit on [date] and have paid Rs [amount] in
   total (receipts enclosed). The booking was cancelled on [date]
   by [me / you] for the reasons recorded in [letter/reference].
2. [If builder default:] The cancellation arises from your failure
   to [state default]. Under Section 18 of the RERA Act 2016, I am
   entitled to refund of the entire amount with interest at the
   prescribed rate from the respective payment dates.
   [If buyer-side:] Forfeiture, if any, is limited to reasonable
   earnest money. Any clause purporting to forfeit more is penal
   and unenforceable.
3. Please remit Rs [amount] within 30 days, failing which I shall
   file a complaint before the [State] Real Estate Regulatory
   Authority at your risk as to interest and costs.

[Name, address, mobile, email, bank details for remittance]

File on your state portal with the agreement or allotment letter, every payment receipt, the cancellation correspondence and the demand letter. UP RERA, which sees heavy refund traffic from NCR projects, takes complaints at up-rera.in for Rs 1,000 and routes refund execution through recovery certificates that the district administration enforces as land revenue arrears. MahaRERA charges Rs 5,000, with compensation quantified by the Adjudicating Officer. Ask for the principal, interest at the prescribed rate from each payment date, and costs. If the builder ignores the final order, press for the recovery certificate; that, not the order itself, is what moves money.

Refund orders against stressed builders can still crawl. If the promoter enters insolvency, homebuyers are financial creditors and must file claims with the resolution professional; take legal advice promptly at that point because timelines there are short.

If your allotment is from DDA, a state housing board or any development authority, RTI applies squarely. Ask the authority for your file's noting on the cancellation, the regulation under which forfeiture was computed, and the refund sanction status. Start with how to file RTI online and pick the right portal from the state RTI portal directory. Against a private builder, RTI does not lie, though the RERA authority's own records of complaints and project finances are public-authority records you can seek.

• Signing the builder's pre-printed cancellation-cum-settlement form. It usually contains a full-and-final waiver.
• Accepting a credit note or “transfer to another project” instead of money, unless you genuinely want that project.
• Waiting out years of verbal assurances. Interest claims are strongest with a clean written demand trail.
• Forgetting the home loan. Tell your bank in writing, keep paying EMIs until the refund lands, and route the builder's refund through the loan account closure properly.

Related: builder changed the payment schedule, builder has OC but refuses possession, and the full library at all practical guides.

Only with interest and a written, dated schedule, and even then weigh it against a RERA order. Instalment offers without interest are usually a delay tactic.

GST on a cancelled supply is generally adjustable or refundable to the builder, so forfeiting it from you is contestable. Stamp duty paid to the government on a registered agreement has its own state-specific refund window, often six months to a few years, so check that deadline immediately.

Typically only a reasonable part of the booking amount, and several authorities have ordered near-full refunds at this stage, especially where the builder breached Section 13 by collecting over 10 per cent without a registered agreement.

Months, not weeks, varying by state and execution stage. The recovery certificate stage is where persistence pays.

The cancellation itself does not, but a home loan left unserviced during the dispute does. Keep the bank informed and the EMIs running.

Download the cancellation refund checklist (PDF).