Flat Cancelled? Builder Can Keep Only About 10 Percent

You booked a flat for Rs 50 lakh. You paid Rs 5 lakh as booking money. Later you cancelled. The builder says the agreement lets him keep 20 percent of the price, so he forfeits Rs 10 lakh and refunds the rest. Can he do this? In most cases, no. The Supreme Court has held that a builder can normally keep only about 10 percent of the Basic Sale Price as reasonable forfeiture. Anything more is a penalty, and you can recover the extra through the consumer forum.

This is the rule from Godrej Projects Development Ltd v Anil Karlekar, decided by the Supreme Court on 3 February 2025. This page explains the rule, why a 20 percent clause is treated as unfair, and how to get back the excess money. It is different from a delay refund where the builder fails to deliver the flat.

The 10 percent rule in one table

When you cancel a flat booking yourself, the builder can keep a reasonable amount as earnest money. The Supreme Court has accepted that around 10 percent of the Basic Sale Price is reasonable. More than that is treated as a penalty under Section 74 of the Indian Contract Act 1872, and a one-sided clause forcing it is an unfair trade practice.

Situation What the law allows
Builder forfeits about 10 percent of Basic Sale Price Reasonable. Treated as earnest money. Usually allowed.
Builder forfeits 20 percent or more on a one-sided clause Penalty. Excess struck down. Unfair trade practice.
You cancel the booking yourself Builder keeps reasonable forfeiture near 10 percent. Rest refunded.
Builder delays or fails to deliver the flat You can claim a full refund with interest. This is a RERA Section 18 matter.

The key idea is balance. The forfeiture must be a fair estimate of the builder's loss. It cannot be a one-sided number written only to punish the buyer.

What the Supreme Court actually held

In the Godrej case, the buyers booked a flat in the Godrej Summit project in Gurugram. They later cancelled after possession was offered. The builder relied on a clause allowing forfeiture of 20 percent of the Basic Sale Price.

The Supreme Court made these points.

  • A clause that lets the builder keep 20 percent of the price on the buyer's cancellation is excessive.
  • Such a one-sided clause is an unfair trade practice under Section 2(1)® of the Consumer Protection Act 1986.
  • Reasonable forfeiture is around 10 percent of the Basic Sale Price, as the National Consumer Disputes Redressal Commission has consistently held.
  • Forfeiture beyond a reasonable amount is a penalty. Under Section 74 of the Indian Contract Act 1872, only reasonable compensation is allowed, not the inflated figure in the clause.

The Court affirmed that the builder could keep only 10 percent. The extra money had to be refunded to the buyers.

One important detail. In this case the Court did not award interest on the refund. The buyers had cancelled after possession was offered, during a fall in property prices. Because the cancellation was the buyer's own market choice and not a builder default, the Court found no reason to add interest. So interest on a refund is not automatic when you are the one who cancels.

This rests on older earnest-money cases

The Godrej ruling follows a settled line of Supreme Court cases on earnest money and penalties.

  • Maula Bux v Union of India held that forfeiture of a reasonable amount of earnest money is allowed, but a large sum forfeited as a penalty is governed by Section 74.
  • Kailash Nath Associates v Delhi Development Authority, decided in 2015, held that money cannot be forfeited under Section 74 without showing real loss, and only reasonable compensation is allowed.
  • Pioneer Urban Land and Infrastructure Ltd v Govindan Raghavan, decided in 2019, held that one-sided clauses in a builder-buyer agreement amount to an unfair trade practice.

Together these decide the rule. Reasonable forfeiture near 10 percent is fine. A bigger forfeiture under a one-sided clause is a penalty and unfair.

How to recover the wrongly forfeited excess

If a builder has forfeited more than about 10 percent on your cancellation, you can claim the excess back. Follow these steps.

  1. Collect your papers. Keep the booking form, allotment letter, builder-buyer agreement, all payment receipts, and the cancellation emails or letters. The clause and the amount paid are your proof.
  2. Work out the excess. Take 10 percent of the Basic Sale Price. Subtract that from what the builder actually kept. The difference is what you are claiming.
  3. Send a written demand. Email and post a letter to the builder asking for refund of the excess above 10 percent. Cite the Godrej Projects v Anil Karlekar ruling and Section 74 of the Contract Act. Give a clear deadline, such as 15 days.
  4. File a consumer complaint if refused. Approach the consumer forum. A homebuyer is a consumer, and a one-sided forfeiture is an unfair trade practice. Choose the forum by the value claimed. The District Commission, State Commission, or National Commission applies based on the amount.
  5. Ask for the right relief. Claim refund of the excess above reasonable forfeiture. You may also ask for compensation and litigation cost. Interest is not guaranteed when you cancelled by your own choice.
  6. Keep it factual. Show the clause, the amount forfeited, and the 10 percent benchmark. The forum can reduce the forfeiture to a reasonable figure and order the balance refunded.

You do not need a lawyer to file a consumer complaint, though one can help in larger claims.

Buyer cancellation versus builder delay: do not mix them

This page is about a booking you cancelled yourself. That is different from a builder failing to deliver.

If the builder is late or never hands over the flat, you have a stronger right. Under Section 18 of the Real Estate Regulation and Development Act 2016, a buyer can withdraw and claim a full refund of all money paid, with interest, when the builder fails to give possession on time. There is no question of forfeiture there, because the default is the builder's.

So check who caused the cancellation.

  • You cancelled by choice: builder keeps reasonable forfeiture near 10 percent, you recover the excess.
  • Builder defaulted on delivery: full refund with interest under RERA Section 18, no forfeiture.

Picking the right path decides what you can claim.

Real-life example

Dr. Shrawan Kumar Pathak booked a flat in a Pune project for Rs 80 lakh in 2023. He paid Rs 12 lakh in stages. In 2024 he cancelled for personal reasons. The builder forfeited 20 percent of the price, that is Rs 16 lakh, and even sent him a small bill for the gap.

Dr. Pathak refused. He calculated 10 percent of Rs 80 lakh, which is Rs 8 lakh. He wrote to the builder citing the Godrej Projects v Anil Karlekar ruling and Section 74 of the Contract Act, and demanded refund of the Rs 4 lakh already paid above 8 lakh. When the builder ignored him, he filed a consumer complaint. The forum treated the one-sided 20 percent clause as unfair, capped the forfeiture at the reasonable level, and ordered the builder to refund the excess with cost. The figures here are illustrative, but the path is real.

Frequently asked questions

Can a builder keep 20 percent of the flat price if I cancel?

Usually no. The Supreme Court in the Godrej ruling held that a 20 percent one-sided forfeiture is excessive and unfair. Reasonable forfeiture is around 10 percent of the Basic Sale Price.

It comes from Section 74 of the Indian Contract Act 1872, which allows only reasonable compensation and strikes down penalties. Courts and the National Consumer Commission have settled around 10 percent as reasonable forfeiture.

Is the 10 percent a fixed limit for every case?

No. It is the usual reasonable benchmark, not a rigid statutory number. The forum looks at the actual loss. But forfeiture far above 10 percent on a one-sided clause is treated as a penalty.

Where do I complain to recover the excess?

File a consumer complaint. A homebuyer is a consumer and a one-sided forfeiture is an unfair trade practice. The District, State, or National Commission hears it depending on the amount claimed.

Will I also get interest on the refund?

Not always. In the Godrej case the Court did not award interest because the buyers cancelled on their own during a price fall. Interest is more likely when the builder is at fault.

How is this different from a RERA refund?

RERA Section 18 applies when the builder fails to deliver the flat on time. Then you get a full refund with interest and no forfeiture. The 10 percent rule applies when you cancel by your own choice.

Can I use RTI to get information that supports my case?

RTI works against public authorities and government housing bodies, not private builders. But if a public authority or its allotment is involved, you can seek records. Use our tools below to draft an application or a first appeal.

Sources

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