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OFTEN, when you apply for a flat or a plot, you are asked to make a certain initial payment as earnest money with the stipulation that the amount will be forfeited if, after the allotment, you withdrew or expressed your unwillingness to go ahead with the purchase The intention here is basically to bind the purchaser to the contract and ensure that once an allotment is made, the applicant does not change his mind and withdraw from the scheme, thereby disrupting the entire allotment process. In other words, the concept of earnest money and its forfeiture is aimed at ensuring that the consumer fulfills his part of the contract. If he fails to do so, then the forfeiture of the earnest money is in a way, a penalty for his failure to keep his side of the bargain. Now what if the seller or the service provider fails to keep up his word and follow the stipulated terms of he contract? Can he then still insist on the consumer keeping his promise? Is that a fair deal or a contract? In an order of far reaching significance, the highest consumer court in the country recently held that "on principles of equity and fair play, a party at fault cannot enjoy the benefits of its own fault". In other words, it held that a party or a service provider that does not fulfill his part of the contract couldn’t insist on the consumer fulfilling his. The issue here was about the forfeiture of the earnest money paid to the Punjab Urban Planning and Development Authority (PUDA) by the complainant, Ms Shakuntla Devi Saini. In response to an advertisement issued by the authority, she had applied for a freehold commercial booth site. Her contention was that PUDA, however, did not follow the allotment procedure declared by it. As per that procedure, on receipt of applications, PUDA was to hold a draw of lots and accordingly fix the seniority list. And on the basis of this seniority, applicants were to be called in for their choice of booth sites. However, on March 6, 2003, PUDA did not follow this procedure. Instead of holding a draw of lots to determine the seniority list of the 59 applicants, it excluded nine, including Saini, on the ground that they had not given their choice of the phase or sector in their application. Upset with this, the complainant asked PUDA to return her earnest money. PUDA did not oblige, but instead, the nine applicants were invited to the office of the Estate Officer on April 10, 2002 to exercise their choice, but even there, no choice was given to them and the plots were allotted without obtaining their preference. In fact, the complainant was asked to deposit the rest of the money within 90 days or else forfeit the earnest money. While the District Consumer Disputes Redressal Forum held that the complainant should get back the earnest money of Rs 50,000 along with interest at the rate of 6 per cent and costs, the State Consumer Disputes Redressal Commission awarded in addition, Rs 20,000 as compensation, besides the cost of litigation. Aggrieved, PUDA filed a revision petition before the National Consumer Disputes Redressal commission. While upholding the order of the lower commission, the National Consumer Disputes Redressal Commission referred to the order of the Supreme Court in the case of HUDA Vs Kewal Krishan Goel and connected appeals, wherein it had laid down that the earnest money is a part of the purchase price when the transaction gets through and the same is forfeited when the transaction falls through by reason of the default or failure on the part of the vendee. Drawing a clear distinction between that case and the present case, the apex consumer court pointed out that here PUDA itself did not follow the rules of allotment drawn up by it. The commission observed: "Can it be said that clause relating to refund/forfeiture of earnest money is sacrosanct to such an extent and is untouchable even if the fault lies with the Authority with whom the earnest money has been deposited? " Pointing out that in this case the authority, which was at fault, cannot deny the earnest money to the party which was not at fault, the Commission said the authority cannot enjoy the benefits of its own fault. Nor can a party which is not at fault be made to suffer on account of the fault of the authority...(RP no 1490 of 2008). It, therefore, agreed that PUDA can’t withhold the earnest money.
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