The concept of advance payment or deposit is part of a contractual
relationship between a buyer and a seller in transferring immovable property.
However, it differs from security money, which generally indicates a buyer's
interest in said property. It is considered part of a 'purchase money', the due
amount of which is supposed to be paid on a future date, complying with the
agreement signed between the parties.
Legal Rights Of Prospective Buyer
Referring to the buyer's right under property law, a prospective buyer, under
section 55(6)(b) of the Transfer of Property Act, 1882, is entitled to a charge
on the property against the seller or anyone claiming it under him, for the
amount of purchase money (advance deposit) paid by him as part of the sale
agreement. Therefore, when the buyer has not defaulted or breached any terms of
the contract thereof, he has all the rights to use legal remedies available to
protect his rights against a seller, i.e., builder/contractor, to claim their
money (advance payment) back or ask for specific performance if possible.
Legal Right Of Buyer To Claim Compensation
In addition, as per section 21 of the Specific Relief Act, the party who suffers
from a breach of a contract by any means is entitled to receive compensation for
any loss incurred by the damages caused to him by the party who is at fault or
broken a contract as a pecuniary compensation due to a breach or loss. In such
instances where the seller or contractor refuses to fulfil contractual
obligations, a buyer can also charge him for a penalty if a penalty clause is
inserted in an agreement.
Modes Of Misusing The Advance Amounts By The Builders Or Developers
The cases of payment fraud by the side of builders or developers are
prevalent by several means, such as:
The purview of applicable laws is explained hereunder:
The Indian Contract Act, 1872
- Delaying the possession of the property beyond a reasonable time.
- Using advance payment or deposit money for new projects or personal use.
- By misrepresentation, where the property does not meet promised
The primary provisions of law regulating advance deposit or earnest money are
sections 73 & 74 of the Contract Act. As per the general rule of the contract,
if a party infringes the terms of a contract by any means, the buyer has the
right to cancel the contract and obtain a refund of the advance deposit along
with interest and compensation for any loss incurred. Hence, a buyer of the
property under a valid contract is safeguarded under this Act.
The Specific Relief Act, 1963
Under section 20 of the Specific Relief Act, a defaulting party under the terms
of a contract can be held liable to perform precisely what has been mentioned in
the contract. Therefore, in the instances where a buyer is cheated by a
builder/developer of a property and if a builder takes an unfair advantage by
which the buyer has extreme hardship, the Court in such cases may exercise
discretion in granting specific performance as a relief to a defendant/buyer.
The Consumer Protection Act, 1986 and the Indian Penal Code, 1860
Consumer courts have imposed huge penalties in various matters and assured that
the possession of the flat or property is handed to a prospective buyer at the
earliest or the entire amount is refunded along with interest and compensation.
In cases where the builder has cheated, or the developer has made false
promises, the buyer can file a criminal case under the Indian Penal Code, 1860,
for cheating, breach of contract, or delivery of poor-quality construction. He
can also file a consumer complaint regarding deficiency of services, delay in
possession, or non-delivery of property/flat.
The Real Estate (Regulation and Development) Act, 2016, and RERA (Real Estate
The interest of home/property buyers is protected under this Act regarding
safeguarding their rights where they can file a complaint against the builder or
a developer. Under the RERA Act, a minimum of 70% of the buyer's money will be
kept in a separate escrow account that will ensure that the funds collected for
a particular real estate project arenot diverted to other projects undertaken by
However, builders cannot ask for more than 10% of the property's value as an
advance payment before the sale agreement is signed. It also states that
claiming a refund of the payment or an advance deposit is an exclusive right of
Thus, in instances where a builder or developer has cheated or violated the
terms of a contract causing any loss or inconvenience to a buyer, a buyer is
eligible to claim an advance deposit made by him with interest or a full refund
with interest post the due date for up to 10% every month until handing over the
property. The methods you can use as buyers as a remedy to take legal action
against a seller or a builder are mentioned below.
Legal Methods For Recovery Of Advance Paid
Send a legal notice
Sending a legal notice to a seller or builder is theforemost step in any
property dispute,whether for payment recovery or for a specific performance
where alegal breach of a contractual relationship has occurred. A lawyer or an
attorney dealing with a property dispute or contract lawyer can assist in
drafting a proper legal notice describing the appropriate grounds and reasons
for it. If the builder refuses or doesn't respond within the stipulated time of
sending such notice, he can take the next legal step in the procedure.
File a complaint under RERA
First, a buyer must check if the builder is registered under RERA. If yes, he
can easily file a complaint online on the registered portal of RERA to raise a
complaint against the seller to obtain relief and to claim a refund or advance
Moving to a Consumer Forum
A buyer can also approach a consumer court to file a complaint against the
seller for a criminal breach of trust or fraud. In addition, Consumer courts
have ordered exemplary compensation like 65 lakhs and 18% interest compensation.
In the matter of Unitech, Jaypee group was penalized with a 12% annual penalty
for its NOIDA project.
Videocon Properties Ltd. v. Dr Bhalchandra Laboratories and Others
[(2004) 3 SCC 711]
In this case, the Supreme Court examined the nature of the advance deposit. The
Court took the view that the words used in the agreement alone would not be
determinative of the character of the "earnest money", but the intention of the
parties and the surrounding circumstances must be considered to know whether an
initial payment is an essential advance deposit.
When the contract contains a clause as to what is to be done with the advance
deposit in the event of a breach of contract, the Court must be guided by the
terms of the contract. Hence, the advance deposit will be refunded in case of
non-compliance with the contract by the seller or builder. Additionally, when a
buyer invests in a project approved by RERA, their rights as a buyer are
secured. RERA ensures legal compliance and possession timings.
Also, a buyer can claim an advance payment made to a builder as a booking amount
if his loan application is dishonoured for any reason. One must know that the
government lays out no rules or conditions regarding the cancellation of the
house or refund the booking amount. It is subjective to your understanding of
your builder or developer.
So, the advance payment can be recovered in such cases, but a buyer might have
to pay a cancellation fee, as mentioned by a builder in the agreement. If a
buyer has not maintained the documents or documented the property purchase, he
may not be able to get the refund. In this case, one can consider taking legal
Award Winning Article Is Written By: Mr.Kishan Dutt Kalaskar
Authentication No: JA44000685153-31-0123
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