Builders and Developers – How to Recovery Advance paid to them


Posted On : January 25, 2023
Builders and Developers – How to Recovery Advance paid to them
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 advice.
Listen to this article

Table of Contents

INTRODUCTION:

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 DEVELPERS

The cases of payment fraud by the side of builders or developers are prevalent by several means, such as

●      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 specifications,etc.

 

The purview of applicable laws is explained hereunder:

RELEVANT ACTS

The Indian Contract Act, 1872

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 Regulatory Authority)

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 fundscollected for a particular real estate project arenot diverted to other projects undertaken by the builder/developer. 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 a buyer. 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 payment.

 

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.

 

Court Precedent

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.

 

Conclusion

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 advice.

*****

Written By:
Kishan Dutt Kalaskar

Recommended Free Legal Advices
question markObjecting Road Access 1 Response(s)
Dear Sir, It is your easementary right without that space you cannot enjoy your property so immediately file a civil suit and get stay order. Approach my office and get resolve your issue.
question markRedevelopment 2 Response(s)
Sir there are multiple remedies as we have already discussed today. Plz contact accordingly
question markMy full final amount has been adjusted against the bonus 3 Response(s)
Dear Client, A mistake if committed by default unintentionally or without any ulterior motives is treated as human error and is pardoned on scrutiny of fact and reasons behind the mistake. And if such a mistake is detected before the final discharge of your settlement dues, even then the Company cannot withhold your F & F Dues once a relieving letter is issued on submission of your resignation without serving the bond period. The validity of Employment bonds can be challenged on the basis of Section 27 of the Indian Contract Act,1872 which prohibits any agreement in restraint of trade and profession. The law states that an agreement (employment bond) will be illegal only if it restrains someone from exercising a lawful profession/ trade/ business. As per the mandate of Section 27, any terms and conditions of an agreement that directly or indirectly compels the employee to serve the employer or puts a restriction on them joining the competitor or other employer is not valid. The employee has the right to resign from the employment even if he has agreed in the employment bond to serve the employer for a specific period of time. In the case where the employer is able to prove that the employee is joining the competitor to disclose the trade secret then the court may issue an injunction order restricting the employee from joining the competitor. The following are the requirements of a valid employment bond agreement. 1) The agreement must be signed by the parties with free consent. 2) The conditions stipulated must be reasonable and 3) The conditions imposed on the employee must be proved to be necessary to safeguard the interest of the employer. 4) The employment bond is to be executed on a stamp paper of appropriate value in order to be valid and enforceable. So, for any type of arbitrary action on the part of the Company, it may be suggested that if you are not holding the position of Manager/Supervisor but a workman as defined u/s.2(s) of the Industrial Dispute Act then for such an arbitrary action and unfair labour practice, reach out to the office of the Labour Commissioner concerned for filing a complaint against the employer for redressal of your grievance failing which you may file an application u/s.33C(2) of the I D Act before the concerned Labour Court claiming dues from your employer. Otherwise, you have to file a civil suit before the Civil Court for appropriate relief in the matter serving a legal notice to the employer. Reach out to a Corporate Lawyer experienced in the subject for guidance and steps.
question markIs advance paid for purchase of goods refundable? 4 Response(s)
Dear Sir, The offer made by shopkeeper/furniture dealer is reasonable. You cannot get more than that as refund.
question markspouse issue 2 Response(s)
Hi, Since this is a false case of 498A, you can file a suit for defamation and mental cruelty on all the grounds you mentioned above. It can also be taken as a ground for divorce if you desire to seek so. If you like my answer, please give a good review.