High Court Of Delhi Holds That A Developer Cannot Forfeit Buyer’s Payments And Cancel The Allotment In The Absence Of Proof Of Default Or Actual Loss

The High Court of Delhi, through its judgment dated 18.05.2026 in the matter of M/s R.C. Sood & Co. Developers Pvt. Ltd. v. Sharad Maheshwari & Anr., ¹ dismissed an appeal challenging the decree of District Judge directing refund of INR 18,00,000/- to the purchasers in a real estate dispute arising out of cancellation of a villa allotment and alleged forfeiture of earnest money. The Court upheld the judgment of the District Judge holding that the developer had illegally cancelled the allotment and has failed to justify the forfeiture of the earnest money.

The issue before the Court was whether the cancellation of the allotment by the developer on the ground of nonpayment of instalments was legally sustainable, whether the payment obligations under the Agreement to Sell (“ATS”) were time linked or construction linked, whether the alleged demand notices for instalments had been validly served in terms of the contract and whether the subsequent settlement pursuant to which the purchasers accepted a lesser refund amount constituted a binding full and final settlement.

The Court held that the payment obligations under the ATS were construction linked and contingent upon the issuance of valid demand notices, which the developer failed to prove that they have been duly served in accordance with the contractual stipulations. The Court observed that in the absence of proof of service of demand notices and evidence regarding actual construction progress, the purchasers could not be treated as defaulters, rendering the cancellation of the allotment illegal and arbitrary. The Court further held that the full and final settlement was not voluntary, and the Court observed that the developer has occupied a dominant bargaining position by withholding substantial sums already paid by the purchasers, thereby compelling the acceptance of a reduced refund under coercive circumstances. The Court reiterated that retention of monies under Section 74 of the Indian Contract Act, 1872 requires actual proof of actual loss, which the developer had failed to establish. Accordingly, finding no infirmity in the District Judge’s decree directing refund of INR 18,00,000/- along with interest, the Court dismissed the appeal.

Footnote

^{1 RFA 37/2020, CM APPL. 67118/2025 & CM APPL. 9723/2026.}

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