The Supreme Court upheld the forfeiture of advance money in a specific performance suit, clarifying the legal distinction between “earnest money” and “advance money.” It held that time was of the essence in the sale contract, and the purchaser’s default justified forfeiture. The Court further ruled that earnest money, if provided as security for performance and not merely part-payment, may be lawfully forfeited. Moreover, it held that an alternative relief for refund under Section 22 of the Specific Relief Act, 1963, must be specifically claimed; in its absence, such relief cannot be granted.
Facts Of The Case:
The case involves a dispute over the specific performance of an Agreement to Sell (ATS) dated 25.07.2007, executed between K.R. Suresh (plaintiff) and R. Poornima and her family members (defendants), relating to Site No. 307 at Kengeri Satellite Town Layout, Bangalore. The agreed sale consideration was ₹55,50,000, of which ₹20,00,000 was paid upfront by the plaintiff through two cheques as advance money.
The agreement stipulated that the balance ₹35,50,000 would be paid within four months, failing which the advance would be forfeited. The plaintiff claimed he was unable to pay the remaining amount within time due to the defendants’ failure to furnish original title documents and a probate certificate, as the property was inherited through an unregistered will. He sent a legal notice only after the expiry of the stipulated period. The defendants denied any such obligation and asserted urgent need for funds to settle a time-bound bank liability, stating time was of the essence.
They sold the property to bona fide purchasers for ₹38,40,000 after the lapse of four months. The plaintiff filed a suit for specific performance, which was dismissed by the Trial Court and later upheld by the High Court, leading to the present appeal before the Supreme Court.
Procedural History:
The plaintiff, K.R. Suresh, initially filed a civil suit (O.S. No. 3559 of 2008) before the V Additional City Civil and Sessions Judge, Bengaluru, seeking specific performance of an Agreement to Sell dated 25.07.2007 and possession of the suit property. The Trial Court dismissed the suit on 24.11.2012, holding that the plaintiff had failed to establish his readiness and willingness to perform the contract and that time was of the essence. Aggrieved, the plaintiff filed a First Appeal (R.F.A. No. 386/2013) before the High Court of Karnataka.
The Division Bench of the High Court upheld the Trial Court’s findings and dismissed the appeal on 05.08.2021, emphasizing that there was no contractual obligation on the seller to produce a probate certificate and noting the absence of a specific claim for refund of earnest money.
The plaintiff then approached the Supreme Court by way of a Special Leave Petition (Civil) No. 5630 of 2023, which was later converted into Civil Appeal No. 5822 of 2025. The Supreme Court limited its consideration to the issue of refund of the advance amount and ultimately affirmed the lower courts’ decisions, holding that the forfeiture of advance money was legally valid.
Court Observation:
ChatGPT said:
The Supreme Court observed that the sum of ₹20,00,000 paid by the appellant was effectively in the nature of “earnest money” rather than a mere advance, serving as a security for the due performance of the contract. The Court emphasized that the Agreement to Sell (ATS) contained an explicit forfeiture clause applicable upon the buyer’s default and that time was of the essence, considering the seller’s urgent financial requirements, which were known to the appellant. The Court distinguished between “earnest money” and “advance money,” stating that forfeiture of the former is valid if it guarantees performance and is contractually stipulated.
It held that the appellant failed to pay the balance within four months and had not proved readiness and willingness to perform the contract. Further, the Court noted that Section 74 of the Indian Contract Act, 1872, which governs penalty clauses, was inapplicable since the forfeiture was of earnest money, not penal in nature. Even if it were applied, the forfeiture would still be justified due to actual financial losses to the sellers. Additionally, the Court reaffirmed that under Section 22(2) of the Specific Relief Act, 1963, refund of earnest money must be specifically claimed, which the appellant had failed to do.
Final Decision & Judgement:
The Supreme Court dismissed the appeal and upheld the decisions of both the Trial Court and the High Court, affirming the validity of the forfeiture of the ₹20,00,000 advance paid by the appellant under the Agreement to Sell. The Court held that the forfeited amount constituted earnest money, intended as security for the due performance of the contract, and was thus legally forfeitable upon the purchaser’s default. It ruled that time was of the essence of the contract due to the seller’s urgent financial needs and that the appellant had failed to fulfill his contractual obligation within the stipulated four-month period.
Additionally, the Court concluded that the appellant did not prove his readiness and willingness to perform the contract, nor did he include a specific prayer for the refund of the advance money as required under Section 22(2) of the Specific Relief Act, 1963. As a result, no alternative relief could be granted. The Supreme Court thus held that the forfeiture clause was valid, the appeal lacked merit, and accordingly, the civil appeal was dismissed with no relief granted to the appellant.
Case Details:
Case Title: K.R. Suresh vs. R. Poornima & Ors. Citation: 2025 INSC 617 Civil Appeal No.: Civil Appeal No. 5822 of 2025 (arising out of SLP (Civil) No. 5630 of 2023) Date of Judgment: 1st May 2025 Bench/Judges: Justice J.B. Pardiwala
Download The Judgement Here