Can a Builder Cancel Your Allotment and Keep Your Whole Payment? RERA's Limits on Forfeiture Clauses

By S&S Co. Advocates & Solicitors · Published 17 October 2026 · Informational content, not legal advice: see our disclaimer

A builder-buyer agreement will almost always let the developer forfeit a chunk of the money paid, described as earnest money, if the buyer defaults on instalments or decides to withdraw. Many of these clauses are written to allow forfeiture of twenty percent or more of the total sale consideration, and buyers who read the clause before signing often assume that figure is simply what the law permits. It is not. RERA authorities in several states, and the Supreme Court itself in a 2025 ruling, have treated an unreasonably large forfeiture clause as an unenforceable penalty rather than a genuine, agreed pre-estimate of the builder's loss.

There is no single, uniform national percentage that applies everywhere; what exists instead is a set of authority-specific caps and a Supreme Court decision setting the outer principle, and a buyer or builder needs to know which applies to the specific state and the specific kind of cancellation in question.

The Supreme Court's position: forfeiture has to be reasonable, not whatever the contract says

In Godrej Projects Development Limited v. Anil Karlekar, decided on 3 February 2025 and reported as 2025 INSC 143, the Supreme Court dealt with a buyer who had booked an apartment in Godrej's 'Summit' project in Gurgaon back in January 2014, and sought cancellation and a refund in 2017 after possession was offered, during a market slump. The builder's agreement allowed it to forfeit the entire earnest money, fixed at twenty percent of the basic sale price, on cancellation.

The Supreme Court held that forfeiting a reasonable amount of earnest money is permissible, and is not a penalty under Section 74 of the Indian Contract Act, 1872, provided the amount is not excessive. Twenty percent, on the facts before the Court, was held excessive, and the Court limited the builder's entitlement to ten percent of the basic sale price, upholding the NCDRC's underlying decision on that point while disagreeing with the interest rate the NCDRC had separately ordered on the refund. The reasoning draws on the Consumer Protection Act, 2019's treatment of one-sided, unfair contract terms, and on a line of earlier rulings against builder clauses that tilt heavily in the developer's favour.

Haryana RERA: a 10 percent cap, applied both ways

Haryana RERA has gone further than simply applying the Supreme Court's general reasonableness principle case by case; its own Forfeiture of Earnest Money Regulations, 2018 fix a specific ceiling. Regulation 11(5) permits forfeiture of at most 10 percent of the earnest money or sale consideration, and the Authority has treated any builder-buyer agreement clause allowing a higher forfeiture as void and not binding on the buyer, regardless of what the parties originally agreed. The point that matters most for a buyer assessing a dispute is that this cap has been applied in both directions: where the builder cancels the allotment over a buyer's default, and where the buyer initiates the withdrawal, the same 10 percent ceiling governs what can be kept.

The cap does have a floor built into its practical operation. In Ashok Bindra v. Emaar MGF, the buyer had paid less than 10 percent of the total sale consideration before the booking was cancelled, and the Authority held the builder was entitled to forfeit that entire amount, since it fell within, rather than exceeding, the permitted ceiling. A buyer who has paid comparatively little into a booking should not assume the 10 percent rule automatically guarantees any refund at all; it only protects amounts paid beyond that ceiling.

MahaRERA's stricter line, and its retrospective reach

Maharashtra's regulator has taken a noticeably tighter position for a specific category of cancellation. Under MahaRERA's Order No. 35/2022, dated 12 August 2022, a developer can retain only 2 percent of the amount paid where a homebuyer initiates cancellation before the registered agreement for sale has actually been executed, with the balance to be refunded. MahaRERA has applied this 2 percent cap even where the developer's own booking form purported to allow a materially higher forfeiture, and even where the project itself had been registered well before the 2022 order was issued, treating the cap as applying retrospectively rather than only to bookings made after August 2022.

That retrospective application has been contested by developers, who have argued a 2022 circular cannot reach back to govern a booking form signed years earlier, but MahaRERA has not accepted that argument in the orders reported so far. Buyers who booked under an older agreement permitting a larger forfeiture should not assume that older clause survives scrutiny simply because it predates the 2022 order; MahaRERA's own practice suggests otherwise.

Why there is no single pan-India percentage, and what that means practically

RERA itself does not fix a uniform national forfeiture percentage; the 10 percent and 2 percent figures described above are authority-specific regulations and orders, not provisions of the Real Estate (Regulation and Development) Act, 2016 itself. A buyer or builder operating across more than one state cannot assume the cap that applies in Haryana will automatically apply in Maharashtra, or vice versa, and should check the specific state authority's regulations and recent orders rather than relying on a figure picked up from a different state's dispute.

What does travel across states is the underlying principle the Supreme Court articulated in the Godrej Projects ruling: a forfeiture clause that functions as a penalty rather than a genuine pre-estimate of loss is vulnerable to being read down, whatever specific percentage a particular state's RERA authority happens to have settled on. A builder drafting a forfeiture clause for use across multiple states would do better to anchor it to the stricter end of the range actually being enforced, rather than to the figure that happens to be most favourable to the developer.

What a buyer should actually do when facing a cancellation notice

A buyer served with an allotment cancellation notice, or considering withdrawing and expecting a dispute over the refund, should first identify which state's RERA authority has jurisdiction and check that authority's specific regulations and recent orders on forfeiture, rather than assuming the builder-buyer agreement's own figure is simply the governing rule. Where the authority has set a specific cap, whether Haryana's 10 percent or MahaRERA's stricter 2 percent for pre-agreement cancellations, that cap, not the contractual clause, becomes the ceiling the builder can actually enforce.

The practical remedy is a RERA complaint seeking refund of whatever has been withheld beyond the recognised cap, together with interest on the refundable amount. A buyer should not treat the builder's deduction as final simply because the agreement appeared to authorise it; the agreement's own forfeiture figure is exactly what these RERA orders, and the Supreme Court's ruling, have shown can be challenged and reduced.

Frequently Asked Questions

References & Further Reading

The provisions and rulings below were relied on for this guide. The position can change with amendments and later decisions, so check the current text and the latest case law before acting on any of it.

1. Godrej Projects Development Limited v. Anil Karlekar & Others, 2025 INSC 143, Supreme Court (3 February 2025), capping earnest money forfeiture at 10 percent of basic sale price as a reasonable, non-penal amount under Section 74 of the Indian Contract Act, 1872
2. Haryana Real Estate Regulatory Authority (Forfeiture of Earnest Money) Regulations, 2018, Regulation 11(5) (forfeiture capped at 10 percent of sale consideration/earnest money)
3. MahaRERA Order No. 35/2022, dated 12 August 2022 (2 percent forfeiture cap for homebuyer-initiated cancellation before execution of the registered agreement for sale)