Seller cannot forfeit the earnest money received under an agreement to sell even if buyer is guilty of breach

In a recent judgment, the Delhi High Court held that any forfeiture of earnest money will be hit by Section 74 of the Indian Contract Act, 1872 unless loss is pleaded and proved by the seller.

The said ruling was delivered in the matter of Nafe Singh vs. Sanjay Gupta, RFA No. 1036 of 2018 decided on 21.12.2018.


The Plaintiff/Respondent/Buyer had filed a suit for recovery of earnest money of Rs. 90,00,000/- which was paid by the Plaintiff to the Appellant/Defendant/Seller under an Agreement to Sell dated 14.10.2013. The suit was decreed in favour of the Vendee vide impugned order of the Trial Court dated 26.07.2018. The issue was to decide who, out of the parties, was guilty of breach of contract and if the Respondent was entitled to forfeit the earnest money.


The Hon’ble High Court reiterated the law crystallized on the point by the Apex Court in Kailash Nath Associates v. Delhi Development Authority & Anr., (2015) 4 SCC 136, that a seller under an agreement to sell, or ATS, cannot forfeit the amount received under the said ATS unless loss is pleaded and proved to have been caused to the seller on account of breach of contract. In the present case Appellant had no pleading pertaining to any kind of loss. Therefore, the Plaintiff/Respondent was held to be liable to recover the earnest money of Rs. 90,00,000/-.