K. R. Suresh Vs R. Poornima & Ors. (Supreme Court of India)
Substance Over Label: “Advance” Given as Security Is Earnest Money Liable to Forfeiture; Refund Cannot Be Granted Without a Specific Prayer u/s 22-Supreme Court
Summary: The Supreme Court held that an amount described in an agreement as “advance money” may, in substance, constitute earnest money if it was paid as security for due performance of the contract. Such earnest money can be forfeited upon the purchaser’s default where the agreement contains a clear, reasonable & reciprocal forfeiture clause. The Court further held that refund of earnest money cannot be granted in a suit for specific performance unless such relief is specifically claimed, as required u/s 22 of the Specific Relief Act, 1963.
Agreement, Advance & Alleged Default
The purchaser entered into an agreement dated 25.07.2007 for purchase of a property situated at Kengeri, Bengaluru, for ₹55.50 lakh. He paid ₹20 lakh through two cheques as advance & agreed to pay the balance ₹35.50 lakh within four months.
The agreement expressly provided that if the purchaser failed to pay the balance consideration within the stipulated period, the advance would be forfeited. Conversely, if the vendors failed to execute the sale deed despite the purchaser being ready to perform, they would refund double the advance amount.
