Can a seller forfeit my token advance or earnest money if I back out of a property deal?

Question

I paid a token advance for a flat but now want to cancel the deal. The seller is refusing to refund the amount. What does the law say about forfeiture? I would like to understand which provision governs this, what it entitles me to, and how long I have before the remedy lapses. I also want to know whether I need a lawyer for this or can do it myself.

MyVakeel Legal Desk · Accepted Answer

In India, the answer to "Can a seller forfeit my token advance or earnest money if I back out of a property deal?" turns on Indian Contract Act 1872, Section 74, Specific Relief Act 1963, Section 22 and Transfer of Property Act 1882, Section 55. The points below set out the position and then what to do about it, in the order it should be done.

Earnest money is a guarantee of performance and can generally be forfeited by the seller if the buyer defaults without lawful excuse, but a mere token advance without such intent may be treated as part payment refundable on cancellation.

Section 74 of the Contract Act requires that any forfeiture clause represent a reasonable pre-estimate of loss and courts can reduce an unreasonably high forfeiture amount even if the agreement names a fixed sum.

Courts have distinguished 'earnest money' from advance payment towards the sale price, and only a genuine earnest deposit, not the entire consideration paid, can typically be forfeited on buyer default.

If the seller defaults or fails to make out marketable title, the buyer is entitled to a refund of the advance with interest, and can additionally seek compensation under Section 55 of the Transfer of Property Act.

Excessive or punitive forfeiture clauses are unenforceable, and the aggrieved party can approach a civil court or, in RERA-registered projects, the RERA authority for refund.

In practice, in this order: 1) Check the agreement's specific forfeiture and refund clauses before disputing the amount; 2) Send a written notice seeking refund if the amount exceeds a reasonable earnest deposit; 3) Gather payment receipts and correspondence as evidence of the amount paid; 4) File a civil suit or RERA complaint for refund if the seller refuses without valid cause.

Timing matters here: Indian Contract Act 1872, Section 74 works on limitation periods, so a earnest money forfeiture claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in property law.