K.R. Suresh vs. R. Poornima & Ors. (CIVIL APPEAL) – Supreme Court of India Judgment

I. Case Identification & Vitals

1. Court
Supreme Court of India

2. Case Title
K.R. Suresh vs. R. Poornima & Ors.

3. Document Type and Date of Judgment
Judgment, May 02, 2025

4. Case Number
CIVIL APPEAL/5822/2025 (Arising out of Special Leave Petition (Civil)/5630/2023)

5. SCR Citation
NA

6. Neutral Citation
2025 INSC 617

7. Disposal Nature
Appeal Dismissed

8. Case Type
CIVIL APPEAL

9. Law Applicable
Contract Law, Property Law, Civil Procedure

10. Issue for Consideration
The central issue for consideration is whether the appellant (original plaintiff) is entitled to a refund of the advance money of ₹20,00,000 paid towards an agreement to sell, after he failed to pay the balance consideration and the agreement was terminated by the sellers. This involves determining the validity of the forfeiture of the advance money and interpreting the law on seeking alternative relief for a refund under Section 22 of the Specific Relief Act, 1963.

11. Headnote
The Supreme Court upheld the forfeiture of advance money paid by a purchaser in an agreement to sell, ruling that the amount, though termed “advance,” was in substance “earnest money” intended as a guarantee for the due performance of the contract. The Court clarified the distinction between advance money (part-payment) and earnest money (security deposit), holding that the latter can be forfeited upon the purchaser’s default if the contract explicitly allows it. It further held that under Section 22 of the Specific Relief Act, 1963, the relief for a refund of earnest money must be specifically pleaded in the plaint. Since the appellant had failed to pay the balance consideration within the stipulated time and had not sought the alternative relief of a refund in his suit for specific performance, he was not entitled to it. The appeal was dismissed.

12. Short Summary in Normal Language
The Supreme Court ruled that a buyer who defaults on a property deal is not entitled to a refund of the advance payment if the agreement allows for its forfeiture. The Court clarified that such an advance acts as “earnest money”—a security deposit to ensure the contract is honored. In this case, the buyer failed to pay the remaining amount on time and did not even ask for a refund in his lawsuit. Therefore, the Court upheld the seller’s right to keep the advance money and dismissed the buyer’s appeal.

13. Bench

1. Hon’ble Justice J.B. Pardiwala
2. Hon’ble Justice R. Mahadevan

14. Judgment Authored by
Hon’ble Justice J.B. Pardiwala*

II. Procedural & Factual Background

15. Case Start Date
NA

16. Case Arising From
The appeal challenges a judgment and order of the High Court of Karnataka at Bengaluru, dated August 5, 2021. The High Court had dismissed the appellant’s Regular First Appeal (R.F.A. No. 386/2013), thereby affirming the judgment of the V Additional City Civil and Sessions Judge, Bengaluru. The trial court, in its judgment dated November 24, 2012, had dismissed the appellant’s suit (O.S. No. 3559/2008) for specific performance of a contract for the sale of property.

17. Background and Facts
The appellant (plaintiff) entered into an Agreement to Sell (ATS) on July 25, 2007, with the respondents (defendants) to purchase a property for a total consideration of ₹55,50,000. He paid an advance of ₹20,00,000. The agreement stipulated that the balance amount of ₹35,50,000 was to be paid within four months, after which the sale deed would be executed. The ATS also contained a forfeiture clause, stating that if the buyer failed to pay the remaining amount within the stipulated period, the advance amount would be forfeited.

The appellant failed to pay the balance amount within the four-month period. He later claimed that the delay was because the sellers failed to provide a probate certificate for an unregistered Will through which they had inherited the property. The sellers denied this and, after the four-month period expired, terminated the agreement and forfeited the advance amount. They subsequently sold the property to other buyers. The appellant then filed a suit for specific performance, which was dismissed by the Trial Court and the High Court, leading to the present appeal.

18. Timeline

• July 25, 2007: The Agreement to Sell (ATS) was executed, and an advance of ₹20,00,000 was paid.
• November 25, 2007: The four-month period for payment of the balance sale consideration expired.
• February 15, 2008: The original owners (defendants 1-4) sold the property to subsequent purchasers (defendants 5-6).
• February 18, 2008: The appellant issued a legal notice to the original owners, expressing readiness to pay the balance amount.
• 2008: The appellant filed the suit for specific performance (O.S. No. 3559/2008).
• November 24, 2012: The Trial Court dismissed the appellant’s suit.
• August 5, 2021: The High Court of Karnataka dismissed the appellant’s appeal.
• May 02, 2025: The Supreme Court dismissed the present appeal.

19. Parties Involved

• Appellant/Plaintiff: K.R. Suresh
• Respondents/Defendants: R. Poornima & Ors.

20. Procedural History

• Lower Court/Tribunal Decisions: The V Additional City Civil and Sessions Judge, Bengaluru, dismissed the plaintiff’s suit for specific performance. The court found that the plaintiff was not ready and willing to perform his part of the contract and that the forfeiture of the advance money by the defendants was justified.
• Appeals: The plaintiff filed a Regular First Appeal before the High Court of Karnataka, which was dismissed. The High Court affirmed the findings of the Trial Court. The plaintiff then filed the present appeal in the Supreme Court.

III. Legal Analysis & Arguments

21. Issues Framed
Not explicitly framed, but the two main issues analyzed by the Court were:

1. The validity of the forfeiture of the advance money by the sellers.
2. The law on the alternative relief of refund of earnest money under Section 22 of the Specific Relief Act, 1963.

22. Areas of Debate

1. What is the legal distinction between “advance money” and “earnest money” in a contract for the sale of property?
2. Can an amount termed as “advance” be forfeited as if it were “earnest money”?
3. What is the permissible extent of forfeiture under Section 74 of the Indian Contract Act, 1872?
4. Is a plaintiff entitled to a refund of earnest/advance money in a suit for specific performance if they have not specifically prayed for it, as required by Section 22 of the Specific Relief Act, 1963?

23. Cases Cited by Petitioner/Appellant

1. Desh Raj v. Rohtash Singh ((2023) 3 SCC 714): Cited to argue that a refund can be granted under a general prayer for “any other relief,” but the Court distinguished it, noting the judgment actually holds that a specific prayer is necessary.
2. Kamal Kumar v. Premlata Joshi ((2019) 3 SCC 704): Cited for the same purpose, but the Court again pointed out that this case also denied the refund because the plaintiff was not ready and willing to perform the contract.

24. Cases Cited by Respondent/Defendant

• Pydi Ramana v. Davarasety Manmadha Rao ((2024) 7 SCC 515): Cited to argue that the plaintiff had failed to show his “readiness” and “willingness” to perform the contract.

25. Acts/Rules/Orders Referred

1. Specific Relief Act, 1963
   • Section 22: This section deals with the power of a court to grant relief for possession, partition, or refund of earnest money in a suit for specific performance. The Court interpreted sub-section (2) to mean that a relief for refund of earnest money is not automatic and must be specifically claimed in the plaint. The proviso allowing amendment at any stage was not utilized by the appellant.
2. Indian Contract Act, 1872
   • Section 74: This section deals with compensation for breach of contract where a penalty is stipulated. The Court held that this section does not apply to the forfeiture of “earnest money,” which is considered a security deposit rather than a penalty.

26. Acts/Rules/Orders Governing the Case

1. Specific Relief Act, 1963
2. Indian Contract Act, 1872

27. Literature Citation

• Source Name: Pollock & Mulla: The Indian Contract and Specific Relief Acts, 16th Edn.
  • Type: Book
  • Context: Cited to explain the object and scope of Section 22 of the Specific Relief Act and the requirement to specifically claim the relief of refund.

28. Appearances for Parties

• Advocates:
  • For the Appellant: Mr. Anand Sanjay M. Nuli, Senior Counsel
  • For Respondents 1-4: Ms. Supreeta Sharanagouda, Counsel
  • For Respondents 5-7: Mr. Dhawesh Pahuja, Counsel
• Witnesses: NA
• Other Persons: NA

29. Prayer
The appellant, as an alternative to specific performance, sought a refund of the advance money of ₹20,00,000.

30. Evidence & Findings

1. Evidence: The Agreement to Sell (ATS) dated July 25, 2007.
   • Description: The contract between the parties.
   • Findings: The Court found that the ATS contained an explicit forfeiture clause. It also found that the amount of ₹20,00,000, though termed “advance money,” was in substance “earnest money” meant to guarantee the performance of the contract.
2. Evidence: Testimony of the plaintiff (appellant).
   • Findings: The plaintiff admitted in his cross-examination that he did not have the funds to pay the balance sale consideration and had no documents to prove his financial capacity. This was a key factor in the Trial Court and High Court concluding that he was not “ready and willing” to perform the contract.

31. Petitioner/Appellant Arguments

1. The sellers failed to provide a promised probate certificate, which caused the delay.
2. The sellers acted with mala fide intent by quickly selling the property to others after the contract period expired.
3. As an alternative to specific performance, the Court should order a refund of the advance money paid by him.

32. Respondent/Defendant Arguments

1. The appellant failed to prove his readiness and willingness to pay the balance amount within the stipulated time, which was the essence of the contract.
2. The forfeiture of the advance money was justified as per the explicit clause in the agreement.
3. The subsequent purchasers were bona fide purchasers for value without notice of the prior agreement.
4. The appellant never sought the alternative relief of a refund in his plaint, and therefore, he is not entitled to it.

V. Judgment & Conclusion

33. Ratio Decidendi

1. There is a legal distinction between “advance money” (which is part of the purchase price) and “earnest money” (which is a security deposit to bind the contract). The intention of the parties, not just the words used in the agreement, determines the nature of the payment.
2. Earnest money can be rightfully forfeited by the seller if the purchaser defaults on the contract, provided there is an explicit forfeiture clause. The forfeiture of earnest money is not considered a penalty, and therefore, Section 74 of the Indian Contract Act does not apply to it.
3. Under Section 22 of the Specific Relief Act, 1963, a plaintiff in a suit for specific performance must specifically claim the alternative relief of a refund of earnest money. A court cannot grant this relief suo motu (on its own).
4. While the law allows a plaintiff to amend their plaint to include a prayer for a refund at any stage, the law aids the vigilant. A party who fails to seek such an amendment before the trial court or even during the first appeal cannot expect the court to grant the relief.

34. Final Decision
The appeal is dismissed. The Supreme Court found that the forfeiture of the advance money by the respondents was justified and that the appellant was not entitled to a refund as he had not specifically prayed for it. The impugned judgment of the High Court is upheld.

35. Legal Jargons and Maxims

1. Specific Performance: A remedy in contract law where a court orders a party to perform their specific obligations under a contract, rather than simply paying damages.
2. Earnest Money: A deposit of money paid by a buyer to a seller to show good faith and bind a contract. It is typically forfeited if the buyer defaults.
3. Forfeiture: The loss or giving up of something as a penalty for wrongdoing or breach of contract.
4. Bona fide Purchaser: A person who has purchased a property for value without any notice of any other person’s claim or right to that property.

36. Exhibits
NA

37. Key Learnings for Law Students and Legal Professionals
This judgment provides several important lessons for students and professionals, particularly in contract and property law:

1. The Critical Distinction Between “Advance” and “Earnest Money”: The most important finding is the Court’s detailed clarification of the difference between advance payment and earnest money. While often used interchangeably, earnest money serves as a security deposit and can be forfeited upon default. This distinction is crucial for drafting and interpreting agreements to sell and determines whether a forfeiture clause is enforceable.
2. The Necessity of Pleading Alternative Reliefs: This case is a stark reminder of the procedural requirement under Section 22 of the Specific Relief Act. It teaches that a prayer for the refund of earnest money is not an automatic or inherent relief in a suit for specific performance. It must be specifically pleaded. Failure to do so, even up to the appellate stage, can be fatal to the claim for a refund.
3. The Principle of “Readiness and Willingness”: The judgment reinforces the strict standard for proving “readiness and willingness” under Section 16(c) of the Specific Relief Act. A plaintiff must not only aver but also prove their continuous readiness and willingness, including their financial capacity, to perform the contract. The appellant’s failure to produce any documentary evidence of his financial capacity was a key reason for the dismissal of his suit.
4. The Enforceability of Forfeiture Clauses: The case provides clear guidance on when a forfeiture clause is valid. The Court held that such a clause is enforceable if it pertains to earnest money (a security deposit) and is not unconscionable or one-sided. The fact that the agreement also provided a remedy for the buyer in case of the seller’s default was seen as evidence of a fair and balanced clause.
5. The Law Aids the Vigilant: The Court’s final observation that “the law aids the vigilant, not those who sleep over their rights” is a timeless lesson. The appellant had the opportunity to amend his plaint to seek a refund at multiple stages but failed to do so. This underscores the importance of diligence and timely action in litigation.

Keywords:
Forfeiture of Earnest Money, Specific Performance of Contract, Section 22 of the Specific Relief Act, Advance Money vs Earnest Money, Breach of Agreement to Sell, K.R. Suresh vs R. Poornima, Readiness and Willingness under Section 16(c) of the Specific Relief Act, Supreme Court on Property Law, Refund of Advance Payment, Section 74 of the Indian Contract Act.