Supreme Court in K.R. Suresh vs R. Poornima (2025) upheld forfeiture of advance money (earnest money) in property sale, emphasizing time-bound obligations and earnest money rules.

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Supreme Court Ruling: K.R. Suresh vs R. Poornima & Ors. – Forfeiture of Advance Money Upheld

(2025 INSC 617)

Introduction:
In K.R. Suresh vs R. Poornima & Ors., the Supreme Court addressed the issue of forfeiture of advance money in a property sale transaction. The Court clarified the distinction between "earnest money" and "advance money," and upheld the seller’s right to forfeit advance payments when the buyer fails to perform obligations within the stipulated time.

Background:

• The dispute arose from an Agreement to Sell (ATS) dated 25.07.2007 regarding a property in Kengeri Satellite Town Layout, Bengaluru.

• The buyer (K.R. Suresh) paid Rs. 20 lakh as advance and was required to pay the balance Rs. 35.5 lakh within four months.

• Seller (R. Poornima) was the heir of the original property owner by an unregistered Will.

• Suresh sought loan processing from a bank, demanding a probate certificate from the seller, delaying the transaction.

• Meanwhile, the seller sold the property to a third party (defendants 5 and 6) after the stipulated time lapsed.

Trial Court Findings:

• Time was essence of the contract due to seller’s urgent financial needs (One-Time Settlement with Bank).

• Plaintiff (Suresh) failed to prove readiness and willingness; no sufficient funds shown.

• No requirement for a probate certificate was mentioned in the ATS.

• Forfeiture of Rs. 20 lakh advance was valid.

High Court Decision:

• Affirmed Trial Court’s decision.

• Held that the alternative relief (refund of advance) was not specifically prayed for under Section 22 of the Specific Relief Act, 1963.

• Noted that defendants 5 and 6 were bona fide purchasers without notice of prior agreement.

Supreme Court Judgment:

• Confirmed that advance money here acted as earnest money because:

  • It was paid at the time of agreement.

  • It was adjustable against sale consideration.

  • Explicit forfeiture clause existed in the ATS.

• Time was essence of the contract given the urgency.

• The forfeiture of advance money was held to be valid and proportionate.

• Relief for refund under Section 22 of the Specific Relief Act was denied due to the absence of a specific prayer.

• Bona fide purchasers (Respondents 5-7) were protected under Section 19(b) of the Act.

Key Legal Principles Laid Down:

• Earnest Money vs. Advance Money: Advance can act as earnest if intended as security for contract performance.

• Section 74, Contract Act: Forfeiture must be reasonable; earnest money forfeiture does not always require proof of loss.

• Specific Relief Act, 1963: Refund of earnest money must be specifically prayed for; cannot be granted otherwise.

• Time is essence: In urgent sales, time becomes crucial, especially when stipulated in the contract and surrounding circumstances confirm the intention.

Conclusion:
The Supreme Court rejected the buyer’s claim for refund and upheld the forfeiture of the Rs. 20 lakh advance. It reinforced that parties must strictly comply with contractual timelines, especially when time is the essence of the contract.

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