Impermissibility of forfeiting earnest money when both contracting parties default

Directing the forfeiture of substantial earnest money is legally unsustainable when the record establishes that both the buyer and the seller contributed to the failure of the agreement. While the buyer may fail to demonstrate the necessary financial wherewithal to pay the balance consideration on the due date, the sellers are equally accountable if they fail to fulfill their contractual obligations, such as obtaining property mutation or securing conversion from leasehold to freehold status. Forfeiture of earnest money is a contractual remedy intended to penalize a purely defaulting buyer when the seller remains completely ready and willing to perform. Where mutual non-performance and default characterize the transaction, allowing the seller to retain the earnest money creates an unfair financial windfall. Equity dictates that a defaulting seller cannot retain monies paid by a buyer who was also unable to complete performance. Therefore, judicial intervention is required to set aside forfeiture orders and direct appropriate financial adjustment between mutual defaulters. (Subhash Aggarwal v. Mahender Pal Chhabra & Anr. | 2026 INSC 11)