EARNEST MONEY FORFEITURE ADDENDUM
- 1. ORIGINAL AGREEMENT AND AMOUNT
The parties refer to __________ for __________. This addendum is executed on __________.
- 2. BUYER DEFAULT EVENT
- 3. LIMIT ON FORFEITURE
Any forfeiture or stipulated default amount must be read with section 74 of the Indian Contract Act, 1872: the aggrieved party may recover reasonable compensation not exceeding the amount named or penalty stipulated; the document should not describe a punitive sum as automatically recoverable merely because it is labelled earnest money.
- 4. SELLER DEFAULT AND MUTUAL CANCELLATION
- 5. DISPUTE
Section 54 of the Transfer of Property Act, 1882 treats a contract for sale as an agreement that a sale will take place on settled terms; the contract does not by itself create an interest in or charge on the property. The final transfer of ownership must occur through the legally required conveyance/registered instrument.
1A. EARNEST VERSUS ADVANCE
The transaction file should distinguish the amount deliberately agreed as earnest/security for performance from later part-payments of price. Calling every payment “earnest” does not necessarily make every rupee forfeitable. Receipts and bank narrations should use terminology consistent with the agreement so the parties can identify what amount is subject to the negotiated default clause.
2A. SELLER READINESS
A seller seeking to rely on buyer default should preserve evidence that it could perform its own material obligations: title documents, encumbrance release, authority permission, registration attendance and ability to convey the promised interest. A forfeiture clause should not reward a seller who was itself unable or unwilling to complete the transaction.
2B. NOTICE AND OPPORTUNITY
The default notice should identify the failed obligation, amount/date if applicable, the cure period and the completion step expected from the buyer. A vague message that “your bayana stands cancelled” should not substitute for the contractual process selected in this addendum. Delivery evidence should be retained because the effective termination date may affect refund and remedy calculations.
3A. REASONABLE COMPENSATION
The purpose of referencing section 74 is to avoid drafting a penalty as an automatic entitlement. The stated earnest amount functions as the contractual ceiling selected by the parties, while the legal entitlement remains subject to the reasonable-compensation framework and transaction facts. The clause should not be used to retain unrelated instalments merely because the buyer later defaults.
4A. REFUND ACCOUNT
If the seller terminates, the parties should prepare an account distinguishing earnest claimed/retained, other purchase-money received, documented deductions and the refund balance. Any undisputed refundable amount should be paid according to the termination/settlement instrument. The forfeiture addendum is not a substitute for a final cancellation account.
PERSONAL DATA NOTICE
This notice is given under the Digital Personal Data Protection Act, 2023. Personal data in this document is collected only to record the parties' agreed treatment of earnest money on specified default while preserving lawful compensation limits, communicate about that purpose, verify expressly supplied transaction information, and retain an evidentiary record.
If the proposed transaction does not proceed, the personal data will be retained for 90 days from the final cancellation/withdrawal decision and then erased, except for records needed for a live dispute or a named statutory retention duty. If the transaction proceeds, the record will be retained for the transaction period plus 12 months and then erased unless a longer statutory period applies.
Data minimisation: this document does not require full Aadhaar numbers, Aadhaar copies, passwords or bank credentials. Identity and tax documents should be collected only through the dedicated KYC/tax workflow where necessary.
EXECUTION