EARNEST MONEY FORFEITURE ADDENDUM
Harpreet Singh, of House 118, Sector 35-A, Chandigarh, and Aarav Sharma, of House 211, Sector 21, Panchkula, are the parties to this instrument.
Seller contact: +91 98150 12345 / harpreet@example.com. Buyer contact: +91 98765 43210 / aarav@example.com.
- 1. ORIGINAL AGREEMENT AND AMOUNT
The parties refer to Agreement to Sell dated 01 August 2026 for House 52, Sector 8, Chandigarh. This addendum is executed on 1 April 2026.
Earnest amount: ₹25,00,000 (Rupees Twenty Five Lakh only). Character: Part payment credited toward price and also security for performance to the extent lawful.
- 2. BUYER DEFAULT EVENT
Potential trigger: Failure to complete by the contractual date after seller satisfies completion conditions. Seller precondition: Seller must be ready and willing to complete and comply with its material contractual conditions. Notice process: Seller gives written default notice and the stated cure period before claiming forfeiture. Cure period: 7 days.
- 3. LIMIT ON FORFEITURE
Forfeiture/compensation extent: Reasonable compensation subject to section 74 and not exceeding the earnest amount stated.
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.
Payments above earnest: Payments above the earnest amount are refundable/adjustable subject to independent lawful claims.
- 4. SELLER DEFAULT AND MUTUAL CANCELLATION
Seller default: Buyer retains contractual/statutory remedies including refund and available compensation. Mutual cancellation: Earnest/refund treatment must be stated in the mutual rescission document.
- 5. DISPUTE
Parties preserve court/arbitration remedies under the main agreement. This addendum does not declare a punitive or automatic windfall merely because a payment is labelled earnest money.
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.
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.