Subhash Aggarwal v. Mahender Pal Chhabra & Anr., 2026
The judgment clarifies that the forfeiture is not punitive, but compensatory.
Judgement Details
Court
Supreme Court of India
Date of Decision
7 January 2026
Judges
Justice Vikram Nath and Justice Sandeep Mehta
Citation
Acts / Provisions
Facts of the Case
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The parties entered into an agreement to sell dated 22 January 2008 for a 300 sq. yard property in Ashok Vihar, Delhi for a total consideration of ₹6.11 crore.
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The buyer paid:
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₹60 lakh as earnest money, and
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₹30 lakh subsequently, totaling ₹90 lakh.
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The seller was required to get the property mutated, and Convert the property from leasehold to freehold.
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The buyer instituted a suit for specific performance.
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In February 2021, the Trial Court decreed specific performance in favour of the buyer.
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In September 2025, the Delhi High Court:
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Set aside the decree of specific performance.
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Held that the buyer failed to prove readiness and willingness to pay the balance ₹5.21 crore.
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Allowed forfeiture of earnest money (₹60 lakh).
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Directed refund of the additional ₹30 lakh with interest.
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The buyer challenged the High Court’s decision before the Supreme Court.
Issues
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Whether forfeiture of earnest money is permissible when both the buyer and seller are at fault in performance of the contract?
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Whether a seller can be allowed to retain earnest money when such forfeiture results in unjust enrichment?
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Whether equity requires restitution rather than forfeiture where specific performance is denied due to mutual fault?
Judgement
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The Supreme Court partly allowed the appeal.
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The Court:
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Upheld the High Court’s finding that the buyer failed to establish readiness and willingness.
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Set aside the direction permitting forfeiture of the earnest money.
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It held that both parties were equally at fault:
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The buyer failed to prove financial capacity.
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The seller failed to complete mutation and conversion obligations.
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The Court observed that:
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Forfeiture in such circumstances would lead to unjust enrichment of the seller.
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Equity requires restoration of parties to their original position as far as possible.
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To balance equities and bring finality:
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The Court directed the respondents to pay a lump sum of ₹3 crore to the appellant within four weeks.
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The High Court judgment was modified to the above extent.
Held
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Forfeiture of earnest money is impermissible when both parties are at fault.
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Equity must operate to prevent unjust enrichment.
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Courts may award lump-sum restitution to adjust equities and avoid prolonged litigation.
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Specific performance may be denied, yet forfeiture need not automatically follow.
Analysis
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The Court reaffirmed the equitable nature of remedies in contract law.
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It harmonised:
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Statutory principles under the Specific Relief Act, and
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Equitable doctrines of restitution and unjust enrichment.
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The judgment clarifies that:
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Forfeiture is not punitive, but compensatory.
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It cannot be used as a windfall where the seller is also in breach.
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The ruling strengthens judicial discretion to:
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Mould relief, and
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Grant complete justice under Article 142–like equitable principles, even in contract disputes.
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It discourages mechanical enforcement of forfeiture clauses without examining conduct of both parties.