Resale Token Money in Bangalore: Refund and Forfeiture Rules
Second-hand purchases in Bangalore typically begin when the buyer pays a token, so the owner pauses other viewings while papers get verified. Many such payments travel on goodwill and a chat message. This article sets out when that sum is returned, when the owner may pocket it, and how to word things so nobody needs a courtroom.
Three Words, Different Consequences
Tokens, advances and deposits get mixed up in conversation, yet courts read them differently. A part payment is simply an instalment of the price made early. Should the transaction fall apart, it flows back to the purchaser regardless of blame, while the owner has to prove any loss before claiming it.
Earnest money works as security for the purchaser's promise to close. It merges into the price at completion. A purchaser who exits for no good reason may forfeit it, though only where the contract says so.
Satish Batra v. Sudhir Rawal, decided by the Supreme Court in 2013, fixed this line. Money handed over as a guarantee is the only kind that can be confiscated. Where a payment is described as "advance" and no confiscation term exists, a refund claim is much stronger.
The wording on the paper decides what the payment is. If nothing is recorded, each party tells its own story, and quarrels follow. Settle the description, along with the conditions, when cash changes hands.
Buyer Walks Away
An owner holding earnest money under an explicit confiscation term may retain it after the purchaser defaults. Section 74 of the Indian Contract Act, 1872 limits this to fair damages. An amount well beyond the real loss is a penalty, and judges trim it.
In Godrej Projects Development Ltd. v. Anil Karlekar, decided on 3 February 2025, the Supreme Court applied that principle. The builder's contract allowed it to take 20% of the base price. The court sanctioned only 10%, and while this involved a developer, the fairness test also guides private resales.
Motive matters as well. Withdrawing over a flawed title, a concealed mortgage or documents the owner cannot show is justified. Confiscation targets purchasers who breach, so draft the deal to depend on a clean title.
Seller Walks Away
An owner who refuses to close, or accepts a higher bid from someone new, returns every rupee collected. Bangalore contracts often add a promise to pay back twice the advance. That promise survives only as far as it amounts to fair damages under Section 74.
Another route is open to the purchaser. The Specific Relief Act, 1963 lets someone who was prepared and able to pay petition a civil court to compel the owner to finish the transaction. Such a suit must be brought inside three years, and it needs a written contract naming price, property and timelines.
Quick Reference
These rows summarise the normal result, always bounded by the actual contract language.
| Scenario | Likely result |
|---|---|
| Purchaser exits after paying an instalment, no confiscation term in the contract | Money returned, with deduction only for loss the owner proves |
| Purchaser exits for no reason after paying guarantee money under a confiscation term | Owner may retain a fair portion |
| Purchaser exits over a flawed title or absent papers | Everything returned |
| Lender rejects the mortgage and the contract carries a finance condition | Everything returned |
| Owner exits or sells on to a rival buyer | Everything returned, together with any promised damages |
What to Put in the Receipt
One signed page from both parties is adequate at the token stage. List the following in it.
- All owners, the purchaser and a complete description of the property
- Negotiated price, token sum and the payment reference of the cheque or transfer
- Whether the money is an instalment or guarantee money
- Deadline for the owner to supply photocopies of ownership papers
- Return of the entire token should title, khata or loan sanction fail
- How much the owner retains if the purchaser leaves without cause, and what the owner pays if the owner leaves
- Target date to execute the sale agreement
Every co-owner has to sign, since a single owner cannot commit the others. A signature from a broker, or from a relative lacking a power of attorney, counts for little. Execute the full sale agreement on stamp paper within a few weeks of the token.
Paying Without Regret
Method of payment safeguards a purchaser alongside the paperwork. Keep to these habits.
- Begin with a small sum, and hand over a bigger advance once a lawyer has approved the title
- Send cheques or online transfers straight to the owner's account, never to an intermediary
- Avoid notes, because tax law bars a seller from accepting cash of Rs. 20,000 or more for a property
- Withhold TDS at 1% on every instalment, the advance too, when the price reaches Rs. 50 Lakhs and the seller lives in India
- Ask for photocopies of the encumbrance certificate, khata, tax receipts and sale deed in exchange
- Write down any revision of price or timeline afterwards
Borrowers face an added stage. Lenders disburse once in-house legal and technical scrutiny is finished, which runs for weeks. The contract must give that time and count a lender's rejection as grounds for a return.
When the Owner Will Not Return It
A written demand resolves most standoffs. State the amount paid, why you exited and a deadline, so the owner sees your records are tidy. If silence follows, send a lawyer's notice.
Thereafter, a civil suit can recover the sum, or enforce completion where the owner is at fault. RERA and consumer forums deal with developers and service providers. Disputes between private parties over a resale usually belong in civil court.
Lawsuits drag on, which is why precise paperwork on day one is the best defence. Where a proper receipt exists, the token is normally refunded without a quarrel. Treat this as general information, and have a property lawyer examine the contract for a specific deal.
Developer bookings are governed by RERA under different rules. Cancelling a flat booking is dealt with in a companion article, including refunds and confiscation caps.
