• Penalty Clause

I have entered in an agreement for sale with 0.1% stamp duty with a buyer before Covid19 with penalty clause 5 lakhs. expiry of agreement was 31st March 2020. Due to Covid 19 lockdown registration not happened now buyer wants to back out from deal. may i have right to deduct 5 lakh as penalty.
Asked 1 year ago in Property Law
Religion: Hindu

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20 Answers

You cannot deduct Rs 5 lakhs as penalty as registration was not done due to lockdown on account of pandemic 


refund advance of any received and cancel the deal 

Ajay Sethi
Advocate, Mumbai
84021 Answers
5474 Consultations

5.0 on 5.0

Even if the registration was not done it must be an agreement signed by the parties in the presence of witnesses and couldn't be registered due to the pandemic. It can be enforced. The other party would have to show that he cannot perform the contract.

Rahul Mishra
Advocate, Lucknow
13040 Answers
42 Consultations

5.0 on 5.0

1. Penalty clause can be in normal circumstances for the breach of contract, but now forcemajeure situation is existing due to Covid19 lockdown.

2. If there is a force majeure clause in the agreement of sale, then you may not be able to penalise the buyer for Rs.5 Lakhs and if there is no forcemajeure clause, you can forfeit the advance amount.

3.  Better to resolve the matter amicably.

Shashidhar S. Sastry
Advocate, Bangalore
3769 Answers
224 Consultations

5.0 on 5.0

Present situation is force majure. Sale deed registration is closed at present.Buyer can ask for time due to FM but if he wants to back out, penalty clause will invoke.

Yogendra Singh Rajawat
Advocate, Jaipur
21439 Answers
31 Consultations

4.4 on 5.0

- Since, this delay is caused by the Covid-19 lockdown , and not due to fault of buyer , hence legally you cannot deduct any amount as penalty. 

- The agreement , which was going to be lasted on 31st March , 2020, would be treated as continued for further period, till the time of normalization of situation .

- Further , if there is not sufficient reason to cancel the deal by the buyer , then the forfeit ground may be enforced legally with a court order. 

Mohammed Shahzad
Advocate, Delhi
7954 Answers
85 Consultations

5.0 on 5.0


  1. Strictly speaking you may deduct if the buyer fails to perform his part of the contract if time is the essence of the contract. 
  2. However there are two factors that come to his aid, namely as per Indian Contract Act, when the performance of a contract becomes impossible on account of a subsequent event after the parties enter an Agreement, the contract cannot be enforced. Secondly, though not specified it is a Force Majuere situation, namely an act of God,a calamity that takes away obligation of the contract on either parties.
  3. If a certain percentage is deducted as token/booking amount, it would be ideal.

S J Mathew
Advocate, Mumbai
3339 Answers
157 Consultations

5.0 on 5.0

If there is no Force Majure clause covering the Coivd- 19 type incident and the clause mentions the forfeiture clause in the event the biyer unilaterally cancels the the agreement then you can deduct the amoutn as mentioned in the clause.

However considering the uncertainly over the pendemic I would suggest you not to get enriched in an unfair manner and refund the money after a token deductions.

After all being a Human is more important and virtuous  than a wise man on the basis if a piece of paper.

Devajyoti Barman
Advocate, Kolkata
22515 Answers
363 Consultations

5.0 on 5.0

Yes you can impose penalty on the basis of the clause. 

Prashant Nayak
Advocate, Mumbai
24192 Answers
51 Consultations

4.4 on 5.0

Dear Sir,

The matter of deductions in the present case will be dependent of the pleas or reason taken by the buyer for cancellation of deal. If he has no reason valid, you may ask for deductions as per given clause in the agreement.   

Ganesh Singh
Advocate, New Delhi
6629 Answers
16 Consultations

4.5 on 5.0

1. Irrespective of the Lockdown, the buyer is not entitled to withdraw from the deal and has to continue the same after the lockdown, thereby excluding the period of lockdown from the penalty clause.

2. IF buyer does not conclude the deal within 30 days of lifting of lockdown, THEN Seller is legally entitled to deduct the penalty amount.

Hemant Agarwal
Advocate, Mumbai
5546 Answers
25 Consultations

5.0 on 5.0

No, as you said that that the agreement was not registered than it is not valid.

So you cannot deduct amount on the basis of a invalid agreement 

Rahul Jatain
Advocate, Rohtak
5365 Answers
4 Consultations

4.8 on 5.0

Registration and agreement could not be completed due to unforeseen circumstances that is why for non complition buyer may request more time to complete his part of agreement though he cannot cancel in case he cancel deduct the amount and further if file suit you can contest before the court.

Shubham Jhajharia
Advocate, Ahmedabad
25518 Answers
147 Consultations

5.0 on 5.0

You cannot deduct the amount mentioned by you because the such clauses are not enforceable in law and since you have acknowledged the receipt for payment of advance amount you will be dragged to court by the buyer with a suit for recovery of entire money along with interest if you do not refund him the money by deducting a reasonable amount towards administrative expenses. 

Instead of stretching the  issue and converting it into a legal dispute, you may better take a wise decision and settle an amount after negotiation with the buyer.

If not then you  may have to unnecessarily run between court and home without any benefit because at the end you may have to pay the amount received from him as per court order along with the interest till the date of settlement, which means you will lose energy, money and peace including your precious time due to litigation.

Better take a wise decision at right time.



T Kalaiselvan
Advocate, Vellore
74127 Answers
1201 Consultations

5.0 on 5.0

The registration was not completed due to the Pandemic i.e., no fault of both of you.

You are not entitled to deduce five lakhs as penalty, further, if the agreement contains force majeure clause, then it will go against you.

It is advisable, get the matter settled amicably, by extending the time for registration on mutual terms.

You can cancel the agreement as desired by buyer and refund the amount advanced by him.

If you agreement contains termination clause, you may take shelter under the said clause and demand him to comply with the same.

S Srinivasa Prasad
Advocate, Hyderabad
2877 Answers
9 Consultations

5.0 on 5.0

Please share the agreement first. If theres no force majeure clause then you have right to deduct. But before deduction you need to serve him notice. Feel free to contact me for further guidance in karnataka if needed. 

Swarnarka Chowdhury
Advocate, Mysore
1878 Answers
5 Consultations

5.0 on 5.0

if the buyer does not fulfill his promise the seller has the right to forfeit the advance amount . You can do as per the terms of the agreement.

Is there a clause that you can issue a legal notice to the buyer for cancellation of the agreement and seek damages

Mohammed Mujeeb
Advocate, Hyderabad
19011 Answers
28 Consultations

4.5 on 5.0

1. Why does the buyer now want to buy out? The period for execution of sale deed can be mutually extended.

2. You cannot deduct any cancellation charges during pandemic and lockdown. Covid-19 is a Force Majeure, and therefore prevails over cancellation clause.

Ashish Davessar
Advocate, Jaipur
30745 Answers
913 Consultations

5.0 on 5.0

Govt.  has deferred all contractual schedule for 3 to 6 months due to covid-19 pandemic. 

So the same would be logically applicable in principle to private contractual obligations also. 

Give a reasonable extension to the buyer to fulfill his obligation by written communication , in default you can invoke the penalty clause. 

Kallol Majumdar
Advocate, Kolkata
2800 Answers
7 Consultations

5.0 on 5.0

1. No you cannot deduct 5 lakhs from advance paid for sales agreement.

2. You should refund complete amount to buyer.

Mohit Kapoor
Advocate, Rohtak
10688 Answers
7 Consultations

5.0 on 5.0

Please send the Agreement draft. Typically, there is no way to deduct 5 Lakhs as penalty. Covid-19 is a force majeure situation.

Balaji Iyer
Advocate, Bengaluru
18 Answers
2 Consultations

5.0 on 5.0

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