Seller took earnest money but failed to convert leasehold property: Supreme Court orders Rs 3 crore refund to buyer

On January 5, 2026, the Supreme Court of India ruled that when both the buyer and seller are at fault in a property transaction, specifically regarding the buyer’s unwillingness to pay the full amount and the seller’s execution of the sale deed and conversion from leasehold to freehold, then forfeiture of the buyers’ earnest money would be unjust enrichment for the seller.

Background details

On January 22, 2008 Mr. Aggarwal (the buyer) signed an agreement with Mr. Chhabra (the seller) to buy a 300-square-yard property in Ashok Vihar, Delhi. The total sale price was Rs 6.11 crore, and Aggarwal initially paid Rs 60 lakh as earnest money.

On March 24, 2008, he paid an additional Rs 30 lakh as advance, thus bringing the total to Rs 90 lakh paid to Chhabra. However, Chhabra still did not proceed with the sale, prompting Aggarwal to file a lawsuit against him for specific performance, which included executing sale deed and converting the property from leasehold to freehold in his name.


On February 15, 2021, the trial court ruled in Aggarwal’s favour. However, Chhabra appealed to the Delhi High Court, which dismissed the case on April 12, 2021. Feeling aggrieved, Chhabra filed an appeal in the Supreme Court and the apex court ordered Delhi High Court to hear the case again.

On September 3, 2025, the Delhi High Court overturned the earlier decree of specific performance granted by the Single Judge and dismissed the request for specific performance relief.

The Delhi High Court also decided that Chhabra could keep the earnest money of Rs 60 lakh. But, the high court directed that the additional Rs 30 lakh paid after the execution of agreement to sell should be refunded along with interest of 9% per annum from March 24, 2008 till the date of payment. Upset with the order, Aggarwal took the matter to the Supreme Court.

On January 5, 2026, Aggarwal won the case and Rs 3 crore. Advocate Dhruv Mehta, Senior Advocate Aneesh Mittal, Advocate on Record (AOR) Ms. Deepriya Snehi, Advocate Ms. Yashika Kaushik, Advocate Ms. Nishi Sangtani and Advocate Ms. Komal Mittal represented him.

Supreme Court analysis and discussion

Justice Vikram Nath of the Supreme Court in its judgement dated January 5, 2026 (case no. 2026 INSC 11) said that they find merit in the finding of the High Court (Delhi) that the appellant (Aggarwal) failed to prove his readiness and willingness. He had not been able to demonstrate that he had the necessary financial wherewithal to make the balance payment of Rs 5.21 crore on May 10, 2008, the due date.

The Supreme Court said: “In addition to that, he did not even visit the office of the Sub-Registrar on the above date. At the same time, it must also be noted that the respondents (Chhabra) too did not fulfil their contractual obligations, particularly with respect to obtaining mutation and securing conversion of the suit property from leasehold to freehold.”

The Supreme Court said that in multiple cases, they have held that there is no straitjacket formula with regard to ‘readiness and willingness’. The same has to be construed with respect to the facts and circumstances of each case.

In light of the facts of this case, and bearing in mind the passage of more than seventeen years since the execution of agreement, the Supreme Court said that they agree with the view of the Division Bench that the grant of specific performance is not an equitable relief at this stage.

The Supreme Court said that it is a settled principle that equity must operate in a manner that prevents unjust enrichment and restores the parties to their original position, as far as possible particularly where both the parties are at fault.

“We, therefore, are of the view that directing forfeiture of the earnest money would result in an equitable windfall to the respondents (Chhabra).”

The Supreme Court said that to to do complete justice and adjust the equities between the parties, they are of the considered view that appropriate course is to direct the respondents (Chhabra) to pay a lump sum amount of Rs 3 crore (Rupees Three Crores only) to the appellant (Aggarwal), within four weeks from the date of this order.

The Supreme Court said: “This would fully restitute the appellant (Aggarwal) while avoiding further complications relating to the contract and also bring quietus to a dispute that has been protracted for over a decade. The judgment of the High Court shall stand modified to the above extent.”

Judgement: “In view of the above directions, the appeal stands partly allowed. Pending application(s), if any, shall stand disposed of.”