"Full & Final Settlement" Accepted Under Coercion Does Not Extinguish Original Claim: Delhi High Court Upholds ₹18L Refund to Homebuyers

The Court further held that a full and final settlement cannot bind a purchaser where the settlement was accepted under coercive circumstances, especially when the developer occupied a dominant bargaining position by already retaining substantial sums paid by the buyer. The Bench observed that acceptance of a lesser amount under protest does not amount to a voluntary accord and satisfaction capable of extinguishing the original claim.

Justice Neena Bansal Krishna while dismissing a Regular First Appeal filed against the Trial Court decree, observed, “It is well-settled that a plea of full and final settlement, must be founded on free consent. Where the acceptance of a lesser amount occurs under protest or coercive circumstances, it does not constitute a binding accord and satisfaction and, consequently, does not extinguish the original claim”.

“The court rightly concluded that the Plaintiff’s acceptance and even the encashment of the cheque, was vitiated by coercion and undue influence. Consequently, the acceptance of a partial sum, cannot be construed as a voluntary full and final settlement that would extinguish the Plaintiff's original claim”, it noted further.

Advocate Vikas Mishra appeared for the appellant and Advocate Manish Kaushik appeared for the respondent.

In the matter, an Agreement to Sell was executed on February 27, 2008 for the purchase of a villa in the Rosewood City (Grand Mansions) project in Gurgaon for a total sale consideration of ₹2.5 crore.

The purchasers paid ₹62 lakh towards the booking and instalments, however, the plaintiffs allegedly, later discovered that construction was proceeding slowly and that inferior quality material was allegedly being used. They also claimed that the builder failed to provide the construction schedule and specifications despite repeated requests.

The developer subsequently cancelled the allotment on March 09, 2009, alleging default in payment of instalments and forfeited ₹18 lakh while refunding ₹44 lakh pursuant to a later settlement. The purchasers contended that the settlement was executed under coercion and pressure because the developer had threatened complete forfeiture of the amount already paid.

Before the High Court, the builder argued that the payment plan was strictly time-linked and that the purchasers had failed to adhere to the payment schedule despite repeated demand notices. It also relied on clauses in the Agreement permitting cancellation and forfeiture of earnest money in case of default.

The builder contended that the purchasers had voluntarily accepted ₹44 lakh in full and final settlement and had executed indemnity bonds and undertakings waiving future claims.

Rejecting these submissions, the High Court found that the instalments were in fact linked to the progress of construction and not merely calendar dates. The Court noted that Schedule ‘A’ of the Agreement itself stated that payments would be requested according to the construction schedule.

The Bench also relied on the cross-examination of the builder’s witness, who admitted that payments were connected with actual construction progress but failed to produce the construction schedule or evidence of the extent of work completed.

Further, it observed that the Agreement required demand notices to be served through registered post acknowledgment due. Although the builder relied upon several demand letters, it failed to produce postal receipts or acknowledgment cards proving service upon the purchasers. In the absence of proof of service, the Court held that the buyers could not be treated as defaulters.

On the issue of settlement, the Court held that the surrounding circumstances demonstrated unequal bargaining power. It observed that the builder was already holding ₹62 lakh belonging to the purchasers and had threatened forfeiture, leaving the buyers with little practical choice but to accept the reduced refund amount.

“The Plaintiff, thus occupied a vulnerable position and was left with no viable alternative, but to accept whatever amount was offered. The learned District Judge correctly observed that the Plaintiff, when pitted against a large developer with superior bargaining power, was effectively coerced into accepting the Rs. 44 lakhs offered by the Defendant”, the Bench noted.

The Court also rejected the builder’s claim that ₹18 lakh could validly be forfeited as earnest money. Referring to Section 74 of the Indian Contract Act, the Court reiterated that forfeiture is impermissible in the absence of proof of actual loss.

It noted that the builder had neither pleaded nor proved any financial loss arising from cancellation of the allotment. On the contrary, the Court observed that the builder’s refusal to restore the original allotment and its offer of an alternative villa suggested that the original property may already have been dealt with elsewhere, indicating absence of loss.

Accordingly, the Court affirmed the Trial Court’s decree directing refund of ₹18 lakh with interest at 6% per annum from the date of institution of the suit till realization, and dismissed the appeal.

Cause Title: M/s R. C. Sood & Co. Developers Pvt. Ltd. v. Sharad Maheshwari & Anr. (Neutral Citation: 2026:DHC:4422)

Appearances:

Appellant: Vikas Mishra, Kartik Magar Karti, Sanchit Gawri and Krishna Dev Yadav, Advocates.

Respondents: Manish Kaushik and Mishal Johari, Advocates.

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