Is Your Token Advance Refundable? Bangalore Resale Rules Explained
Before a resale agreement is drawn up, most buyers in Bangalore hand the seller a token amount to freeze the deal. That handover is usually informal, sometimes proven only by an exchange of texts. What follows lays out the conditions under which the amount returns, the conditions under which it is lost, and the paper trail that prevents disputes.
Is It a Part Payment or a Guarantee?
Law distinguishes between an advance and earnest money, though everyday speech blurs them. A part payment forms a portion of the agreed price, delivered early. When the transaction collapses, the payer recovers it whoever caused the collapse, and the recipient must substantiate any loss in a separate claim.
A deposit that assures the buyer will complete is earnest money, and it counts toward the price once the sale closes. Should the buyer abandon the deal without justification, the recipient may retain it where the agreement permits.
The Supreme Court separated the two in Satish Batra v. Sudhir Rawal (2013). Only a deposit given to bind the bargain falls within forfeiture. Amounts described as an "advance" or "part payment" and lacking a forfeiture term are well placed for recovery.
The receipt carries the answer. If it says nothing, each side argues for the reading that helps. Pin the nature of the payment down at the moment it is made.
Where the Buyer Is the One Leaving
With a clear forfeiture term in place, a seller may hold earnest money following a buyer's default. The Indian Contract Act, 1872 caps that right through Section 74, which allows fair compensation for breach and nothing more. Over-sized deductions count as penalties and get reduced.
Godrej Projects Development Ltd. v. Anil Karlekar, decided by the Supreme Court on 3 February 2025, shows the rule at work. A clause allowed 20% of the base price to be forfeited, yet the bench approved just 10%. It was a developer's booking, but the fairness standard applies equally to individual resales.
The cause of withdrawal changes the picture. A buyer who leaves because of a defective title, an undisclosed loan on the property or missing documents has acted properly. Because forfeiture is meant for defaulters, tie the purchase to a clear title in writing.
Where the Seller Is the One Leaving
Should the seller decline to proceed, or accept a better price from another party, all money received must be repaid. Local agreements often promise a payout of twice the advance. Section 74 again applies, so the clause is valid only up to fair compensation.
A civil remedy is also available. The Specific Relief Act, 1963 allows a buyer who remained prepared and able to pay to seek a court order obliging the seller to conclude the transaction. Filing must happen within three years, supported by a written agreement covering price, property and dates.
Outcome by Situation
The grid below shows what usually happens, subject to the signed terms.
| Case | Typical result |
|---|---|
| Buyer cancels; payment was a part payment and no forfeiture term exists | Returned, except for any loss the seller establishes |
| Buyer cancels without cause; payment was earnest money with a forfeiture term | Seller retains a fair sum |
| Buyer cancels owing to title problems or absent documents | Returned in full |
| Loan refused by the bank where the agreement lists a finance condition | Returned in full |
| Seller cancels or finds another purchaser | Returned in full with any compensation agreed |
A Receipt That Protects
A single page signed by buyer and seller serves at this early point. Fill it in with the points below.
- Each owner and the buyer by name, along with a full property description
- Price settled, token paid and the reference number of the cheque or bank transfer
- A declaration of the payment's character: part payment or earnest money
- When the seller will deliver copies of the title papers
- A refund guarantee if title, khata or loan approval does not clear
- The seller's retention right on a baseless buyer exit, and the seller's own payout on exit
- The deadline for signing the sale agreement
Co-owners must all sign, as none can bind another. Anyone signing for the seller as broker or relative without a power of attorney adds little. Stamp-paper execution of the sale agreement should follow soon, within weeks.
Safe Ways to Hand Over Money
Careful payment protects as much as careful drafting. Work through this list.
- Pay a modest token initially and delay any larger advance until a lawyer has cleared the title
- Route funds by cheque or bank transfer into the owner's own account, leaving brokers and other parties out
- Do not use cash, since a seller cannot lawfully take Rs. 20,000 or more that way on a property sale under income tax law
- Subtract TDS of 1% from every payment, including the advance, whenever the price is Rs. 50 Lakhs or more and the seller is resident
- Collect copies of the tax receipts, the khata, the sale deed and the encumbrance certificate for the token you pay
- Document every revision, whether date or price
Home loan applicants have an extra hurdle. Banks release funds after completing legal and technical reviews over several weeks. The agreement should allow for that period and list a bank's refusal as a ground for refund.
Chasing a Refund
Start with a letter. Record the sum paid, the grounds for pulling out and a return date, which signals that your documents are in order. If that gets no response, a notice through a lawyer comes next.
The final option is a civil suit, either to claim the money back or to force completion when the seller is the defaulter. Developers and service providers answer to RERA and consumer commissions. Resale disputes between two individuals go before the civil court.
Litigation is slow, so it pays to settle every term at the outset. A well-receipted token typically comes back without a struggle. Treat this as general information, and ask a property lawyer to read the agreement for a particular transaction.
Purchases booked straight from a builder fall under RERA and different rules. How refunds and forfeiture caps work for a cancelled flat booking is explained in a separate guide.
