Token Advance on a Resale Property in Bangalore: When It Is Refundable
Most resale deals in Bangalore begin with a token: a few lakh rupees paid to take the flat or plot off the market while documents are checked. It is often paid on trust, with nothing more than a message as record. This guide explains when that money comes back, when a seller may keep it, and how to write the terms so that the question never reaches a court.
Token, Advance and Earnest Money
The three words are used loosely, yet the law treats them differently. An advance or part payment is simply a share of the price paid early. If the sale does not happen, a part payment goes back to the buyer, whoever was at fault, and the seller claims any real loss separately.
Earnest money is a deposit given as a guarantee that the buyer will complete the purchase. It becomes part of the price when the sale goes through. If the buyer backs out without a valid reason, the seller may keep it, provided the agreement says so.
The Supreme Court drew this line in Satish Batra v. Sudhir Rawal in 2013. Only money given as earnest, to bind the bargain, is open to forfeiture. A payment described as "advance" or "part payment", with no forfeiture clause, has a much stronger case for a refund.
A token is whatever the paper says it is. Where nothing is written, each side describes it in the way that suits, and the dispute begins there. The label and the terms should be settled on the day the money is paid.
When the Buyer Backs Out
A seller who holds earnest money under a clear forfeiture clause may keep it when the buyer defaults. The limit comes from Section 74 of the Indian Contract Act, 1872, which allows reasonable compensation for a breach and no more. A deduction far larger than any loss is treated as a penalty, and courts reduce it.
The Supreme Court applied this in Godrej Projects Development Ltd. v. Anil Karlekar on 3 February 2025. The developer's agreement allowed it to forfeit 20% of the basic sale price, and the court upheld forfeiture of 10% only. That case concerned a builder's booking, yet the same test of reasonableness guides a resale between two individuals.
The reason for withdrawing also matters. A buyer who withdraws because the title is defective, a loan on the property is undisclosed or the seller cannot produce the documents has a valid reason. Forfeiture is meant for a buyer in breach, so the agreement should make the purchase conditional on clear title.
When the Seller Backs Out
A seller who refuses to complete, or who accepts a better offer from someone else, must return everything received. Many agreements in Bangalore add that the seller will pay back double the advance in that case. The clause is enforceable to the extent that it is reasonable compensation, under the same Section 74.
The buyer has a second remedy. Under the Specific Relief Act, 1963, a buyer who was ready and willing to pay may ask a civil court to direct the seller to complete the sale. The suit must be filed within three years, and it depends on a written agreement that sets out the price, the property and the dates.
Refund Position at a Glance
The table below sums up the usual outcome in each situation, subject to what the agreement says.
| Situation | Usual outcome |
|---|---|
| Buyer withdraws, money paid as part payment with no forfeiture clause | Refund, less any proven loss to the seller |
| Buyer withdraws without reason, money paid as earnest with a forfeiture clause | Seller may keep a reasonable amount |
| Buyer withdraws because of a title defect or missing documents | Full refund |
| Bank declines the loan and the agreement has a loan condition | Full refund |
| Seller withdraws or sells to another buyer | Full refund, plus any agreed compensation |
What the Token Receipt Should Say
A one-page receipt signed by both sides is enough at the token stage. It should carry the following points.
- The names of all owners and the buyer, with the full description of the property
- The agreed price and the amount of the token, with the cheque or transfer reference
- A statement of whether the token is a part payment or earnest money
- The date by which the seller will hand over copies of the title documents
- A condition that the token is refunded in full if the title, khata or loan approval fails
- The amount the seller may keep if the buyer withdraws without reason, and what the seller pays on withdrawing
- The date by which the agreement of sale will be signed
Every co-owner should sign, since one owner cannot bind the others. A receipt signed by a broker or a relative without a power of attorney carries little weight. The token should be followed within a few weeks by a full agreement of sale on stamp paper.
Paying the Token Safely
The way the money is paid protects the buyer as much as the wording does. These habits help.
- Keep the token small, and pay the larger advance only after a lawyer has cleared the title
- Pay by cheque or bank transfer to the owner's own account, and avoid payments to a broker or a third party
- Avoid cash, since income tax law bars a seller from taking Rs. 20,000 or more in cash towards a property sale
- Deduct TDS of 1% from each payment, the advance included, when the price is Rs. 50 Lakhs or more and the seller is a resident
- Collect copies of the sale deed, khata, tax receipts and encumbrance certificate against the token
- Put every later change, such as a new date or a revised price, in writing
A home loan adds one more step. Banks release money only after their own legal and technical checks, which take some weeks. The agreement should allow that time and should treat a refusal by the bank as a ground for refund.
If the Seller Refuses to Refund
Most refusals end with a written demand. A letter that sets out the payment, the reason for withdrawal and a date for refund shows the seller that the buyer has the papers in order. A lawyer's notice is the next step if the letter is ignored.
If that fails, the buyer may file a civil suit for recovery of the money, or for completion of the sale when the seller is the one in breach. RERA and the consumer commissions deal with builders and service providers. A dispute between two individuals over a resale normally goes to the civil court.
Court cases take time, which is the strongest argument for getting the paper right at the start. A token backed by a clear receipt is usually returned without a fight. This guide gives general information, and a property lawyer should review the agreement for any specific deal.
Bookings made directly with a builder follow different rules under RERA. Our separate guide on cancelling a flat booking covers refunds and forfeiture limits in that case.
