You paid ₹5 lakh as token money for a property. Later, you discover that the seller cannot provide a clear title. Or perhaps the seller refuses to execute the sale deed despite receiving the agreed amount. Can you walk away from the deal and demand your money back?
The answer is yes, in appropriate circumstances—but it depends on why the transaction failed and what the agreement actually says.
Indian law makes an important distinction between a buyer who legitimately cancels because of the seller's breach and a buyer who simply changes their mind.
That distinction can determine whether the buyer gets a full refund, loses the earnest money, or has to litigate for recovery.
First Question: What Exactly Is “Token Money”?
In property transactions, people commonly use expressions such as:
- token money;
- advance;
- bayana;
- booking amount;
- earnest money; or
- part payment.
But calling a payment “token money” does not automatically decide its legal character.
The Supreme Court has repeatedly distinguished earnest money from an ordinary advance payment.
In K.R. Suresh v. R. Poornima, 2025 INSC 617, the Supreme Court explained that earnest money is essentially a security for due performance of the contract. It is normally paid when the agreement is concluded and may be forfeited when the purchaser is responsible for the transaction falling through. An ordinary advance payment, however, is part of the purchase price and does not automatically acquire the character of earnest money merely because the agreement uses that expression.
So, the word used in the agreement is not the end of the story. The court can examine the substance and purpose of the payment.
When Can a Buyer Cancel the Deal and Claim a Refund?
Suppose you agree to purchase a property for ₹80 lakh and pay ₹5 lakh.
Later, you discover that:
- the seller does not have clear title;
- there is an undisclosed mortgage;
- the property is involved in litigation;
- the seller does not have authority to sell;
- necessary documents are not produced;
- the seller refuses to execute the sale deed;
- the seller sells or attempts to sell the property to someone else; or
- a contractual condition essential for completion is not fulfilled.
- These circumstances are fundamentally different from a buyer simply deciding:
“I don't want the property anymore.”
Where the seller is in breach, the buyer may have a strong case for rescission and recovery of the amount paid, depending on the terms and facts of the agreement.
The remedies may arise under the Indian Contract Act, 1872 and the Specific Relief Act, 1963.
Section 73: Compensation for Breach
Section 73 of the Indian Contract Act, 1872 provides the basic remedy for loss caused by breach of contract.
In simple language:
If the seller breaches the agreement, the buyer can seek appropriate compensation for the loss resulting from that breach.
For example, if the seller accepts ₹10 lakh and subsequently refuses to complete the sale despite being contractually bound to do so, the buyer may seek appropriate contractual remedies, including recovery of money paid and, depending on the circumstances, damages.
The exact relief depends upon the agreement, the nature of the breach and the evidence available.
Section 39: When One Party Refuses to Perform the Contract
Section 39 of the Indian Contract Act becomes particularly relevant where one party refuses to perform, or disables themselves from performing, their promise in its entirety.
Imagine that the seller tells the buyer:
“I have changed my mind. I am not going to execute the sale deed.”
The buyer does not necessarily have to continue waiting indefinitely.
Depending on the circumstances, such refusal may amount to repudiation of the contract, giving the innocent party the right to treat the contract as terminated and pursue appropriate remedies.
The Specific Relief Act Also Matters
The Specific Relief Act, 1963 provides important remedies in property disputes.
Where a seller refuses to honour an agreement to sell, a buyer may, depending upon the facts, seek specific performance—that is, ask the court to direct the seller to complete the transaction.
But the buyer may also seek refund of money paid, along with other appropriate relief.
Section 22 of the Specific Relief Act is particularly important because a plaintiff seeking specific performance can also claim possession, partition or other consequential relief, including refund of earnest money/deposit in appropriate cases.
One practical lesson follows:
Always draft the relief clause carefully.
A person cannot assume that the court will automatically grant every alternative remedy that was never properly claimed.
But What If the Buyer Simply Changes Their Mind?
This is where things become very different.
Suppose the seller has:
- clear title;
- produced all required documents;
- remained ready to execute the sale deed; and
- complied with the agreement,
but the buyer later says:
“I don't want to purchase the property anymore.”
That could amount to breach by the buyer.
If the payment is genuine earnest money and the agreement contains a valid forfeiture clause, the seller may be entitled to retain it.
The Supreme Court's decision in K.R. Suresh v. R. Poornima is particularly important here. The Court held that genuine earnest money, paid as security for performance and covered by the contractual terms, can be forfeited when the purchaser defaults.
Therefore:
Seller's breach → buyer may seek refund.
Buyer's breach → seller may potentially forfeit genuine earnest money.
That simple distinction is extremely important.
Can the Seller Forfeit the Entire Amount Paid?
Not necessarily.
This is where the distinction between earnest money and advance/part-payment of sale consideration becomes critical.
In Central Bank of India v. Shanmugavelu, (2024) 6 SCC 641, the Supreme Court explained that earnest money is different from an advance part-payment of the purchase price. Earnest money serves as security for performance; an advance is generally part of the price to be adjusted against the final consideration.
The Supreme Court revisited the issue in K.R. Suresh and surveyed the earlier decisions including Fateh Chand, Maula Bux, Satish Batra and Kailash Nath Associates. The Court ultimately held that genuine earnest money is not penal in the ordinary sense and that the contractual nature and purpose of the payment must be examined.
A recent Punjab & Haryana High Court decision in Raghbir Singh v. Lalit (8 January 2026) illustrates the distinction clearly: the court treated the amount expressly paid as earnest money differently from subsequent payments forming part of the sale consideration, holding that additional payments could not simply be forfeited in the same manner.
What If the Agreement Says “Token Money Is Non-Refundable”?
This sentence alone does not necessarily end the matter.
The court may examine:
- What was the purpose of the payment?
- Was it actually earnest money?
- Who committed the breach?
- Does the agreement contain a clear forfeiture clause?
- Is the clause reasonable?
- Was the payment earnest money or merely advance consideration?
- Did the seller suffer any legally relevant loss?
- Are there reciprocal obligations on the seller?
A recent Delhi High Court decision, Jaya Gupta v. M/s Ireo Grace Realtech Pvt. Ltd. (10 March 2026), reiterated the Supreme Court's principles regarding the distinction between earnest money and advance payments and emphasised that only the amount genuinely qualifying as earnest money can be treated accordingly.
So, before accepting a seller's statement—
“It is written non-refundable, so you cannot get it back.”
—it is worth examining the entire agreement.
What If the Seller Is Ready to Sell but the Buyer Cannot Arrange the Balance Money?
This can become dangerous for the buyer.
If the agreement fixes a payment schedule and the buyer fails to pay the balance despite being contractually obligated to do so, the seller may argue that the buyer committed the breach.
The buyer cannot ordinarily create a breach and then demand that the seller refund genuine earnest money.
This is why buyers should never sign a property agreement without carefully checking the payment schedule, cancellation clause and forfeiture clause.
What Should a Buyer Do Before Cancelling?
If you believe the seller has breached the agreement, do not simply send a WhatsApp message saying “I cancel the deal.”
Instead:
1. Collect the agreement
Read the clauses relating to:
- cancellation;
- default;
- refund;
- forfeiture;
- possession;
- title;
- execution of sale deed; and
- dispute resolution.
2. Document the seller's breach
Keep copies of:
- emails;
- WhatsApp messages;
- legal notices;
- title documents;
- bank records;
- payment receipts;
- loan documents; and
- communications showing the seller's refusal or inability to perform.
- 3. Send a properly drafted legal notice
The notice should clearly identify:
what the seller promised → what the seller failed to do → how that amounts to breach → termination/rescission, where legally justified → refund demanded → consequences of non-payment.
4. Consider the appropriate court remedy
Depending upon the circumstances, the buyer may pursue:
- recovery of the amount paid;
- rescission/cancellation of the contract;
- damages;
- specific performance; or
- other appropriate relief.
The correct remedy depends heavily on the wording of the agreement and the facts.
The Most Important Lesson
A property transaction does not become legally one-sided merely because one party has possession of the token money.
If the seller breaches the agreement, the buyer may have a strong legal basis to cancel and recover the amount paid.
But if the buyer is himself responsible for backing out, the position can be completely different.
And even where the buyer is in breach, the seller cannot automatically treat every rupee paid as forfeitable earnest money. The court will examine the contractual terms and the true nature of the payment.
The Supreme Court's recent jurisprudence makes one thing particularly clear:
In property disputes, “token money”, “advance” and “earnest money” are not interchangeable legal concepts.
The wording of the agreement, the timing and purpose of the payment, the conduct of both parties and the reason for cancellation can ultimately determine whether the buyer gets the money back—or loses it.
About the Author
Jatin Chaudhary, Advocate
Saket District Court, New Delhi
Practice Areas: Property Disputes | Civil Litigation | Criminal Law | Matrimonial & Family Law | Commercial Disputes | Arbitration | Cheque Bounce | Cyber Crime
Disclaimer: This article is intended for general legal awareness and educational purposes only. Property disputes are highly fact-specific. The rights of a buyer or seller depend upon the agreement, payment terms, title documents, conduct of the parties and applicable law. This article should not be treated as case-specific legal advice.
Important authorities
- K.R. Suresh v. R. Poornima & Ors., 2025 INSC 617.
- Authorised Officer, Central Bank of India v. Shanmugavelu, 2024 INSC 80 / (2024) 6 SCC 641.
- Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136.
- Raghbir Singh v. Lalit, Punjab & Haryana High Court, 8 January 2026.
- Jaya Gupta v. M/s Ireo Grace Realtech Pvt. Ltd., Delhi High Court, 10 March 2026.
