The apex court clarified that forfeiting a reasonable earnest money deposit is not a penalty within the meaning of Section 74 of the Indian Contract Act, 1872. It pointed out earnest money is forfeited form of security for the purpose performance upon one’s part but All was based out by both courts, there could be no exorbitant or punitive forfeiture. However a moderate amount of forfeiture is not to be described as a penalty.