A single judge Bench of the Karnataka High Court has referred to a larger Bench the question of whether disputes arising out of Joint Development Agreements (JDAs) for residential projects between individuals can be treated as commercial disputes under the Commercial Courts Act, 2015 [D Arun Reddy v Muni Reddy].
Justice Tara Vitasta Ganju noted that there were conflicting decisions of coordinate Benches on whether such JDAs fall within the expression “construction and infrastructure contracts” under Section 2(1)(c)(vi) of the 2015 Act.
The Court was dealing with a writ petition filed by developer, D Arun Reddy and another person against a Commercial Court order refusing to return a Section 34 petition (plea to set aside an arbitral award) filed under the Arbitration and Conciliation Act.
The dispute arose from a 2011 JDA between some landowners and the developer for the construction of residential apartments at Devarabisanahalli in Bengaluru.
Under the agreement, 40 per cent of the super built-up area was to be allotted to the landowners and 60 per cent to the developer. The developer was also given a power of attorney to undertake acts necessary for the development of the property.
Disputes later arose over alleged delays, non-delivery of a penthouse and appropriation of excess built-up area by the developer.
The matter went to arbitration. The arbitral tribunal dismissed the landowners’ claims in July 2019. The landowners then challenged the award under Section 34 before a commercial court.
The developer objected, contending that the commercial court did not have the jurisdiction to decide the matter. He argued that the dispute was not a commercial dispute under the 2015 Act.
The commercial court rejected the objection, holding that the dispute arose from a construction contract which fell within the purview of the Commercial Courts Act, 2015.
The developer challenged this ruling before the High Court.
In a June 1 ruling, Justice Ganju opined that the dispute could not fall under Section 2(1)(c)(vii) of the 2015 Act, which deals with agreements relating to immovable property used exclusively in trade or commerce.
“The dispute pertains to development and allocation of residential apartments... There is no material to indicate that the property was actually used for trade or commerce,” Court said.
The Court also held that the JDA at hand was not a true joint venture.
“There is no provision in the agreement rendering one party liable for the acts or omissions of the other; nor does the material on record disclose joint control, shared management, or active participation by both parties in the development activity,” the Court said.
However, the Court found that the remaining question of whether the JDA would fall under the category of a construction contract as defined under Section 2(1)(c)(vi) of the 2015 Act required consideration by a larger Bench.
"There appear to be two conflicting views on the interpretation to be given to the term 'construction and infrastructure contracts,'" the Court noted.
To resolve the conflict, the matter was referred to a larger Bench.
The single judge framed two questions for the larger Bench to decide, one being whether JDAs for construction of residential flats where one or more parties are individuals can be treated as “construction and infrastructure contracts."
The second question was whether the phrase must be read as one uniform expression or as two separate categories, namely “construction” and “infrastructure” contracts.
The Registry was directed to place the matter before the Chief Justice for reference to a larger Bench.
Advocate Chintan Chinnappa M appeared for the petitioners.
Advocates CV Manjunath and V Shivakumar appeared for the respondents.
[Read Judgment]