Dispute Arising From JDA For Residential Apartment Project Not A Commercial Dispute: Karnataka High Court

The Karnataka High Court has recently held that a dispute arising out of a Joint Development Agreement for a residential apartment project in Bengaluru was not a commercial dispute and could not be entertained by a Commercial Court, while setting aside an order that had assumed jurisdiction over a challenge to an arbitral award.

Justice Tara Vitasta Ganju observed, “the property in dispute, which was developed pursuant to the JDA, cannot be said to be immovable property used exclusively in trade or commerce within the meaning of Section 2(1)(c)(vii) of the CC Act. The dispute pertains to development and allocation of residential apartments. Both parties are individuals and share the redeveloped flats and area as re-constructed. There is no material to indicate that the property was actually used for trade or commerce. Consequently, Section 2(1)(c)(vii) of the CC Act would not be attracted to the facts of the present case.”

The dispute arose out of a Memorandum of Understanding executed on July 25, 2010 and a Joint Development Agreement executed on March 24, 2011 between landowners led by the late Muni Reddy and developer D. Arun Reddy for the development of a residential apartment project known as “R.C. Sai Nikethan” at Devarabisanahalli, Bengaluru.

Under the arrangement, the landowners were entitled to 40% of the super built-up area in the project while the developer was entitled to 60%. Supplementary agreements executed in 2011 and 2014 allocated flats, penthouse portions, and parking spaces between the parties.

Disputes later arose between the parties over the developer's alleged failure to deliver portions of the project claimed by the landowners. The dispute was later referred to arbitration, where the landowners' claims were dismissed by an award dated July 12, 2019.

The landowners subsequently challenged the award before the Commercial Court. The developer objected to the court's jurisdiction, contending that the dispute did not qualify as a commercial dispute. After the Commercial Court rejected that objection, the developer approached the High Court.

The landowners contended that the dispute arose from a construction and development agreement and was therefore maintainable before the Commercial Court.

Examining the terms of the Joint Development Agreement and supplementary agreements, the High Court noted that interest in the land was created in favour of the developer and that the developer was entitled to specified portions of the developed project.

Justice Ganju held, “In the present case, the agreement between the parties was not a pure construction contract. It was a construction contract with an emphasis on collaboration. Interest in the land was created in favour of the promotor / builder.”

The High Court also held that the agreement could not be treated as a true joint venture because the material on record did not disclose joint control, shared management, or active participation by both parties in the development activity.

Holding that the Commercial Court had wrongly assumed jurisdiction, the High Court allowed the writ petition and set aside the order dated January 3, 2023.

For Petitioners (D. Arun Reddy & Anr.): Advocate Chintan Chinnappa M.

For Respondents (Muni Reddy & Ors.): Advocates C.V. Manjunath and V Shivakumar.