Karnataka High Court Upholds Arbitral Award Cancelling JDA Over Mutual Breach By Developer And Landowners

The Karnataka High Court has upheld an arbitral award cancelling a Joint Development Agreement (JDA) between Fortuna Constructions (India) Pvt. Ltd. and a group of landowners for a residential apartment project in Bengaluru.

It held that the arbitral tribunal was justified in refusing specific performance after finding that both sides had failed to fulfil their contractual obligations.

A bench of Chief Justice Vibhu Bakhru and Justice C.M. Poonacha observed that the tribunal had not decided the dispute merely on equitable considerations. Instead, it had reached its conclusion after finding that both parties were in breach of their obligations under the agreement.

"The observation of the Arbitral Tribunal that it was in the interest of justice and equity to cancel the JDA, in effect denying its specific performance, must be read in conjunction with the finding that both parties were in default of their obligations.", the court noted.

The dispute arose from a Memorandum of Understanding executed on March 4, 2013, followed by a JDA dated May 26, 2014, under which Fortuna Constructions agreed to develop a one-acre property at Avalahalli Village in Bengaluru North.

The landowners were entitled to 34% of the developed area and the developer to 66%. Construction was to be completed within 45 months from the date of sanction of the building plan.

Fortuna Constructions applied for approval of the building plan in December 2014. Before it could be sanctioned, the National Green Tribunal directed that a 15-metre buffer be maintained from the edge of storm-water drains.

The Bangalore Development Authority consequently sought revised plans. Fortuna Constructions maintained that complying with the revised requirement would substantially reduce the buildable area and waited for the Supreme Court to decide the challenge to the National Green Tribunal's order.

After the order was set aside in 2019, it sought approval of fresh plans. By then, however, the landowners had terminated the JDA over delay and had also requested the Bangalore Development Authority not to sanction the revised plans.

The dispute went to arbitration after the High Court appointed a sole arbitrator. The tribunal cancelled the JDA and the General Power of Attorney, restrained the developer from interfering with the property, and directed the landowners to pay ₹65 lakh towards expenditure proved by the developer. The Commercial Court dismissed challenges by both sides, leading to the present appeals.

Rejecting both appeals, the High Court held that the tribunal had found defaults on the part of both the developer and the landowners.

It observed that the reference to "justice and equity" could not be read in isolation, as the award rested on findings of mutual breach. Finding the award to be a plausible view based on the evidence and free from patent illegality, the court upheld it in its entirety.

For Fortuna Constructions (India) Pvt. Ltd.: Senior Advocate Dhyan Chinnappa, for Advocates Ajit P.B. and Thontadharya R.K.

Appearances for Shamalamma & Ors: Senior Advocate Vivek Reddy, with Advocate T.M. Venkata Reddy.