Disputes From Residential Real-Estate Development Can Be Commercial If Profit Oriented: Calcutta High Court

The Calcutta High Court has recently observed that a real estate development agreement can qualify as a commercial dispute even if the project is residential in nature and even if both parties are not engaged in the business.

Justice Shampa Sarkar said the agreement, when read as a whole, showed that the property was meant to be commercially exploited.

“The cumulative effect of the agreement was that the parties jointly agreed to put the property to commercial use, thereby earning from the same. As the respondent denied to perform their obligations under the agreement, the developer sought to enforce their rights by raising a dispute and by invoking the dispute resolution clause. Both parties had a profit-oriented motive,” the court observed.

The ruling came in a dispute between a real estate developer and a registered society over redevelopment of a Salt Lake property in Kolkata. The society owned the land and had entered into a joint venture agreement under which the developer was to fund the entire construction of a multi-storeyed building, obtain statutory approvals, manage the project, and sell a substantial portion of the constructed area to third parties. In return, the society was to receive a lump-sum payment and a defined share of the built-up area.

The society opposed the developer's move to arbitration by raising allegations of fraud and lack of authority. It claimed that the individual who signed the agreement on its behalf was never its president and had no authority to bind the society. The agreement, it alleged, was forged, fraudulent, and void from the outset. It also argued that since the society was not a valid signatory, it could not be compelled to arbitrate under the agreement.

The society further objected to the matter being treated as a commercial dispute. It argued that the project involved construction of a residential building of limited scale, did not amount to infrastructure development, and did not involve any sharing of profits or joint control. On that basis, it argued the Commercial Division of the High Court lacked jurisdiction.

The court declined to accept these objections at the referral stage. It held that questions relating to fraud, authority to sign the agreement, and whether a non-signatory could be bound by the arbitration clause were matters requiring evidence and were best left to the arbitrator.

"Whether the agreement is a nullity, and non est in the eye of law, will have to be decided by the learned arbitrator. The purpose of enquiry by the referral court is limited to the, prima facie, satisfaction as to the existence of the arbitration agreement"

On the issue of jurisdiction, the court said that for a development agreement to be treated as commercial, it was not necessary that both parties be engaged in business or that profits and losses be shared.

"For a development agreement to be a commercial one, it is not mandatory that both the parties would have to have equal control in the management of the project or equal distribution to profit and loss. It will suffice if the transaction is a commercial venture from the viewpoint of the parties."

Appointing a sole arbitrator, the court named Senior Advocate Sabyasachi Chowdhury to adjudicate the disputes between the parties. The appointment was made subject to disclosure requirements under the Arbitration and Conciliation Act, and the arbitrator was given liberty to fix his remuneration in accordance with the statutory schedule.

For Petitioner: Advocates Chayan Gupta, Souradeep Banerjee, Sanjana Sinha, Abhidipto Tarafder, and Pourush Bandyopadhyay.

For Respondents: Advocates Tanmoy Mukherjee, Souvik Das, Rudranil Das for Seva Sangh; Advocates Surya Prasad Chattopadhyay and Ankit Chatterjee for R2.