The Karnataka High Court is set to determine whether disputes stemming from Joint Development Agreements (JDAs) for residential projects should be categorized as commercial disputes under the Commercial Courts Act, 2015. This pivotal question has been forwarded to a larger Bench due to varying interpretations by coordinate Benches. The matter arises from the case D Arun Reddy v Muni Reddy.
Background of the Case
Justice Tara Vitasta Ganju, presiding over a single judge Bench, addressed a writ petition involving a dispute from a 2011 JDA. The agreement, between landowners and developer D Arun Reddy, pertained to the construction of residential apartments in Devarabisanahalli, Bengaluru. Under this agreement, the landowners were allocated 40% of the super built-up area, while the developer received 60% and a power of attorney for development activities.
Disputes emerged due to alleged delays, non-delivery of a penthouse, and the developer’s appropriation of excess built-up area. These issues were initially resolved through arbitration, with the arbitral tribunal dismissing the landowners’ claims in July 2019. Subsequently, the landowners contested the arbitral award under Section 34 before a commercial court.
Jurisdictional Challenge
The developer disputed the commercial court’s jurisdiction, arguing that the dispute did not qualify as a commercial matter under the 2015 Act. Contrary to this argument, the commercial court maintained its jurisdiction, asserting that the conflict arose from a construction contract, thus falling under the Act’s purview.
Justice Ganju, in a June 1 ruling, opined that the dispute did not fit under Section 2(1)(c)(vii) of the 2015 Act, which concerns agreements relating to immovable property used exclusively for 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,” the Court stated.
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Consideration for a Larger Bench
Justice Ganju noted that the JDA in question did not constitute a true joint venture, as it lacked provisions for shared liability, joint control, or active participation from both parties in the development process. However, she recognized the necessity for a larger Bench to resolve conflicting interpretations of ‘construction and infrastructure contracts’ under Section 2(1)(c)(vi) of the 2015 Act.
The single judge framed two critical questions for the larger Bench: whether JDAs for constructing residential flats involving individuals can be treated as ‘construction and infrastructure contracts,’ and whether this term should be interpreted as a uniform expression or as distinct categories of ‘construction’ and ‘infrastructure’ contracts.
The Registry has been instructed to present the matter before the Chief Justice for referral to a larger Bench. Advocate Chintan Chinnappa represented the petitioners, while Advocates CV Manjunath and V Shivakumar appeared for the respondents.
