The Karnataka High Court has clarified that not every Joint Development Agreement for residential construction automatically qualifies as a commercial dispute under the Commercial Courts Act, 2015. The judgment underscores the necessity of strict statutory interpretation and rejects mechanical application of Section 2(1)(c)(vi), emphasizing that the nature of the agreement, not its form, determines jurisdiction.
Background & Facts
The Dispute
The dispute arose from a Joint Development Agreement (JDA) dated 24.03.2011 between the petitioners - Sri D. Arun Reddy and Smt. G. Nirmala - and the respondents, legal heirs of the late Sri Muni Reddy, who were the owners of non-agricultural land measuring 7.12 guntas in Bellandur, Bengaluru. The parties agreed to jointly develop the land into a residential apartment complex named "R.C. Sainikethan," with the petitioners acting as developers and the respondents as landowners.
Key Facts
- The suit schedule property was originally agricultural land, later converted to non-agricultural residential use.
- The JDA provided for a 60:40 sharing ratio of the super built-up area: 60% to the developer, 40% to the landowners.
- A General Power of Attorney dated 24.03.2011 authorized the developer to obtain approvals and oversee construction.
- Supplementary agreements were executed on 17.12.2011 and 02.06.2014, specifying exact flat allocations to each party, including penthouse units and parking spaces.
- The developer constructed Block-A and Block-B, with total super built-up area of 21,842 sq.ft.
- The respondents claimed they received only 4,910 sq.ft. of their entitled 7,661.12 sq.ft., and that the penthouse in Block-A was illegally transferred by the developer to his wife (Respondent No. 4) via a registered sale deed dated 18.07.2013.
- The developer also allegedly retained excess area beyond his 60% entitlement.
Procedural History
- 24.03.2011: JDA executed between parties.
- 17.12.2011: First Supplementary Agreement specifying flat allocations.
- 02.06.2014: Second Supplementary Agreement detailing Block-B and penthouse allocations.
- 18.07.2013: Developer executed sale deed of penthouse in Block-A to his wife.
- 2017: Disputes escalated; petitioners invoked arbitration clause in JDA.
- 05.04.2017: CMP No. 48/2017 filed in Karnataka High Court for appointment of arbitrator.
- 12.07.2019: Sole Arbitrator issued Arbitral Award dismissing respondents’ claims.
- 2019: Respondents filed petition under Section 34 of the Arbitration and Conciliation Act, 1996, as Com.A.S. No. 152/2019 before the Commercial Court.
- 2022: Petitioners filed I.A. No. 2 under Section 151 CPC seeking return of the Section 34 petition, arguing the dispute was not a commercial dispute.
- 03.01.2023: LXXXIII Additional City Civil & Sessions Judge rejected I.A. No. 2, holding the dispute fell under Section 2(1)(c)(vi) of the CC Act.
- 17.04.2023: Writ petition against Respondents 3 and 4 dismissed for non-service.
- 28.03.2023: Writ Petition No. 3571/2023 filed under Article 227 of the Constitution.
- 04.02.2026: Reserved for orders.
- 01.06.2026: Judgment delivered via video conference from Dharwad Bench.
Relief Sought
The petitioners sought quashing of the Impugned Order dated 03.01.2023, and a declaration that the dispute under Section 34 of the A&C Act does not fall within the jurisdiction of the Commercial Court, requiring its return to the competent civil court.
The Legal Issue
The central question was whether a Joint Development Agreement for the construction of residential apartments, where the parties are individuals and no interest in the land is transferred to the developer beyond the right to develop and sell a share of the constructed area, constitutes a "commercial dispute" under Section 2(1)(c)(vi) of the Commercial Courts Act, 2015.
Arguments Presented
For the Petitioner
The petitioners contended that the JDA was not a commercial dispute under Section 2(1)(c)(vi) because:
- The agreement was purely for residential development between private individuals.
- The developer had no interest in the land itself, only in the constructed area as per the sharing ratio.
- The Supreme Court in Sushil Kumar Agarwal v. Meenakshi Sadhu distinguished pure construction contracts from those creating proprietary interests in land.
- The Delhi High Court in Vijay Kohli v. Sanjay Jethwani held that "construction and infrastructure contracts" must be read as a unified phrase requiring both elements, and residential construction alone does not satisfy this.
- The Madhya Pradesh High Court in Hema Sharma v. New Agrawal Construction and the Co-ordinate bench in Indraprastha Shelters Pvt. Ltd. v. South India Biblical Seminary supported this narrow interpretation.
- The CC Act must be strictly construed to avoid defeating its purpose of expediting only genuine commercial disputes.
For the Respondent
The respondents argued that:
- The JDA involved construction of a multi-storied residential complex, falling squarely under Section 2(1)(c)(vi) as a "construction contract."
- The Karnataka High Court’s Co-ordinate benches in Kiran Builders v. M. Surya Babu and Sri R.J. Dayananda v. Smt. Narasamma had held that JDA disputes for residential projects are commercial disputes.
- The Andhra Pradesh High Court in Blue Nile Developers Pvt. Ltd. v. Movva Chandra Sekhar supported broad interpretation of "construction contracts."
- The Bombay High Court in Vaijanath Dayanand Kale v. Nerkar Properties LLP affirmed jurisdiction of Commercial Courts over development agreements.
- The dispute involved substantial monetary stakes (over Rs. 3 lakhs) and commercial activity through sale of units.
The Court's Analysis
The Court undertook a meticulous analysis of the statutory language, precedent, and factual matrix. It began by emphasizing that the Commercial Courts Act, 2015, must be strictly construed, as held in Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP, to preserve its objective of expediting high-value commercial disputes and avoid procedural delays.
"If the provisions are given a liberal interpretation, the object behind the Act will be defeated."
The Court then examined Section 2(1)(c)(vi), which defines "commercial dispute" to include "construction and infrastructure contracts." It rejected the interpretation advanced by the Commercial Court and Co-ordinate benches that treated "construction" and "infrastructure" as separable terms. Instead, it aligned with Vijay Kohli and Hema Sharma, holding that the phrase must be read as a unified concept requiring both construction activity and an infrastructure component - i.e., public or commercial facilities supporting economic activity.
The Court distinguished the present JDA from true joint ventures under Section 2(1)(c)(xi), noting the absence of shared control, profit-sharing, or mutual liability. It also ruled out Section 2(1)(c)(vii), as the property was not "used exclusively in trade or commerce" - it was residential, not commercial.
Crucially, the Court relied on Sushil Kumar Agarwal to affirm that a pure construction contract - where the developer receives no interest in the land but only a share of the constructed area - is not inherently commercial. Here, the land remained with the owners; the developer merely built and sold his 60% share. No transfer of land rights occurred; no commercial infrastructure was created.
The Court acknowledged the conflicting views within its own Co-ordinate benches but found the reasoning in Indraprastha Shelters and Vijay Kohli more aligned with the Supreme Court’s strict construction mandate. The Kiran Builders and Dayananda judgments, which relied on Blue Nile, were found to have overlooked the Supreme Court’s guidance in Sushil Kumar Agarwal and the literal interpretation required under Ambalal Sarabhai.
The Verdict
The writ petition was disposed of without a final ruling on jurisdiction. The Court held that due to a conflict between Co-ordinate benches on the interpretation of Section 2(1)(c)(vi), the matter must be referred to a larger bench. The Impugned Order dated 03.01.2023 is stayed, and the Registry is directed to place the matter before the Chief Justice for reference to a larger bench. All pending applications are closed.
What This Means For Similar Cases
Construction Alone Does Not Trigger Commercial Jurisdiction
- Practitioners must now demonstrate that a construction agreement involves infrastructure elements or commercial use to invoke the Commercial Courts Act.
- Residential JDA disputes between individuals, without transfer of land rights or commercial infrastructure, are likely to be excluded from commercial jurisdiction.
Statutory Language Must Be Literally Interpreted
- The phrase "construction and infrastructure contracts" must be read as a single, unified term - not as two independent categories.
- Courts must avoid expansive interpretations that treat any building contract as commercial, even if it involves large sums.
Precedent Hierarchy Matters
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Judgments relying on Blue Nile Developers (Andhra Pradesh HC) are now in conflict with Supreme Court and Delhi HC precedents.
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Co-ordinate benches must follow the stricter interpretation in Sushil Kumar Agarwal and Ambalal Sarabhai, not broader views from other High Courts.
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Always examine whether the agreement creates a proprietary interest in land.
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Always assess whether the property is "actually used" in trade or commerce - not merely intended for it.
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Always plead the nature of the agreement with precision: pure construction vs. joint venture vs. infrastructure development.
