Residential joint development agreements and commercial disputes: Karnataka High Court refers interpretative conflict to a larger bench

The dispute arose from a JDA between the developer and the landowner for redevelopment of residential land in Bengaluru into an apartment complex. Under this arrangement, the parties agreed to share the super built-up area in a 60:40 ratio, with the developer retaining the larger share.

After completion of construction, disputes arose between the parties regarding delay, allocation of the super built-up area in excess of the agreed share of the developer, and the developer’s sale of a penthouse, allegedly forming part of the landowner’s entitlement, in favour of his wife. The developer invoked the dispute resolution clause under the JDA, and the disputes were referred to arbitration. The arbitral tribunal rejected the claims of the landowner.

The landowner then challenged the arbitral award before the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996. The developer objected to the jurisdiction of the Commercial Court, arguing that the construction of apartments for residential purposes, where one or more party is an individual, could not amount to a “commercial dispute” under the CC Act. The Commercial Court rejected this objection. The aggrieved developer then approached the Karnataka High Court.

The appeal before the Karnataka High Court raised two substantive questions, which were subsequently referred to the larger bench. First, whether a JDA for the construction of residential flats or floors, where one or more parties are individuals, constitutes a “construction and infrastructure contract” under Section 2(1)(c)(vi) of the CC Act. Second, whether the phrase “construction and infrastructure contracts” should be read as a single composite expression or as two independent categories: “construction contracts” and “infrastructure contracts.”

The parties advanced competing interpretations of Section 2(1)(c)(vi) of the CC Act and the circumstances in which a residential JDA may qualify as a “commercial dispute.”

The developer contended that the JDA related solely to the redevelopment of residential property and, therefore, fell outside the purview of the CC Act. Relying on Sushil Kumar Agarwal⁵ and Indraprastha Shelters, the developer argued that not every agreement involving construction constitutes a commercial dispute. According to the developer, where a JDA primarily governs the construction and allocation of residential units, without creating rights or obligations of a commercial character contemplated by the CC Act, disputes arising from such an arrangement should remain within the jurisdiction of ordinary civil courts. The developer also relied on several decisions of different High Courts, which similarly favoured a narrower construction of Section 2(1)(c)(vi) of the CC Act.

The landowner, on the other hand, argued that the Commercial Court had rightly assumed jurisdiction. Relying on Blue Nile Developers,⁶ Kiran Builders and R.J. Dayananda, the landowner submitted that development agreements involving construction, allocation of developed property and reciprocal commercial obligations fall within the ambit of “construction and infrastructure contracts” under Section 2(1)(c)(vi) of the CC Act. It accordingly argued that the commercial character of the transaction arises from the nature of the development arrangement itself, irrespective of whether the underlying property is residential or commercial.

• A development agreement is not necessarily a construction contract

  The High Court noted that the supplemental JDAs set out how the developed area would be shared between the landowner and the developer. Since the developer received specific portions of the project along with corresponding rights in the land, the Court held that the arrangement was not a simple construction contract. It was a collaborative development arrangement creating an interest in favour of the developer.

  Relying on Ambalal Sarabhai,⁷ the Court reiterated that the CC Act must be strictly interpreted. A broad reading would defeat the purpose of the legislation, which is to ensure speedy disposal of genuine high-value commercial disputes.

  Applying this principle, the Court concluded that Section 2(1)(c)(vii) of the CC Act was not attracted. The land was not demonstrated to have been used exclusively for trade or commerce, and the dispute essentially concerned the redevelopment of property and the allocation of residential units between private parties. In such circumstances, the dispute lacked the commercial character contemplated under the provision.

• Absence of essential features of a joint venture

  The High Court also rejected the contention that the dispute arose out of a joint venture falling within Section 2(1)(c)(xi) of the CC Act. It held that a true joint venture ordinarily involves elements such as joint control, participation in management, and sharing of profits and losses. Since these essential characteristics were absent from the arrangement between the parties, the JDA could not be characterised as a joint venture for the purposes of the CC Act.

• Divergent judicial approaches

  The High Court recognised that the conflicting submissions reflected an existing divergence in its own jurisprudence. One line of authority, represented by Kiran Builders and R.J. Dayananda, treated “construction contracts” and “infrastructure contracts” as distinct categories, thereby bringing residential JDAs within the ambit of the CC Act. Another line, beginning with Indraprastha Shelters, adopted a narrower construction and confined the provision to agreements possessing an inherent commercial character. The Court also considered Sanjay Suganchand Kasliwal,⁸ where it was held that a development agreement conferring rights in the land and the developed property upon a developer cannot be treated as a mere construction contract solely because it involves construction activity.

  Given the conflicting approaches of coordinate benches, the Karnataka High Court held that the issue required authoritative determination by a larger bench.

If the larger bench holds that disputes arising from residential JDAs are commercial disputes, such matters would be heard by Commercial Courts and would benefit from stricter timelines, specialised procedures, and comparatively faster adjudication. This may be useful in real estate disputes, where prolonged litigation can affect project timelines, financial planning, and stakeholder rights.

However, a broader interpretation may also bring individual landowners and residential property disputes within a more demanding commercial litigation framework. Commercial Courts involve greater procedural discipline, costs, and compliance requirements, which may not always suit disputes that are essentially property-based rather than enterprise-driven.

The decision of the larger bench will have implications extending beyond the present dispute. It will determine not only the forum in which disputes of such a nature are litigated, but also the principles governing when development agreements acquire a sufficiently commercial character to fall within the CC Act. Until then, parties to JDAs should expect jurisdictional objections to remain a recurring feature of litigation, making careful drafting of development agreements and the rights they create, increasingly important.