Conflicting views on 'construction and infrastructure contracts' under the Commercial Courts Act prompt referral to a larger bench.
In a significant move, the Karnataka High Court has referred a crucial question regarding the interpretation of joint development agreements (JDAs) and their classification as commercial disputes to a larger bench. The decision comes amidst conflicting judicial opinions on whether JDAs for residential purposes fall under 'construction and infrastructure contracts' as defined in the Commercial Courts Act, 2015.
The matter arose from a writ petition filed by Sri. D Arun Reddy and others against Late Sri. Muni Reddy and others, challenging an order of the Commercial Court, Bengaluru. The Commercial Court had held that the dispute, originating from a JDA concerning residential property, constituted a 'commercial dispute' under Section 2(1)(c)(vi) of the Act.
Justice Tara Vitasta Ganju, presiding over the case, highlighted the divergent interpretations by different benches of the High Court and other courts. While some judgments, including those from Andhra Pradesh and Karnataka, have treated JDAs related to residential developments as commercial disputes, others have emphasized the need for a stricter interpretation, arguing that such agreements do not inherently carry a commercial nature unless explicitly used for trade or commerce.
The judgment discussed various precedents, including the Supreme Court's ruling in the case of Sushil Kumar Agarwal v. Meenakshi Sadhu, which differentiates between pure construction contracts and development agreements where the developer acquires an interest in the property. It was noted that the Supreme Court has cautioned against a broad interpretation of the Commercial Courts Act's provisions, emphasizing a narrow, purposive interpretation to prevent procedural delays and misuse.
The court, acknowledging the complexity of the issue, posed two critical questions for the larger bench: whether JDAs involving residential projects should be classified as 'construction and infrastructure contracts' under the Act, and whether the statutory terms 'construction' and 'infrastructure' should be read as a unified concept or as distinct categories.
This referral underscores the ongoing legal debate over the scope and application of the Commercial Courts Act, particularly in the real estate sector. The outcome of the larger bench's deliberation is expected to provide much-needed clarity and uniformity in the adjudication of disputes arising from JDAs and similar agreements.
Bottom line:-
A Joint Development Agreement (JDA) involving residential property where one or more parties are individuals, without any commercial nature of dispute, cannot automatically be categorized as a "commercial dispute" under Section 2(1)(c)(vi) of the Commercial Courts Act, 2015.
Statutory provision(s): Commercial Courts Act, 2015, Section 2(1)(c)(vi), Section 2(1)(c)(vii), Section 2(1)(c)(xi); Code of Civil Procedure, 1908, Section 151; Arbitration and Conciliation Act, 1996, Section 34.
Sri. D Arun Reddy v. Late Sri. Muni Reddy, (Karnataka) : Law Finder Doc id # 2913150
