Disputed jurisdiction for property, commercial contracts | India

In the recent case of Sanjay Suganchand Kasliwal v Golden Dreams Buildcon Pvt Ltd and Ors, the appellant appealed to the Bombay High Court against the refusal of the civil court to hear the case. The lower court held that an MoU, the basis of the appellant’s case, was a development agreement for construction benefiting the joint venture company to be formed under its terms.

The transaction was, therefore, a commercial dispute as defined in section 2(1)(c)(vi) of the Commercial Courts Act, 2015, being a construction and infrastructure contract, and should be heard by the commercial court.

The appellant entered into the MoU with the first and seventh defendant respondents under which he would pay the first respondent INR350 million (USD4.2 million) towards the development of the property in question by the joint venture company. A further amount was due when the first respondent received construction consent.

The first seven respondents, five individuals and two development companies, were to receive part of the development converted for residential use. The appellant elected to pay the full amount before development began. The first respondent did not apply for construction consent, change the use of the property from industrial to residential or register the MoU as a development agreement. Other respondents were assigned the property and began to develop it.

The appellant sued for specific performance of the MoU. The new developers applied, under order VII rules 10 and 11 of the Code of Civil Procedure, to dismiss the case for want of jurisdiction. The civil court granted the application, stating that the MoU, on its face, was a development agreement for construction and therefore a construction contract. It was a commercial dispute under section 2(1)(c)(vi). The plaintiff appealed. The appellant contended the transaction was not a commercial transaction. He referred to the next clause of the Commercial Courts Act, in which agreements relating to immovable property used exclusively in trade or commerce were included in the definition of commercial disputes.

He cited the Supreme Court case of Ambalal Sarabhai Enterprises Ltd v KS Infraspace LLP as authority that the expression “used”, in section 2(1)(c)(vii), means actually or being used. This did not cover purposes likely to be used. Even if property is likely to be used in relation to trade or commerce, this cannot give the commercial court jurisdiction.

The appellant argued that the act, in giving jurisdiction to the commercial court, did not exclude other courts hearing cases within the definition of commercial cases.

The respondents contended the transaction was a commercial transaction. The plaintiff had a right of development over the property, the basis of the transaction being the future construction. The MoU was a development agreement for construction and came within the definition in section 2(1)(c)(vi).

The court found that the application below was for the specific performance of the contract based on the MoU. The first respondent agreed to give property to the plaintiff for development and accepted payment as consideration, but failed to discharge his obligations. The lower court allowed the application of the respondents and declined jurisdiction, finding that the transaction was commercial in nature as defined in section 2(1)(c)(vi) of the act.

The court cited the Supreme Court case of Sushil Kumar Agarwal v Meenakshi Sadhu, adopting its analysis of different development agreements, and when a development agreement could be a construction contract. In a pure construction contract, the contractor has no interest in the land or the construction carried out.

The court, in applying the law as found by Sushil Kumar Agarwal, held that in other categories of development agreements, the developer may acquire a valuable right, either in the property or in the construction. The terms of the agreement are crucial in determining whether any interest has been created over the land or in respect of rights in the land in favour of the developer and, if so, their nature and extent.

The court held that the appellant had acquired rights in the property by giving consideration and paying towards property development. On completion of the development, the plaintiff had the right to sell the property. The MoU could not be termed a simple construction contract. The court agreed with the civil court in its analysis.

However, the civil court had immediately made its order under section 2(1)(c)(vi). The case sought to compel specific performance, not to uphold the validity of the MoU. The civil court should have made its order under 2(1)(c)(vii). The court remanded the case to the civil court to hear the application afresh, and to determine whether the dispute was a commercial dispute under section 2(1)(c)(vii).

The court held that the words “shall have jurisdiction” in section 6 of the act gave the commercial court exclusive rights to hear commercial disputes as defined in section 2.

The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.