In a recent case before the Bombay High Court, Aurangabad Bench (“Court”), in Sanjay Suganchand Kasliwal v. Golden Dreams Buildcon Pvt. Ltd., the appellant approached the Court impugning the order, which returned the plaint on the ground that the memorandum of understanding (“MoU”), which formed basis of the suit filed by the appellant before the civil court, was a development agreement for construction (in favor of the joint venture company arising out of the said MoU); thus, the said transaction came within the purview of a commercial dispute defined under Section 2(1)(c)(vi) of The Commercial Courts Act, 2015 (“the Act”) (construction and infrastructure contracts), and had to be adjudicated by the (concerned) commercial court.

The plaintiff (appellant) entered into a MoU with the defendant no. 1 and 7, by way of which the defendant was to get an amount of consideration of Rs.35 crores towards for development of a property (“Property”), as it agreed to give the said Property to the plaintiff for development. However, since the defendants did not act upon the MoU, the plaintiff filed a suit for specific performance of the said MoU. The defendant nos. 9 to 11 therein appeared and filed their written statement, and also filed application under Order VII Rule 10 and 11 of the Code of Civil Procedure (“CPC”) for return/rejection of the plaint, contending that the suit must be returned for want of jurisdiction. By way of its order, the learned Civil Judge, Aurangabad (“Trial Court”) was pleased to allow the application, and returned the plaint for its presentation to the (respective) commercial court, by stating that the MoU, on the face of it, shows that it is a development agreement for construction, and the said transaction falls within the purview of a commercial dispute defined under Section 2(1)(c)(vi) [being a constructions contract]. Aggrieved by the said order, the plaintiff preferred the appeal before the Court.

The appellant challenged the order, claiming that the said transaction was not a commercial transaction, insofar as:

1. (whilst relying on the judgment of the Apex Court in Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP (2020) 15 SCC 585) that the provisions of the Act are to be strictly construed, as the expression “used” in Section 2(1)(c)(vii) of the Act must mean actually used or being used. The phraseology used is not “likely to be used or to be used”, n
2. nature of property is required to be considered as on the date of the suit,
3. merely because the property is likely to be used in relation to trade or commerce, the same cannot be the ground to attract jurisdiction of the commercial court, and
4. at best, it is a case of “composite dispute” and not commercial by any nature.

The respondents contended that the transaction was a commercial transaction as the subject matter of development by the plaintiff is the Property, over which the plaintiff has a right of development, and the essence of transaction is the construction to be done. The MoU, on the face of it, shows that it is a development agreement for construction, and the said transaction comes within the purview of commercial dispute under dispute as per Section 2(1)(c)(vi) of the Act [as also held by the Trial Court].

The Court, at the outset, analysed the plaint filed before the Trial Court, which revealed that it is filed for specific performance of the contract on the basis of MoU, per which the defendant no. 1 agreed to give property for development to the plaintiff. Accordingly, the defendant no. 1 accepted the amounts but the defendant no. 1 failed to discharge his obligations, against which a suit for specific performance was filed. The Court noted that the Trial Court had allowed the application of the defendants by returning the plaint for want of jurisdiction, stating that the transaction was commercial in nature falling under the purview of Section 2(1)(c)(vi) of the Act.

That, whilst reproducing and relying on the extracts of the judgment of the Apex Court in Sushil Kumar Agarwal v. Meenakshi Sadhu [(2019 2 SCC 241], which clarifies what are different development agreements (and when can a development agreement be called a “construction contract”), the Court discussed that in a pure construction contract, the contractor has no interest in either the land or the construction which is carried out. The Court, whilst juxtaposing the facts of the case before it, with the principles of the aforesaid judgment, noted that in various other categories of development agreements, the developer may acquire a valuable right either in the property or in the constructed area and the terms of the agreement are crucial in determining whether any interest has been created in the land or in respect of rights in the land in favour of the developer and if so, the nature and extent of the rights.

Applying the said principles, the Court noted that as the plaintiff got rights in the property of the defendant by paying consideration, and made part payment towards property development, the rights of the plaintiff were created in the property. Upon development, the plaintiff even got the rights to sell off the property. Thus, the MoU could not be termed as a mere “construction contract”. Without adjudicating upon the merits, the Court held that the suit for specific performance of the MoU, as well as the application filed by the defendants for return/rejection of plaint, had to be tested in terms of Section 2(1)(c)(vii) of the Act [agreements relating to immovable property used exclusively in trade or commerce] and not with reference to Section 2(1)(c)(vi) [which the Trial Court wrongly did] to ascertain whether the suit for specific performance of MoU comes within the purview of a commercial dispute. The Court, thus, remanded back the suit to the Trial Court to adjudicate afresh the application under Order VII Rule 10 and 11 of the CPC, and to examine whether the dispute involved is a commercial dispute with reference to Section 2(1)(c)(vii) of the Act.

By - Vaibhav Mehra and Lakshay Pugalia