[By Venna Siddharth Reddy]
The author is a student of UPES School of Law, Dehradun
In the high-stakes arena of real estate litigation, the choice of forum is rarely just procedural; it is a decisive strategic manoeuvre. Developers, seeking to enforce the rigid timelines and expeditious disposal mechanisms of the Commercial Courts Act, 2015, invariably attempt to shoehorn disputes into the “Commercial Division.” Similarly, landowners typically retreat to the traditional Civil Courts, preferring the broader procedural latitude and, the delays that are inherent in the Code of Civil Procedure.
For years, this tug-of-war was settled by the Supreme Court’s strict constructionist ruling in Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP. The Supreme Court interpreting the Section 2(1)(c)(vii) which governs agreements relating to immovable property laying down a formidable barrier stating that, for a dispute to be “commercial,” the property in question must be actually used exclusively in trade or commerce at the time of the agreement. Under this doctrine, a Development Agreement-cum-General Power of Attorney (DAGPA) for a future residential project would fail the test, as raw land destined for housing is not “currently commercial”.
However, a judicial pivot is underway. Recent rulings from the High Courts of Telangana and Andhra Pradesh specifically in Blue Nile Developers v. Movva Chandra Sekhar have engineered a potent workaround to the Ambalal blockade. By reclassifying these disputes from “agreements relating to immovable property” (Clause vii) to “construction and infrastructure contracts” (Clause vi), these courts have effectively rendered the residential nature of the land irrelevant. This article analyses how this “Infrastructure Loophole” is reshaping the jurisdictional landscape, allowing residential disputes to bypass the Supreme Court’s usage test and enter the Commercial Courts through the backdoor
The “Infrastructure” Loophole: The Blue Nile Doctrine
The jurisprudential shift away from Ambalal Sarabhai finds its most aggressive articulation in the Andhra Pradesh High Court’s ruling in Blue Nile Developers Private Limited v. Movva Chandra Sekhar. Here, the Court was presented with a textualist defence that Blue Nile argued that the phrase “construction and infrastructure contracts” in Section 2(1)(c)(vi) must be read conjunctively. Under this restrictive interpretation, a contract would only qualify if it involved both construction and infrastructure typically implying large-scale public works like highways or bridges, rather than private residential villas.
The High Court dismantled this restrictive syntax with a decisive purposive interpretation. It reasoned that reading the clause in isolation or restrictively would “frustrate the meaningful definition” intended by the legislature. The Court effectively parsed the statutory language of Section 2(1)(c)(vi) into three distinct, standalone categories: (1) Construction Contracts; (2) Infrastructure Contracts; and (3) Construction and Infrastructure Contracts. By holding that the provision covers any of these categories independently, the Court removed the requirement for a project to be “infrastructure” in the traditional public sense. This semantic decoupling is the “judicial innovation” that allows private residential construction to be read simply as a “construction contract,” thereby triggering commercial jurisdiction without needing to satisfy the “trade or commerce” requirement of land usage.
The important aspect here us that the Court stretched the definition of “infrastructure” itself. Rejecting the notion that, infrastructure is the exclusive domain of public utilities, the Court relied on broad dictionary definitions, citing Oxford, and Merriam-Webster to define “infrastructure” simply as the basic physical and organizational structures needed for operation. Applying this logic to residential projects, the Court catalogued standard private amenities “storm water disposal,” “solid waste management,” “sewerage treatment plants,” “street lights,” and even “100% Diesel Generator backup” and labelled them as infrastructure. The Court concluded that because the Development Agreement involved creating these systems, the dispute arose directly from a “Construction and Infrastructure Contract”.
This ruling represents a pivotal expansion of the Commercial Courts Act, 2015. By elevating the internal utilities of a private gated community to the status of statutory “infrastructure,” the High Court has effectively standardized the commercialization of residential disputes. The logical corollary of the Blue Nile doctrine is that almost any large-scale residential project which inevitably requires drainage, power backup, and internal roads is now a “commercial” infrastructure project by default. The distinction between a civil suit for home construction and a commercial infrastructure dispute has thus shifted from the nature of the land (public vs. private) to the complexity of the amenities, effectively moving high-value residential litigation permanently into the commercial sphere.
The “Activity over Asset” Shift
While the Blue Nile judgment broadened the definitions, the Telangana High Court using the Blue Nile ruling expanded on the interpretation. In Legend Estates Private Limited v. P Srinivas Reddy 2024, provides the procedural blueprint for this jurisdictional capture. The analytical pivot here is subtle yet profound. The Court moved the inquiry from the status of the asset to the substance of the activity.
The petitioner (Legend Estates) in this case mounted a classic defence rooted in the Supreme Court’s Ambalal Sarabhai precedent, arguing that the Development Agreement-cum-General Power of Attorney (DAGPA) did not involve property “used exclusively in trade or commerce”. However, the Division Bench explicitly held that Ambalal was “of no assistance” to the petitioner (Legend Estates). The Court’s reasoning was surgical: Ambalal interprets Section 2(1)(c)(vii) (agreements relating to immovable property), but the Court found that the dispute actually fell under Section 2(1)(c)(vi) (construction and infrastructure contracts). By re-categorizing the agreement under Clause (vi), the Court rendered the strict “commercial use” requirement of Clause (vii) legally moot.
To justify this classification, the Court did not look at the title of the agreement but deconstructed its specific performance obligations. It read the DAGPA and the Supplementary Agreement as a single, integral corpus. The Court isolated specific clauses to prove the “construction” character of the deal. Clause 7 obligated the developer to take “total responsibility of the construction of Row Houses”. Clause 34 mandated the construction of a “Club House/Resort”. Clause 40 detailed infrastructure specifications like “underground cabling” and “WBM Roads”. The Court concluded that these were not merely agreements to sell land but were fundamentally contracts to construct
This ruling effectively establishes an “Activity over Asset” doctrine. If the contract imposes an obligation to undertake construction activities building villas, laying roads, or erecting clubhouses the transaction is legally stamped as a “Construction Contract”. Consequently, the ultimate use of the asset (residential villas) becomes irrelevant to the jurisdictional question. The “commercial” nature is derived from the commercial activity of construction, not the commercial usage of the land. For litigators, this signals that the “residential defence” is no longer viable if the underlying agreement contains robust construction obligations.
Few months later a division bench judgement of the Telangana High Court in Smt.Sharada Devi Kedia v. Kisna Avenues Pvt. Ltd, delivered a contradicting judgment which appears to unsettle the “Activity over Asset” doctrine. In this case, despite the presence of a Development Agreement-cum-General Power of Attorney (DAGPA) mandating the construction of roads, drainage, and a “Club House”, the Court held that the dispute was not a commercial dispute. This judgement was passed just 3 months after the Legend Estates case, making Sharada Devi Kedia order per incuriam for failing to notice the binding coordinate Bench decision in Legend Estates and for erroneously conflating distinct clauses of the Commercial Courts Act, 2015.
By failing to consider the coordinate bench ruling in Legend Estates, which analysed identical clauses (construction of clubhouses and roads) and arrived at the opposite conclusion regarding jurisdiction, Sharada Devi Kedia renders itself open to challenge. It ignores the settled position that if a contract involves “construction and infrastructure,” the private or residential nature of the end-user is irrelevant to the commercial jurisdiction. This is a setback as this would have solved the Strategic implications created by the Legend Estates interpretation.
Strategic Implications
Beyond the textual deconstruction of “infrastructure,” a deeper economic analysis reveals that the courts are ostensibly responding to the “commercial substratum” of these agreements rather than their rigid statutory nomenclature. In the case of Legend Estates Private Limited v. P Srinivas Reddy 2024, the economic reality was not merely a service contract where a builder is remunerated for construction; it was a profit-sharing mechanism where the developer and landowner agreed to split the constructed villas in a 50:50 ratio. While the Telangana High Court formally categorized this as a “construction contract” under Section 2(1)(c)(vi), the transaction effectively operated as a Joint Venture. By validating jurisdiction via the “construction” route, the judiciary appears implicitly willing to recognize the B2B nature of large-scale real estate development, treating the landowner not as a passive consumer but as an active commercial participant in a speculative enterprise.
This judicial posture creates a distinct “Construction Loophole” ripe for strategic exploitation. For developers, the roadmap to the Commercial Court is now clear. To secure commercial jurisdiction and sidestep the languid pace of civil litigation, developers need only to explicitly detail “infrastructure” obligations within the DAGPA. Clauses mandating the construction of internal roads, sewage treatment plants, or backup generators standard features in any modern layout can now be weaponized to define the agreement as an “infrastructure contract”. A residential dispute can thus be dragged into the commercial fast lane simply by highlighting the presence of a storm water drain or a club house.
However, this expansive interpretation carries a systemic risk. The Commercial Courts Act was legislated to expedite high-value mercantile disputes to improve the ease of doing business. If every gated community dispute involving basic amenities is labelled a “commercial infrastructure” matter, the specialized courts risk becoming clogged with the very volume of real estate litigation they were designed to bypass. By erasing the distinction between “public infrastructure” and “private amenities”, the courts may inadvertently replicate the backlog of the Civil Courts within the Commercial Division, diluting the efficacy of the specialized forum.
Conclusion
The strictures of Ambalal Sarabhai, which once insulated residential landowners from the rigors of the Commercial Courts Act by demanding exclusive commercial usage of land, no longer offer an impenetrable shield. The emerging jurisprudence from the High Courts of Telangana and Andhra Pradesh signals a decisive departure from this “asset-based” test in favour of an “activity-based” inquiry. By expanding the definition of “infrastructure” to include private amenities and reading Development Agreements as construction contracts, the courts have effectively opened the commercial backdoor to residential real estate disputes.
For litigators, the locus of jurisdictional argument has irretrievably shifted. The defence that a project is “purely residential” is now subordinate to the text of the construction obligations. If the agreement mandates the creation of roads, clubhouses, or utilities, the dispute is commercial, regardless of the end-use of the property. The question is no longer whether the land is being used for commerce, but whether the contract is for the construction of infrastructure. In this new landscape, a residential tower is merely a commercial infrastructure project by another name.