Residential Projects, Assured Returns, and Commercial Disputes
Introduction:This case revolves around the determination of whether an investment in a residential real estate project, accompanied by buy-back arrangements and promises of assured returns, qualifies as a “commercial dispute” within the meaning of the Commercial Courts Act, 2015. The High Court of Karnataka at Bengaluru was called upon to examine whether such a transaction could be adjudicated by a Commercial Court, or whether it lay outside the domain of commercial disputes, considering the underlying nature of the property involved.
Factual Background:The respondent, Mr. Balwinder Singh Bagary, an individual of Indian origin currently residing in the United Kingdom, invested an amount of ₹2,99,47,777/- in the year 2011 into a real estate project known as “Tefilah Rose,” developed by M/S Tefilah Infrastructure Pvt. Ltd. The investment was structured to ensure a guaranteed return of 48% over a period of 36 months, secured against specific portions of the project to match the value of the promised return. The agreements executed between the parties included buy-back provisions which allowed the investor to exit the investment upon completion of the project or upon achieving the specified return.
Procedural Background:Following disputes over repayment, the respondent instituted Commercial O.S. No.787/2022 before the LXXXIII Additional City Civil and Sessions Judge, Bengaluru, seeking recovery of approximately ₹23 crores, including principal and interest. The defendants, namely M/S Tefilah Infrastructure Pvt. Ltd. and its Managing Director, Siddhartha Gupta, challenged the maintainability of the suit by filing I.A. No. III under Order VII Rule 10 and Section 16 of the Code of Civil Procedure, 1908, read with Section 2(1)(c)(vii) and Section 6 of the Commercial Courts Act, 2015. They contended that the dispute pertained to residential property and, therefore, did not fall within the scope of commercial disputes. On 28 March 2023, the Commercial Court dismissed the application, holding that the dispute qualified as a commercial dispute. The defendants thereafter filed Writ Petition No. 9689/2025 before the High Court of Karnataka challenging the dismissal of I.A. No. III.
Core Dispute:The core issue before the High Court was whether the dispute, stemming from the respondent's investment in a residential real estate project, was indeed a “commercial dispute” under Section 2(1)(c) of the Commercial Courts Act, 2015, and therefore triable by the Commercial Court. The petitioners argued that since the underlying asset was residential property, the suit could not be classified as a commercial dispute merely because it involved elements of financial investment or buy-back arrangements. The respondent, on the contrary, maintained that the dispute centered on financial investment, making it a commercial dispute under the statute.
Discussion on Judgments :The petitioners relied heavily on Ambalal Sarabhai Enterprises Limited v. K.S. Infraspace LLP & Anr., (2020) 15 SCC 585, where the Supreme Court held that a commercial dispute under Section 2(1)(c)(vii) must relate to immovable property actually used exclusively in trade or commerce, and not merely property that is likely to be used or intended for such use. The petitioners contended that since the subject matter was a residential apartment project, the requirements of actual use in trade or commerce were not met.
Further, the petitioners referred to the judgment of the Division Bench of the Gujarat High Court in Madhuram Properties v. Tata Consultancy Services Limited, 2017 SCC OnLine Guj 725, where the Court held that agreements concerning immovable property meant exclusively for residential use did not fall under the scope of commercial disputes.
The petitioners also cited S.P. Velayutham v. M/S. Emaar MGF Land Limited, where following Ambalal Sarabhai, the Supreme Court remitted the matter back to the High Court to reconsider whether a suit involving real estate investment was a commercial dispute, emphasizing the importance of actual use of property in trade or commerce.
Conversely, the respondent argued that the dispute came under Section 2(1)(c)(i) of the Commercial Courts Act, which covers disputes arising out of ordinary transactions of financiers, even if the property in question was residential, citing the explanation to Section 2(1)(c), which clarifies that the existence of immovable property or the nature of the property does not by itself remove the commercial character of a dispute. The respondent contended that the investment aimed at financial returns established the commercial nature of the transaction.
Reasoning and Analysis of the Judge:
The Court examined the statutory provisions, particularly Section 2(1)(c)(i) and (vii) of the Commercial Courts Act, alongside the explanation appended thereto. The Court observed that the agreements and memoranda between the parties clearly showed an investment in residential apartments rather than in commercial property intended for use in trade or commerce. The judge emphasized that while the investment had commercial attributes—such as a guaranteed return and a buy-back clause—the underlying property was residential in character.
The judge placed significant reliance on the principle elucidated in Ambalal Sarabhai, underscoring that for a dispute to fall under Section 2(1)(c)(vii), the immovable property must be actually used exclusively in trade or commerce. The mere possibility or intention of future commercial use would not suffice. The High Court also drew support from Madhuram Properties, where the Gujarat High Court reached a similar conclusion regarding agreements involving residential property. Furthermore, the Court noted that the buy-back provision or promise of returns could not transform an otherwise residential real estate transaction into a commercial dispute.
The Court rejected the respondent's reliance on Section 2(1)(c)(i) by clarifying that even if the transaction involved financial elements, its essence remained an investment in residential property, which excluded it from the commercial jurisdiction. The judge reasoned that including such disputes within the ambit of commercial courts would dilute the legislative intent behind establishing a special forum for genuinely commercial disputes linked to trade, commerce, and industry.
Final Decision:The High Court allowed the writ petition filed by the petitioners. It quashed the order dated 28 March 2023 passed by the Commercial Court, and allowed I.A. No. III filed under Order VII Rule 10 CPC. Consequently, the plaint was directed to be returned to the plaintiff for presentation before the competent civil court having jurisdiction over the subject matter. The Court concluded that the dispute did not qualify as a commercial dispute under the Commercial Courts Act, 2015, since the property involved was residential and not actually used exclusively in trade or commerce.
Law Settled in This Case:The case reaffirmed the principle that for a dispute to qualify as a commercial dispute under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, the immovable property must be actually used exclusively in trade or commerce, and mere intention, possibility of future commercial use, or presence of buy-back clauses does not suffice. It also clarified that financial arrangements related to residential real estate projects, even when accompanied by promises of guaranteed returns, do not by themselves convert the dispute into a commercial one under the Act.
Case Title:Tefilah Infrastructure Pvt. Ltd. and Anr. Vs Mr. Balwinder Singh Bagary
Date of Order: 08 July 2025
Case Number: Writ Petition No. 9689/2025 (GM - CPC)
Name of Court: High Court of Karnataka at Bengaluru
Name of Judge: Hon’ble Mr. Justice M. Nagaprasanna
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Written By: Advocate Ajay Amitabh Suman, IP Adjutor [Patent and Trademark Attorney], High Court of Delhi
