Agreements to Develop Property in India: A Legal Analysis

Agreements to Develop Property in India: A Comprehensive Legal Analysis

Introduction

Agreements for the development of immovable property are a cornerstone of India's burgeoning real estate sector. These agreements, often complex and multifaceted, govern the relationship between landowners and developers, outlining their respective rights, obligations, and the allocation of developed property. The legal framework surrounding such agreements is intricate, drawing upon contract law, property law, specific relief provisions, consumer protection statutes, and various state-level regulations. This article undertakes a comprehensive analysis of the legal landscape pertaining to agreements to develop property in India, drawing upon key judicial pronouncements and statutory provisions. It explores the nature of these agreements, critical contractual elements, the contentious issue of specific performance, the overlay of consumer protection laws, and aspects of dispute resolution.

Nature and Typology of Development Agreements

Development agreements are not statutorily defined in a singular piece of legislation, leading to their characterization often depending on the specific terms and context. The Supreme Court in Sushil Kumar Agarwal v. Meenakshi Sadhu And Others (2019 SCC 2 241, Supreme Court Of India, 2018) (hereinafter "Sushil Kumar Agarwal (2018)") observed that "development agreement" is a "catch-all nomenclature" used to describe a wide array of agreements. The Court identified several common types:

Crucially, the terms of the agreement determine whether any interest in the land or rights in the constructed area is created in favour of the developer (Sushil Kumar Agarwal (2018)). For taxation purposes, such agreements can be classified as "works contracts" under sales tax laws, as held in K. Raheja Development Corporation v. State Of Karnataka (2005 SCC 5 162, Supreme Court Of India, 2005), where the definition of "works contract" was found to be broad enough to include agreements for building or construction for consideration.

A significant distinction is often drawn between development agreements and joint ventures. In Faqir Chand Gulati v. Uppal Agencies (P) Ltd. ((2008) 10 SCC 345), a case frequently cited (e.g., in ABDUL RASHID v. BIDHAN DE SARKAR AND ANR, Calcutta High Court, 2025; MRS. DUNDOO ARUNA KUMARI v. Y. NAGA SATISH & 3 ORS., NCDRC, 2023), the Supreme Court clarified that a landowner entrusting construction to a builder for a share of the constructed area is typically a consumer availing services, not a partner in a joint venture, unless the agreement indicates shared control, risk, and profit/loss in the business of development.

Key Contractual Elements and Transfer of Rights

Development agreements are typically comprehensive, detailing a wide array of rights and obligations.

Developer's Obligations and Rights

The developer usually undertakes the responsibility to obtain all necessary approvals and sanctions (Janpriya Buildestate Pvt. Ltd. (S) v. Amit Soni And Others (S), Supreme Court Of India, 2021), provide finance, equipment, materials, and expertise for the development (Rameshwar v. State Of Haryana, 2022). The developer is often granted the sole right to market, allot, and transfer parts of the project to prospective buyers (Janpriya Buildestate Pvt. Ltd. (S) v. Amit Soni And Others (S), 2021). The developer may also be empowered to assign the agreement to a third party (Rameshwar v. State Of Haryana, 2022).

Landowner's Obligations and Entitlements

The landowner is typically required to provide unencumbered physical possession of the property, ensure a clear and marketable title (Ramesh Vajabhai Rabari v. Pratiksha Real Estate Private Limited And Others, 2014 SCC 12 190, Supreme Court Of India, 2014), and cooperate with the developer (Janpriya Buildestate Pvt. Ltd. (S) v. Amit Soni And Others (S), 2021). In return, the landowner receives a predetermined share of the constructed area (e.g., 40% in Smt. V. Kamala Rao & Ors., 2010; 48% in The Commissioner Of Income-Tax And Another v. Smt. K.G Rukminiamma, 2010 SCC ONLINE KAR 517) or other agreed consideration.

Transfer of Development Rights (TDR) and Floor Space Index (FSI)

Development agreements often involve the utilization and transfer of FSI and TDR. The Bombay High Court in Chheda Housing Development Corporation v. Bibijan Shaikh Farid And Others (2007 SCC ONLINE BOM 130) (hereinafter "Chheda Housing (2007)") held that TDR, being a benefit arising from land, qualifies as immovable property, and agreements involving their transfer can be specifically enforced.

Power of Attorney (PoA)

Landowners frequently execute a PoA in favour of the developer to facilitate various aspects of the development, including obtaining sanctions, executing sale deeds for the developer's share, etc. (Janpriya Buildestate Pvt. Ltd. (S) v. Amit Soni And Others (S), 2021). The nature of such PoA – whether it is a bare agency or an agency coupled with interest – is a critical legal question. The Calcutta High Court in Ashok Kumar Jaiswal v. Ashim Kumar Kar (Calcutta High Court, 2014) considered whether a PoA executed by an owner in favour of a developer comes as a bare agency or creates an interest in the subject matter. The Supreme Court in Suraj Lamp And Industries Private Limited (2) Through Director v. State Of Haryana And Another (2012 SCC 1 656, Supreme Court Of India, 2011) cautioned against the misuse of GPAs for transferring property titles, emphasizing that only registered conveyance deeds can validly transfer title. This underscores that while a PoA can facilitate development, it does not, by itself, transfer ownership of the land to the developer.

Registration and Title

The transfer of ownership or any interest in immovable property valued above Rs. 100 requires a registered instrument (Section 17, Registration Act, 1908; Section 54, Transfer of Property Act, 1882). While a development agreement itself may or may not create an immediate interest in land (depending on its terms), the ultimate transfer of ownership of specific units or undivided shares in land must be through registered deeds (Suraj Lamp And Industries Private Limited, 2011; Narandas Karsondas v. S.A Kamtam And Another, 1977 SCC 3 247). Oral agreements or unregistered documents face challenges in enforceability regarding property rights (K. Panchapagesa Ayyar And Another v. K. Kalyanasundaram Ayyar And Others, 1956 SCC ONLINE MAD 141).

Specific Performance of Development Agreements

The specific enforcement of development agreements has been a litigious area, primarily governed by the Specific Relief Act, 1963 (SRA). The law in this regard has seen a significant shift with the Specific Relief (Amendment) Act, 2018.

Pre-2018 Amendment Regime

Prior to the 2018 amendment, Section 14(1) of the SRA listed contracts that could not be specifically enforced, including those where compensation in money was an adequate relief (Sec 14(1)(a)), contracts running into minute or numerous details or dependent on personal volition (Sec 14(1)(b)), and contracts in their nature determinable (Sec 14(1)(c)). Section 14(3)(c) provided an exception for contracts for construction on land, allowing specific performance if: (i) the building/work was described with sufficient precision; (ii) the plaintiff had a substantial interest in performance that could not be adequately compensated by damages; and (iii) the defendant had obtained possession of the whole or part of the land for construction.

The Supreme Court in Sushil Kumar Agarwal (2018) extensively analyzed Section 14(3)(c) in the context of a developer's suit for specific performance. The Court noted the potential anomaly if "defendant" in Section 14(3)(c)(iii) was read literally, potentially barring developers (as plaintiffs) from seeking specific performance if they were already in possession. It advocated for a purposive interpretation. However, in that specific case, specific performance was denied as the agreement lacked specificity and monetary compensation was deemed adequate.

Courts have adopted varied stances. In Chheda Housing (2007), the Bombay High Court found development agreements involving FSI/TDR to be specifically enforceable, categorizing them as agreements where developers acquire rights to sell constructed portions, akin to agreements for sale. Conversely, some High Court decisions suggested that development agreements are generally not specifically enforceable (e.g., cases cited in Partha Sarathi Ghosh v. Maa Construction & Ors., Calcutta High Court, 2008; Satguru Nirman Pvt. Ltd. v. Narayan Chandra Paul, 2002 SCC ONLINE CAL 548).

Post-2018 Amendment Regime

The Specific Relief (Amendment) Act, 2018, has fundamentally altered the landscape. Section 10 of the SRA now mandates that specific performance of a contract *shall* be enforced by the court, subject to certain exceptions (Sections 11(2), 14, and 16). The discretion of courts to deny specific performance has been significantly curtailed. The new Section 14 lists grounds where contracts cannot be specifically enforced, which includes contracts where a party has obtained substituted performance, or contracts involving continuous duty which the court cannot supervise. The specific provisions of the old Section 14(3)(c) related to building contracts have been removed. This shift towards making specific performance a rule rather than an exception is likely to have a profound impact on the enforcement of development agreements, potentially making them more readily specifically enforceable, provided they meet the general requirements of contract law and the revised SRA.

Regulatory Overlay and Consumer Protection

Development agreements are increasingly viewed through the lens of consumer protection, especially concerning the landowner's rights.

Consumer Protection Act

As established in Faqir Chand Gulati (2008) and reiterated in numerous subsequent cases like MRS. DUNDOO ARUNA KUMARI (NCDRC, 2023) and SMT.FASHI DASHRAT SONAVANE v. M/S.GAUTAM DEVELOPERS (State Consumer Disputes Redressal Commission, 2022), a landowner who entrusts property to a developer for construction and delivery of a share of the built-up area is generally considered a "consumer" hiring "service" under the Consumer Protection Act. This is applicable if the landowner is not a partner or co-adventurer with the developer, having no control over construction or participation in the business. The intent to sell the allotted share later does not necessarily render the transaction commercial for the landowner if they are not engaged in real estate business as a primary activity (Bunga Daniel Babu v. Sri Vasudeva Constructions, (2016) 8 SCC 429, cited in MRS. DUNDOO ARUNA KUMARI, 2023).

Real Estate (Regulation and Development) Act, 2016 (RERA)

RERA was enacted to bring transparency and accountability to the real estate sector. In Imperia Structures Limited v. Anil Patni And Another (2021 SCC CIV 1 1, Supreme Court Of India, 2020), the Supreme Court held that remedies under the Consumer Protection Act are available to homebuyers in addition to those under RERA. Section 79 of RERA bars civil courts' jurisdiction over matters which RERA authorities are empowered to decide, but this does not oust the jurisdiction of consumer forums. Section 88 of RERA states that its provisions are in addition to, and not in derogation of, other laws. This implies that parties to a development agreement (especially allottees of units) may have concurrent remedies.

Dispute Resolution and Jurisdiction

Disputes arising from development agreements can be complex, involving issues of non-performance, delays, defective construction, termination, and financial claims.

Termination and Damages

Development agreements often contain clauses regarding termination. Disputes frequently arise when one party alleges breach and seeks to terminate, leading to cross-suits, with owners seeking damages and developers seeking specific performance or compensation (PANCHAM ASSOCIATES AND 2 ORS. Vs SMT. VIJAY MANOHAR SHETH AND 4 ORS., Bombay High Court, 2012).

Arbitration

Many development agreements include arbitration clauses for dispute resolution. The courts generally uphold such clauses, referring parties to arbitration as per their agreement (e.g., pendency of Section 11 application mentioned in Partha Sarathi Ghosh v. Maa Construction & Ors., 2008).

Commercial Courts Act, 2015

Disputes arising from development agreements, particularly those involving entities whose main object is property development for commercial exploitation, may fall under the definition of "commercial dispute" under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, if they relate to immovable property "used exclusively in trade or commerce" (Kanchanganga Realtors Pvt. Ltd., Through Its Director Company And Others v. Monarch Infrastructure Developers Pvt. Ltd. And Others, 2019 SCC ONLINE BOM 240; MIHIR BUILDERS AND DEVELOPERS v. SULTAN SIRAJUDDIN MOHAMMAD YASIN AND ORS, Bombay High Court, 2021).

"Suit for Land"

A historical jurisdictional issue, particularly for High Courts with Ordinary Original Civil Jurisdiction, is whether a suit concerning a development agreement is a "suit for land." If a suit primarily seeks a declaration of rights under the agreement or injunctions without directly claiming title or possession of the land itself, it may not be considered a "suit for land" (A.S Overseas Private Limited…Plaintiffs; v. Sri Sri Iswar Chinta Haran Shiv Thakur & Ors.…Defendants., Calcutta High Court, 1994).

Taxation Aspects

Development agreements also have significant taxation implications. As discussed, they can be treated as "works contracts" for sales tax/GST purposes (K. Raheja Development Corporation, 2005). For landowners, the transaction can trigger capital gains tax upon transfer of rights in land or receipt of constructed area (The Commissioner Of Income-Tax And Another v. Smt. K.G Rukminiamma, 2010). The valuation of consideration (often in kind, i.e., constructed area) can be a complex aspect.

Conclusion

Agreements to develop property in India are intricate legal instruments navigating a confluence of contractual principles, property law, regulatory frameworks like RERA and the Consumer Protection Act, and specific relief provisions. Judicial interpretation has played a vital role in shaping their understanding, particularly concerning their nature, the rights and obligations of parties, and their enforceability. The shift towards mandatory specific performance under the amended Specific Relief Act, 2018, marks a significant development, likely fostering greater certainty in the execution of such agreements.

The evolving jurisprudence, particularly the recognition of landowners as consumers in many instances, enhances accountability for developers. However, the complexity of these agreements necessitates careful drafting, clear delineation of rights and responsibilities, and adherence to statutory requirements like registration to avoid protracted disputes. As India's real estate sector continues to evolve, the legal framework governing development agreements will undoubtedly see further refinement to balance the interests of landowners, developers, and end-users, ensuring equitable and efficient development of immovable property.