Consumer or Collaborator? The Legal Paradox of Landowners in Joint Development Agreements under the Consumer Protection Act

In Faqir Chand Gulati v. Uppal Agencies (P) Ltd., the Supreme Court examined the critical question of whether a landowner entering into a joint development agreement qualifies as a “consumer” under the Consumer Protection Act, 1986.

Introduction

The real estate sector in India frequently employs joint development agreements (JDAs), wherein a landowner collaborates with a builder or a developer to construct a real estate project on the landowner’s plot in exchange for a share of the constructed area or a lump sum consideration. This arrangement is an economic necessity, enabling projects that neither party could undertake alone. However, disputes may arise between the landowner and the builder/developer for delayed completion, structural deficiencies, or non-delivery of promised share.

This article explores the following key legal questions:

1. Whether a landowner is a “consumer” under the Consumer Protection Act, 1986 in the event that the developer commits a breach of a joint development or a collaboration agreement?

2. Whether the “commercial purpose” exclusion under Section 2(d), 1986 Act can be successfully applied to non-suit a landowner?

The genesis of the test: Faqir Chand Gulati v. Uppal Agencies

In Faqir Chand Gulati v. Uppal Agencies (P) Ltd.¹, the Supreme Court examined the critical question of whether a landowner entering into a joint development agreement qualifies as a “consumer” under the Consumer Protection Act, 1986.

The case arose from a consumer complaint filed by a landowner against a developer under a “collaboration agreement”, alleging deficiencies in construction and violations of the sanctioned plan.

While the landowner contended that the collaboration agreement was not a joint venture, rather it was a contract for hiring the service of “housing construction”, the developer argued that the collaboration agreement was a joint venture and it was neither a contract for service of housing construction nor a contract for sale of a flat. Thus, the developer cannot be classified as a “service provider” and the landowner is not a “consumer”.

The test: Presence and extent of landowner’s control over the venture

The Supreme Court, after examining the nature and scope of “joint venture agreements”, laid down the distinction between a true joint venture and a joint development/collaboration agreement. It was identified that a true joint venture would be one where the agreement discloses an intent that both the landowner and the developer shall exercise joint control over the construction/development and be accountable to each other for their respective acts with reference to the project. However, if the landowner has no say or control in the construction of the project, then the agreement shall not be a “joint venture” in the legal sense and shall be considered as availing the service for housing construction for consideration. To that extent, the landowner is a “consumer”, and the developer is a “service provider”. The landowner may move the consumer courts for deficiency on the developer’s part.

No discussion on the aspect of “commercial purpose”

Since the controversy in Faqir Chand Gulati case² had arisen prior to the 2002 Amendment vide which the “commercial purpose” exception was carved out of Section 2(d)(ii), Consumer Protection Act, 1986, the discussion on whether the landowner would be non-suited on the ground that he has sold his share of the constructed area, and thus has engaged the services of a developer for commercial purpose, was not undertaken.

“Commercial purpose” in joint development agreements: Bunga Daniel Babu v. Sri Vasudeva Constructions

While the landmark case of Faqir Chand Gulati³ established that a landowner in a JDA (not being a joint venture) is a consumer, the legal landscape shifted with the 2002 Amendment to the Consumer Protection Act, 1986. This amendment introduced a specific exclusion to the definition of “consumer” that services availed for a “commercial purpose” would no longer fall under the protection of the Act.

In Bunga Daniel Babu v. Sri Vasudeva Constructions⁴, the Supreme Court was tasked with a vital question: Does a landowner lose their “consumer” status if they intend to sell or rent the share of flats they receive from a joint development/collaboration agreement?

In the factual matrix of the case, the parties had entered into a memorandum of understanding for the construction of a multi-storeyed building. However, disputes arose pertaining to delay in completion and deviation from the sanctioned plans. A consumer complaint came to be filed by the landowner before the District Forum. The District Forum, applying the rationale of Faqir Chand Gulati case⁵ held the landowner to be a consumer. However, the State Commission reversed the findings with the view that as the agreement was entered into by the landowner with an intention to sell them and let them on rent and earn a profit, the transaction was meant for a commercial purpose. The National Commission concurred with the State Commission, in revision.

Upon reaching the Supreme Court, it was clarified that the mere prospect of reselling or leasing the flats is immaterial to determining one’s status as a consumer. The Supreme Court emphasised that the true test lies in the nature of the agreement itself, specifically whether it constitutes a genuine “joint venture” or a “contract for service”. In a true joint venture, parties share both risks and profits in a common business enterprise. In contrast, in a development/collaboration agreement, the landowner is primarily seeking the builder’s professional expertise to develop their own property. The Supreme Court ruled that unless the landowner is in the primary business of real estate development and building, the dominant purpose of the transaction remains the hiring of housing construction services.

Interplay with the commercial purpose exclusion — NCDRC’s stance

In the years following these precedents, the National Consumer Disputes Redressal Commission (NCDRC) has frequently adjudicated disputes where developers have attempted to use the “commercial purpose” defence to escape liability. Despite consistent objections from developers, who often argue that landowners selling multiple flats should be viewed as a “commercial purpose”, the NCDRC has largely stood its ground adhering to the Bunga Daniel Babu v. Sri Vasudeva Constructions⁶ ratio. In these cases, the NCDRC has repeatedly held that even if a landowner is disposing of the share of flats/units allocated to them under the JDA, they remain a “consumer”. The focus remains on the nature of the agreement rather than the landowner’s eventual financial gain.⁷

However, despite the generally pro-consumer trend, the NCDRC has non-suited landowners under specific circumstances where the “commercial purpose” test is strictly applied. A few instances are discussed below.

In Dundoo Aruna Kumar v. Y. Naga Satish⁸, the NCDRC applied the commercial purpose exclusion where the JDA was executed for the construction of a “commercial complex” of which the landowner was entitled to a 65 per cent share. The complaint was dismissed because the landowner’s intention right from the beginning was to construct a commercial complex and lease out the same to the developer for 20 years. The NCDRC ruled that this was not a case where the property was being used for earning her livelihood by means of self-employment, rather it was a comprehensive commercial agreement.

Similarly, in Anubhab Construction v. City Star Ganguly Projects LLP⁹, the complainant was a partnership firm. The NCDRC observed that the service was not availed for the purpose of earning a livelihood by way of self-employment, especially since the partners had significant independent incomes from other commercial ventures. The complaint was dismissed as not maintainable, with the firm being directed to approach the appropriate forum. This ruling is particularly significant as the NCDRC clarified that even if a development agreement does not technically and legally qualify as a “joint venture”, perhaps because the landowner has no control over the development works of the project, yet if the dominant purpose of availing the builder’s services is commercial in nature, the landowner is barred from the consumer forum and must seek redress through appropriate civil or commercial courts.

Thus, while the path to consumer courts is clear for landowners under development agreements, the commercial purpose exclusion gains significance when the JDA is explicitly entered into for a large-scale commercial venture. The NCDRC has strictly applied the exclusion in cases where the primary object is clearly commercial or speculative on the part of the landowner, or where the landowner’s business profile suggests professional involvement in real estate.

Intent to resell = Commercial purpose

In consumer disputes pertaining to housing construction, the NCDRC has consistently used the “intent to resell” as a primary yardstick for the commercial purpose exclusion. The analysis rendered by the NCDRC in Kavit Ahuja v. Shipra Estate Ltd.¹⁰ established that while the mere purchase of more than one flat does not automatically make a person a commercial investor, the true test is whether the individual is engaged in the “regular business of buying and selling real estate”.

However, when this principle is applied to regular buyers, the NCDRC’s stance has often been quite stringent. In cases like Anil Dutt v. Business Park Town Planners Ltd.¹¹ and Rajnish Kumar v. Maxworth Realty India Ltd.¹², the NCDRC dismissed complaints simply because the booking of multiple plots or units (ranging from five to ten) strongly inferred a commercial investment rather than a personal residential use. Similarly, in Sunil Gupta v. Today Homes & Infrastructure (P) Ltd.¹³ and Jag Mohan Chhabra v. DLF Universal Ltd.¹⁴, the NCDRC held that purchasing several floors or units across different projects amounted to a profit-earning activity, thereby ousting the complainants from the definition of a “consumer”. In these instances, the “commercial purpose” bar was used as a sharp tool to disqualify anyone perceived as an “investor”.

Interestingly, when the same “resale” activity occurs within the framework of a joint development agreement, the NCDRC places the landowner on a completely different legal pedestal. Even when it is proven that a landowner is selling a large number of flats from their allocated share to third parties, the NCDRC, following the Supreme Court’s lead in Bunga Daniel Babu case¹⁵, refuses to label the transaction as commercial. The rationale provided is that the landowner did not “buy” the flats for profit; rather, the flats are the “consideration” received in exchange for their land.

This creates a striking divergence in the law. A regular buyer who purchases three flats for his family might be labelled a “commercial investor” and non-suited, whereas a landowner who receives 30 flats and systematically sells them to the public is still shielded as a “consumer” of the builder’s services. This disparity highlights a crucial shift in focus: For the regular buyer, the NCDRC looks at the intent of the purchase, but for a landowner under a JDA, the NCDRC looks only at the nature of the contract. By prioritising the “service” aspect of the JDA over the “commercial” resale of the units, the NCDRC has carved out a unique protection for landowners that is currently denied to multi-unit buyers.

The liability conflict: Landowners are jointly and severally liable to third-party buyers

The argument that a landowner receiving a share of flats is a mere “consumer” begins to weaken when examined through the lens of third-party liability. In the realm of commercial law, the concepts of risk and profit are inextricably linked; one who stands to gain from the financial success of a project must also bear the risks associated with its failure. When a landowner moves beyond being a passive recipient of “consideration” and actively participates in the market, by signing sale deeds and accepting consideration from third-party buyers, they transition into a profit-generating role.

The NCDRC, in Prashant Telkar v. ND Developers (P) Ltd.¹⁶, rejected the “passive bystander” defence raised by the landowner who attempted to distance themselves from the project’s failures, arguing they had no role in the construction and were therefore not responsible for delays. The NCDRC noted that:

1. The landowners were impleaded as “vendors” in the agreement to sell.

2. They were represented through the developer as their General Power of Attorney (GPA) holder.

3. Consequently, the landowners were held jointly and severally liable for the refund of the buyers’ money and the associated delay compensation.

This principle of joint liability of a landowner under a JDA is further supported by the ruling in Pooja Daryani v. Umang Realtech (P) Ltd.¹⁷, where the NCDRC held that even if a landowner is merely a “confirming party” in a collaboration agreement, they remain jointly liable for compensation to a third-party buyer. The Commission clarified that any internal arrangements between the builder and the landowner are inter se and do not bind the third-party buyers.

This duality suggests a legal inconsistency. If a landowner is considered a profit-generating entity enough to be held “jointly and severally liable” for project execution and legal defaults toward the public, then their “intent to sell” several units should arguably trigger the commercial purpose exclusion. By accepting the risk of litigation and the role of a vendor, the landowner moves away from the “dominant purpose” of personal housing and into the sphere of a large-scale commercial venture.

Conclusion

In conclusion, there is a significant lack of clarity in the law because these professional real-estate collaborations are often treated as simple consumer contracts rather than the complex commercial disputes they truly are. To resolve this inconsistency, the judiciary must provide a clear standard that recognises the commercial nature of these projects and ensures they are adjudicated in the appropriate civil forums.