JOINT VENTURE, COLLABORATON AGREEMENT FOR CONSTRUCTION

                                    WHETHER SERVICES UNDER CONSUMER

‘the words ‘joint venture’ or ‘collaboration’ in the title of an agreement or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses.’

Says Supreme Court in latest judgment in Civil Appeal No. 944 of 2016 in the matter of Bunga Daniel Babu Versus M/S Sri Vasudeva Constructions & Ors by J Dipak Misra, on the issue of construction agreement between the landlord and the builder. We need to go back to the earlier decided case by the same Supreme Court and understand the difference between joint venture, collaboration agreement and hiring construction services.

In the matter of Faqir Chand Gulati Vs.Uppal Agencies Pvt. Ltd. & Anr Civil Appeal No . 3302 of 2005 SC Date of judgment: July 10, 2008 it was held by the Supreme Court HELD:

“A land owner, who enters into an agreement with a builder, for construction of an Apartment Building and for sharing of the constructed area, is a `consumer' entitled to maintain a complaint against the builder as a service-provider under the Consumer Protection Act, 1986.”

1.        A contract for construction of an apartment or house for the consumer, in accordance with the specifications and in terms of the contract is a contract for service. There is a consideration/payment for such service of construction, flowing from the landowner to the builder .It is sometimes in the form of sale of an undivided share in the land and permission to construct and own the upper floors. To adjust the value of the extent of land to be transferred, there is also payment of cash consideration by the builder. But the important aspect is the availing/hiring of services of the builder by the land-owner for a house construction for a consideration. To that extent, the land-owner is a consumer, the builder is a service-provider and if there is deficiency in service in regard to construction, the dispute raised by the land owner will be a consumer dispute.

 

2.        If the construction is part of a building which in law requires a completion certificate or C&D forms (relating to assessment), the builder is bound to provide the completion certificate or C&D forms. He is also bound to provide amenities and facilities like water, electricity and drainage in terms of the agreement. If the completion certificate and C&D forms are not being issued by the Corporation because the builder has made deviations/violations in construction,      it is his duty to rectify those deviations or bring the deviations within permissible limits and secure a completion certificate and C&D forms from MCD. The builder cannot say that he has constructed a ground floor and delivered it and therefore fulfilled his obligations. Nor can the builder contend that he is not bound to produce the completion certificate, but only bound to apply for completion certificate. If the builder fails to do so, he will be liable to compensate the complainant for all loss/damage.

 

Now coming to the case in hand Civil Appeal No. 944 OF 2016 by the apex court in the matter Of Bunga Daniel Babu Versus M/S Sri Vasudeva Constructions & Ors by Dipak Misra, J, the words used in the agreement are ‘Collaboration agreement’ and due to this word courts below i.e. State Commission and National Commission held the entire project as commercial purpose and out of the purview of consumer protection act relying upon Faqire Chand Gulati case as above cited  

The State Commission had opined that the complaint could not be entertained under the act inasmuch as the parties had entered into an agreement for construction and sharing flats which had the colour of commercial purpose. The said conclusion has been given the stamp of affirmance by the National Commission.

But Supreme Court did not agree and observed that there was no commercial purpose involved, it was simply a contract for construction and hiring of services by the landlord from a builder. Factual matrix of the case are-

Land owner entered into a Memorandum of Understanding (for short “the MOU”) with the builder on 18.07.2004 for development of his land by construction of a multi-storied building, with elevator facility and parking space. Construction was to be completed within 19 months from the date of approval of the plans by the Municipal Corporation and in case of non-completion within the said time, a rent of Rs. 2000/- per month for each flat was to be paid to the appellant. It should have been completed by 18.12.2005.flats were handed over to the occupants only on 30.03.2009, resulting in delay of about three years and three months. Hence complaint before the District Forum .The District Forum appreciating the placing reliance on the decision of the Court in Faqir Chand Gulati (supra) came to hold that the transaction between the parties could not be termed as a joint venture, the complainant came under the definition of Consumer under. As a result of different views of state commission and national commission, matter came before Supreme Court.

SC Holds

“ to appreciate the heart of the dispute, we think it apposite to x-ray the definition of the term “consumer’ An agreement between the owner of a land and a builder, for construction of apartments and sale of those apartments so as to share the profits in a particular ratio may be a joint venture, if the agreement discloses an intent that both parties shall exercise joint control over the construction/development and be accountable to each other for their respective acts with reference to the project. Contracts entered for mutual benefit and profit and in such a contract, they are not “service providers” to the landowners.”

But the facts of the case were not so. What is required to be scrutinized whether there is any joint venture agreement between the appellant and the respondent? The MOU that was entered into between the parties even remotely does not indicate that it is a joint 26 venture, as has been explained in Faqir Chand Gulati (supra). The owner hereby agrees that out of his 40% share in the built-up area of the Apartment complex to be given to him by the builder, the owner shall register one flat of his choice of a value of 27 Rs.6, 00,000/- in the fourth floor of the said building in favour of the builder or his nominee towards the cost of the items

It is actually consideration for construction but not an arrangement of sharing profit and was in no way joint venture The Court ruled that the title or caption or nomenclature of the instrument/document is not determinative of the nature and character of the instrument/document, though the name usually gives some indication of the nature of the document and, therefore, the use of the words ‘joint venture’ or ‘collaboration’ in the title of an agreement or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses. The only point considered by the state commission and national commission for considering the case under joint venture was the words used collaboration agreement and sale of four flats by the complainant which is clarified by the court it is actually consideration for construction but not an arrangement of sharing profit and was in no way joint venture.

Hence we appreciate that it is the actual facts and not the title of the agreement which determines the nature of contract

 

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