Dilip C. Vs Diana D’Souza (Karnataka High Court)
Seven Years, No Development: Karnataka HC Restores Forfeiture of JDA Advance
Can an arbitral award permitting forfeiture of a developer’s advance survive when the Joint Development Agreement contains no forfeiture clause? In Dilip C. and another v. Diana D’Souza and connected appeals, the Karnataka High Court answered this question in favour of the landowner on the particular facts before it. The developers had taken no effective steps to develop the property for seven years, and the Court found no statutory ground warranting interference with the arbitrator’s decision.
The judgment was delivered on 22 September 2026 by Justice D.K. Singh and Justice H. Shanthi Bhushan in COMAP No. 290 of 2025 and connected appeals, bearing neutral citation 2026:KHC:52487-DB. The Court restored the forfeiture that the Commercial Court had set aside.
A Two-Year Development Promise Remained Unfulfilled
Diana D’Souza owned one acre of land in Survey No. 157 at Bidaluru Village, Devanahalli Taluk. She entered into a Joint Development Agreement dated 28 February 2014 with the developers for construction of a multistoried housing project.
Under the agreement, development was to be completed within two years, by 27 February 2016. However, the project remained undeveloped for several years. The landowner eventually invoked the arbitration clause, and the High Court appointed a sole arbitrator through its order dated 3 March 2022.
The arbitration addressed the parties’ respective obligations under the JDA and General Power of Attorney, the alleged breaches, cancellation of the arrangements, and the landowner’s entitlement to damages and litigation costs.
Arbitrator Cancelled the JDA and Forfeited the Deposit
By an award dated 29 August 2024, the arbitrator allowed the landowner’s claim with costs and held that the JDA and GPA stood cancelled.
The developers were directed to execute the necessary cancellation deeds. If they failed to do so, the landowner could obtain execution through the court process at their expense, including legally admissible stamp duty.
The arbitrator also directed that the refundable deposit stood forfeited and could be retained and utilised by the landowner.
The Commercial Court, while considering the challenge under Section 34 of the Arbitration and Conciliation Act, 1996, upheld the award in part but set aside the forfeiture. It granted the developers liberty to initiate appropriate proceedings to recover the advance.
Both sides challenged the portions of that decision adverse to them.
Developers Relied on the Absence of an Approach Road
The developers argued that construction could not proceed because the property lacked a proper approach road. According to them, efforts to secure access had not yielded results.
They further contended that once the Commercial Court held that the advance could not be forfeited, it should have ordered its refund with interest, rather than merely granting liberty to pursue recovery proceedings.
The landowner disputed this explanation. She maintained that the developers had entered into the agreement after verifying the property’s title and rights, and that she had made no promise to provide a 40-foot-wide road.
Her case was that the developers had done nothing effective for more than seven years while keeping the property tied up under the development arrangement.
No Forfeiture Clause, Yet No Ground to Set Aside the Award
The High Court expressly acknowledged that the JDA contained no provision permitting forfeiture of the advance upon the developers’ failure to perform their obligations.
However, it also emphasised the factual finding that the developers had neither developed the property nor taken effective steps towards implementing the agreement for seven long years.
The Court examined the forfeiture through the limited statutory grounds governing judicial interference with arbitral awards. It held that, in these circumstances, the direction did not conflict with the public policy of India, the fundamental policy of Indian law, or the basic notions of morality and justice.
It also found that the award was not vitiated by patent illegality. Consequently, the Commercial Court’s interference with the forfeiture could not be sustained.
Section 34 Does Not Permit an Unrestricted Reconsideration
The Court stressed that arbitration arises from party autonomy and that judicial interference with an award has a limited statutory scope.
Unless a ground recognised under Section 34 is established, courts should be slow to interfere with the arbitrator’s determination. The decisive question was therefore whether the forfeiture attracted a statutory ground for setting aside the award.
Having answered that question against the developers, the High Court dismissed their appeal and allowed the landowner’s appeal. The Commercial Court’s interference with the forfeiture was set aside, leaving the cancellation of the JDA and GPA undisturbed.
Author’s Comments
The striking feature of this judgment is the Court’s express recognition that the agreement contained no forfeiture clause, coupled with its refusal to disturb forfeiture in an award arising from prolonged non-performance.
The decision must be read within its factual setting and the limited scope of arbitral review. It should not be treated as a general permission for every landowner to forfeit a refundable advance whenever development fails.
For those drafting JDAs, the practical lesson is clear: access obligations, completion timelines, consequences of default, refund terms and forfeiture conditions deserve precise treatment. Leaving these matters unresolved can turn a development arrangement into years of litigation. Here, a two-year promise followed by seven years of inactivity proved decisive.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. The present appeal under Section 37 (1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as Act, 1996 for short) has been filed impugning the order dated 19.03.2025 passed in Commercial Application No. 169/2024 filed under Section 34 of the Act, 1996 impugning the award dated 29.08.2024 passed by the sole arbitrator in the matter of AC No. 160/2022 between the respondents and the appellants herein.
2. For convenience, the parties are referred to as per their ranking in COMAP.No.290/2025.
3. The respondent is the owner of one acre of land in Sy.No.157, situated in Bidaluru Village, Devanahalli Taluk, Bengaluru District.
4. A Joint Development Agreement (JDA for short) entered on 28.02.2014 between the respondent and the appellants herein for developing the said land to build a multistoried housing project. As per the agreements, the property was required to be developed within 2 years from the date of agreement i.e., by 27.02.2016 however, nothing was done by the respondent till 2021. The owner of the land i.e., the respondent invoked the arbitration clause of the agreement to refer the dispute to the arbitrator and in pursuance to the order passed by this Court in CMP No. 296/2021 and connected matters, dated 03.03.2022, the Sole Arbitrator was appointed to adjudicate the dispute. After exchange of the pleadings, the following issues were framed by the sole arbitrator.
“Issues
1. Whether the claimants prove that the respondents have failed to perform their part of obligation as contemplated in General Power of Attorney dated 28.02.2014?
2. Whether the claimants prove that the respondents have failed to perform and complete the terms and conditions of the Joint Development Agreement dated 28.02.2014?
3. Whether the respondents prove that the claimant has failed in performing her part as per the Joint Development Agreement and General Power of Attorney?
4. Whether the claimants prove that the Joint Development agreement is liable to be cancelled or terminated?
5. Whether the claimants prove that the respondents are liable to pay damages along with the costs of litigation to the claimants?
6. What order or award?”
5. The sole arbitrator finally decided the arbitral claim and passed the following award:
“AWARD
1. The claim petition is allowed with cost, holding that the JDA and GPA dated 28.02.2014 stands cancelled. The respondents are directed to execute the necessary cancellation deeds, failing which, the claimant is entitled to get such cancellation deeds be executed through the process of the Court at the cost of the respondents including the Stamp Duty legally admissible. The refundable deposit stands forfeited shall be retained and utilized by the claimant as the owner thereof.
2. The office of Arbitration Centre, Bengaluru is directed to send copy of the award along with a covering letter addressed to the concerned sub-registrar office.
3. The Stamp Duty is payable as per Karnataka Stamp Act, 1957.”
6. Being aggrieved by the said award, the respondent filed the arbitration application to set aside the award under Section 34 of the Act, 1996. The Commercial Court vide impugned order, while affirming the arbitral award in part, set aside the award for forfeiture of the advance paid by the appellants and granted liberty to the appellants to take appropriate proceedings to recover the advance given to the respondent cum owner of the land.
7. Sri. Ashok Haranahalli, learned Senior Counsel assisted by Sri. Narasimharaju, learned counsel appearing for the appellants submits that the appellants could not develop the property as there was no proper approach road to the land in question and despite the respondent’s effort to get the approach road for the property, nothing moved, and therefore, the property could not be developed. It is further submitted that when the Commercial Court has opined that the respondent was not entitled to forfeit the advance, the commercial Court ought to have directed the respondent to refund the said amount along with the interest.
8. On the other hand, Sri. S. Rajashekar, learned counsel for the respondent has disputed the submissions and submitted that for more than seven years, the appellants did not do anything to develop the property, no steps were taken. They entered into the JDA after due verification of the property title and rights of the respondent. There was no promise by the respondent to provide 40 feet wide road. As the appellants failed to fulfill its obligation under the JDA, despite lapse of 7 years from the date of agreement, the arbitration clause was invoked. Learned arbitrator has decided the issue comprehensively and none of the ground as mentioned under Section 34 of the Act, 1996 are available to challenge the arbitral award. As the appellants committed gross breaches of the JDA and they held back the property for several long years, the respondents was entitled to forfeit the advance given by the appellants. Therefore, the arbitrator has rightly held that the respondent was entitled to forfeit the advance given by the appellants.
9. It is further submitted that the respondent has challenged the order of the Commercial Court to the extent setting aside as the Arbitral Award, so far as the forfeiture of the advance amount is concerned, inasmuch as the forfeiture of the advance amount would not come within any of the grounds as mentioned under Section 34 of the Act, 1996. The arbitral award is neither in conflict with public policy of India or against the law, nor it is in contravention of the fundamental policy of Indian law, nor it is in conflict with the basic notion of morality or justice. There is no patent illegality appearing on the face of the award which warranted the Commercial Court to interfere with in an application filed under Section 34 of the Act, 1996.
10. We have considered the submissions.
11. We have perused the terms of the JDA dated 28.02.2014. It is true that there is no provision for forfeiture of the advance amount in case of failure to perform its obligations by the appellants. But the fact remains that for seven long years the developer did not develop the property and took no effective steps towards implementation of the JDA. The statute provides only limited scope of interference in the arbitral award. As the arbitration is outcome of the party autonomy and therefore, unless until one of the grounds as mentioned in Section 34 of the Act, 1996 is present, in the Arbitration Award, the Court should be loath to interfere with the arbitration award. Forfeiture of the advance paid by the developer who failed to carry out the obligation under the JDA for 7 long years, cannot be said to be such a direction in the award which would be in conflict with the public policy of India or in contravention with the fundamental policy of Indian law nor in conflict with the basic notion of morality and justice. We also do not find that the award is vitiated by patent illegality as provided under Section 34 (2)(a) of the Arbitration Act. The Commercial Court on an application under Section 34 has partly set aside the award so far as the forfeiture of the advance amount given by the developer to the owner is concerned and given liberty to the appellants herein to take appropriate proceedings for recovery of the said property.
12. We have held that the forfeiture of the advance in the facts and circumstances of the case, would not come within any of the grounds as mentioned in Section 34 of the Act, 1996, the interference with the arbitral award to that extent by the Commercial Court in an application under Section 34 of the Act, 1996 is not proper and therefore, to that extent the impugned order is set aside. Accordingly, the following:
ORDER
(i) The appeal filed by the appellants stands dismissed.
(ii) The judgment dated 19.03.2025 passed in Com.A.P.No.169/2024 by the LXXXII Additional City Civil and Sessions Judge, Commercial Court, Bengaluu (CCH -84) is affirmed and interference with the arbitral award to the extent of forfeiture of the advance in an application under Section 34 of the Act, 1996 is set aside.
(iii) The appeal filed by the respondent is allowed.
