Absolute conveyance of land does not extinguish agreed restrictions on permissible construction.

The appellants comprised sixteen landowners and M/s Shyamaraju and Company (India) Pvt. Ltd. as developer and power-of-attorney holder.

The landowners had entered into Joint Development Agreements with the developer for developing a large integrated mixed-use project known as “DivyaSree Technopark”.

On 21 October 2005, the parties executed a Permanent Perpetual Lease Deed (“PPL”) concerning the demised property.

After twelve years, Huawei sought execution of a sale deed conveying the property without any restriction on its use of the FAR/FSI.

Huawei instituted a commercial suit seeking specific performance, execution of the sale deed, bifurcation of khata, a declaration that the appellants had no right to utilise the excess FAR/FSI, and consequential injunctions.

The Commercial Court decreed the suit in Huawei’s favour and directed conveyance of the property without accepting the appellants’ restriction concerning excess FAR/FSI.

The appellants preferred the present appeal under Section 13(1-A) of the Commercial Courts Act, 2015.

1. Whether Huawei was entitled to obtain conveyance of the “Schedule ‘A’ Property” under clauses 9 and 10 of the PPL after expiry of twelve years from its execution?

2. Whether the expression “residuary and/or reversionary rights” in clause 9 of the PPL extinguished the contractual restriction limiting Huawei’s construction on the property to 10,56,000 sq. ft. of super built-up area?

3. Whether Huawei was entitled to use the entire FAR/FSI attributable to the “Schedule ‘A’ Property” on a standalone basis after obtaining absolute title, and whether the appellants were consequently restrained from utilising such FAR/FSI?

The Court applied Section 13(1-A) of the Commercial Courts Act, 2015 governing the appeal.

It held that a contract must be construed as a whole, in light of its object, commercial context and the parties’ common intention; no clause should ordinarily be interpreted in isolation.

Relying on Provash Chandra Dalui v. Biswanath Banerjee, Bihar State Electricity Board v. Green Rubber Industries, Nabha Power Ltd. v. Punjab State Power Corporation Ltd., DLF Universal Ltd. v. Director, Town & Country Planning Department, and Naramadaben Maganlal Thakker v. Pranjivandas Maganlal Thakker, the Court emphasised contextual, purposive and harmonious construction of contractual terms.

The Court further applied the rule concerning non obstante clauses, recognised in Union of India v. G.M. Kokil, A.G. Varadarajulu v. State of Tamil Nadu and Central Bank of India v. State of Kerala, that such a clause overrides inconsistent provisions only to the extent necessary and does not justify disregarding provisions capable of harmonious construction.

The Court also relied on the contextual approach stated in Westminster City Council v. National Asylum Support Service and Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd.

The Court found that the entire transaction was structured around Huawei developing a defined campus of 10,56,000 sq. ft. as part of the integrated DivyaSree Technopark, rather than acquiring an independent and unrestricted development parcel.

The LOI, subsequent agreements and the PPL repeatedly limited Huawei’s construction entitlement to 10,56,000 sq. ft., while expressly permitting the developer to use excess FAR/FSI in adjoining areas of the integrated project.

Clause 6(a) of the PPL expressly permitted the developer to utilise FAR/FSI exceeding Huawei’s entitlement, clause 7(i) similarly limited Huawei’s construction rights, and clause 12 characterised these restrictions as essential terms.

Although clause 9 contained a non obstante provision and enabled Huawei to acquire the “residuary and/or reversionary rights” and absolute title, it did not expressly state that the 10,56,000 sq. ft. restriction would cease upon conveyance.

The Court held that the non obstante clause could not be read independently to destroy the other operative provisions of the PPL when all clauses could be harmoniously reconciled.

“Residuary and/or reversionary rights” meant the rights remaining with the landowners or developer upon conveyance, but did not include an implied removal of the agreed construction cap.

The Court also rejected Huawei’s argument that any unused FAR/FSI attributable to the property had to remain available for its standalone use.

Such an interpretation would potentially require demolition or reversal of construction already undertaken in adjoining portions of the integrated project, which was inconsistent with the parties’ commercial arrangement.

The appeal was allowed and the Commercial Court’s decree was modified.

The appellants, acting through the developer, were directed to execute and register a sale deed in favour of Huawei in respect of the “Schedule ‘A’ Property” and to record Huawei’s ownership in the land records.

However, the conveyance was expressly made subject to the condition that Huawei would not be entitled to raise construction exceeding 10,56,000 sq. ft. of super built-up area on the property.

Huawei’s claims for unrestricted utilisation of the excess FAR/FSI, bifurcation of khata and consequential injunctions were rejected.