Commercial Disputes Take Effect Beyond Private Sphere Of Contracting Parties, Create Ripple Effect On Commercial Movement: Telangana HC

“In essence, a commercial dispute would be one where the nature of the agreement or the consequence arising therefrom would take the effect of the agreement beyond the private sphere of the contracting parties and create a ripple-effect of commercial movement beyond the main actors to the agreement. The specific nomenclatures of the agreements in section 2(1)(c) indicates that a dispute cannot readily be presumed to be a commercial dispute. The object and specific clauses of the agreement would always be the determinant of whether the source-agreement fits into 1 or more of the sub-clauses to section 2(1)(c) of the 2015 Act,” held Justice Moushumi Bhattacharya and Justice M.G.Priyadarsini

Background

The core issue before the High Court was whether the dispute between the parties qualified as a "commercial dispute" as defined under the Commercial Courts Act, 2015. This determination was crucial for establishing whether the Trial Court, not being a designated Commercial Court, had the jurisdiction to entertain the petitioners' application for the addition of parties.

The petitioners argued that the dispute arising from their Development Agreement-cum-General Power of Attorney (DAGPA) with the respondent developer constituted a commercial dispute. They contended that it fell under Section 2(1)(c)(vi) of the 2015 Act, which covers "construction and infrastructure contracts, including tenders." To support their argument, they pointed to the respondent's claim in the arbitration proceedings, which exceeded Rs. 16 crores, surpassing the specified value of Rs. 1 crore as per Section 12 of the Act.

Conversely, the respondent developer maintained that the DAGPA was not a commercial contract, asserting that it merely involved an agreement to develop land into farm plots without any intention for commercial use.

In its analysis, the High Court delved into the essence of what constitutes a "commercial dispute" under the 2015 Act. The court emphasized that not every agreement involving elements of trade or commerce automatically qualifies as a commercial dispute. Instead, it stressed the need for a purposive interpretation of the Act's provisions. The Court said:

“Notwithstanding the aforesaid decisions, categorization of a dispute under section 2(1)(c) of the Act depends on the particular facts of each individual case where the Court is called upon to decide whether the agreement in question can be treated as the starting-point of a commercial dispute. Indeed, there can hardly be a standardized formula for this assessment.”

The court elucidated that a commercial dispute should have implications beyond the private sphere of the contracting parties, creating a ripple effect in the broader commercial landscape. It noted that the specific nomenclatures of agreements listed in Section 2(1)(c) indicate that a dispute cannot be presumed to be commercial without careful consideration of the agreement's object and specific clauses.

Examining the DAGPA in question, the court found it to be essentially private in nature, involving land development into farm plots with agreed construction activities. The court reasoned that for a dispute to qualify under Section 2(1)(c)(vi) as a "construction and infrastructure contract," it must have an impact extending beyond the contracting parties. The terms "infrastructure" and "construction" were interpreted to require permanent or long-lasting structural changes affecting a larger circle of beneficiaries, with the end product having a clear commercial use and purpose.

The High Court cautioned against the eagerness to label disputes as "commercial" merely to access the speedy disposal mechanism provided by the 2015 Act. It emphasized that each sub-clause under Section 2(1)(c) must be strictly construed and given a purposive meaning, with the base agreement needing to have strong commercial underpinnings.

Ultimately, the court dismissed the Civil Revision Petition, confirming the Trial Court's order and holding that the dispute between the parties was not a commercial dispute as defined under the Commercial Courts Act, 2015.

CRP 1622 of 2024

Case title: Smt.Sharada Devi Kedia vs Kisna Avenues Pvt. Ltd.

Counsel for petitioner: KANUMURI KALYANI