[Commercial Courts Act] Disputes Related To Immovable Property Used Exclusively For Trade Are 'Commercial Disputes: Allahabad High Court

The Allahabad High Court, while considering the case of a hotel, has held that a dispute related to an immovable property that is used exclusively for the purpose of trade or commerce would fall under the ambit of a 'Commercial Dispute' under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015.

“Agreements relating to immovable property used exclusively in trade or commerce fall under the purview of “commercial disputes” as definer by Section 2(c)(vii) of the CC Act. This categorization highlights the specific nature of such agreements and their inherent connection to commercial activities,” held Justice Shekhar B. Saraf.

Case Background

The petitioners entered into a business agreement with the respondent for running a Hotel in Varanasi in the year 2022, for which they deposited Rs.30 lakhs as security. During the process of getting the business started, petitioners approached the electricity department to get the electricity connection for the hotel. The Electricity department informed the petitioners about a requirement for the installation of a separate transformer at the hotel in order to avail the supply of electricity. Petitioners communicated the same to the respondent and asked them to obtain the necessary permit from the electricity department.

However, disputes arose amongst the parties due to which petitioners approached the Commercial Court, Varanasi. The Commercial Court, Varanasi refused to entertain the suit filed by petitioners stating that since the hotel was not being used for trade or commerce, the dispute could not be considered to fall within the ambit of Section 2(1)(c)(vii) of the Commercial Courts Act, 2015. Aggrieved by the same, petitioners preferred an application under Article 227 of the Constitution before the High Court.

Counsel for petitioner contended on the basis of the clauses in the agreement, that despite the document being titled a “Rent Agreement”, its nature was that of a business operation and management agreement. It was stated that the issue in the present case was a commercial dispute as under Section 2(1)(c) of the Act. Thus, the Commercial Court was under obligation to consider and register the suit, and subsequently provide the opportunity to the petitioners to present their case on merits.

It was their case that the Commercial Court had marked the suit as a Misc. Civil Case rather than a Commercial Suit. Petitioner submitted that the Commercial Court had applied the law laid down by the Supreme Court in Ambalal Sarabhai Enterprises v. KS Infraspace LLP incorrectly to conclude that the hotel was never used for trade.

High Court Verdict

The Court noted that despite a number of opportunities having been provided, no one had appeared on behalf of the respondent. It was held that in such a circumstance, the fate of the petitioners could not be left at the “mercy” of the respondent and thus, the Court proceeded to adjudicate the matter on merits, without the presence of the respondent.

In determining whether the hotel was being used for the purposes of trade or commerce by the petitioner, the Court first examined Section 2(c) of the Commercial Courts Act which gives the ambit of a commercial dispute. It was held that as per clause (vii) of the Act, “agreements relating to immovable property used exclusively in trade or commerce” would fall under the heading of “commercial disputes”.

“Immovable property in this context usually refers to land and buildings used solely for business purposes, such as offices, factories, warehouses, retail spaces, and other commercial establishments. These properties are distinct from residential or mixed-use properties, emphasizing their exclusive dedication to facilitating business operations,” held the Court.

The Court held that the word “used” in Section 2(c)(vii) of the Act implied that the immovable property must actually be used or was under use for the purpose of “Trade or Commerce” and not just “likely to be used” or “to be used”. It was further held that the word “used” in terms of legal jargon implied an active and current utilisation, rather than a prospective or future use.

The Court relied on the decisions of the Gujarat High Court in Vasu Healthcare Private Limited v. Gujarat Akruti TCG Biotech Limited And 1(S) wherein it was held that “the word “used” denotes “actually used” and it cannot be said to be either “ready for use” or “likely to be used”; or to “to be used”.”

The Court also relied on Jagmohan Behl v. State Bank of Indore where the Delhi High Court held that a harmonious reading of Section 2(c)(vii) of the Act would include all disputes that arose of an agreement relating to an immoveable property being used exclusively for the purpose of trade and commerce.

“Harmonious reading of the explanation with sub-clause (vii) to clause (c) would include all disputes arising out of agreements relating to immoveable property when used exclusively for trade and commerce, be it an action for recovery of immoveable property or realization of money given in the form of security or any other relief pertaining to immoveable property,” held the Delhi High Court.

Further, Justice Saraf held that as per the judgment of the Supreme Court in Ambala Sarabhai, if a dispute which related to an immoveable property fell under Section 2(1)(c)(vii) of the Act, it would qualify as a commercial dispute.

The Court held that there were four conditions for a dispute related to an immoveable property to be a qualified as a commercial. First, that the immoveable property in question had to actually be used for the purpose of trade or commerce rather than being “likely to be used” or “to be used”. Second, that the immoveable property in question must be exclusively used for the purposes of trade and commerce only. Third, that in determining whether a dispute arose out of an agreement relating to an immoveable property would qualify as a commercial dispute, a contextual analysis considering the specific language of the contract would be necessary. Fourth, that such disputes would also include matters of recovery of property, realization of money, or any other relief pertaining to commercial activities.

With regard to the said conditions, the Court held that the agreement between the petitioners and respondent was exclusively for the business operation and management of the Hotel, thus making the dispute fall within the ambit of a commercial dispute.

“The Hotel was actually being used for trade and commerce, and the agreement between the parties was for the purpose of business management and operations exclusively. It is evident from the nature of the agreement that the primary purpose was to facilitate and manage commercial activities related to the Hotel.”

The Court held that the argument that the Hotel was not “actually used” for trade or commerce lacked merit. It was held that the Commercial Court had taken a parochial approach, ignoring the broader context of the agreement and had failed to consider the commercial nature of the dispute. A direction was issued to the Commercial Court, Varanasi to set aside the order dated 17.01.2023 and to consider the suit filed by the petitioner afresh, on its merits.

Case Title: Mamta Kapoor and Another v. Vinod Kumar Rai 2024 LiveLaw (AB) 382 [MATTERS UNDER ARTICLE 227 No. – 4127 of 2023]

Case citation: 2024 LiveLaw (AB) 382

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