The Bombay High Court has held that under Section 2(1)(c)(vii) of the Commercial Courts Act, a dispute relating to immovable property becomes a commercial dispute only when the property is actually and exclusively used in trade or commerce at the relevant time. Mere intended, proposed, or future business use is not enough. A leave and licence dispute concerning office premises, where possession was never handed over and where actual exclusive commercial use at the time of the agreement is not shown, does not qualify as a commercial dispute merely because the licensee is a business entity and intended to use the premises for business purposes.
The Court also clarified that where a Commercial Court lacks jurisdiction because the dispute is not a commercial dispute, the plaint should not be rejected outright on that ground. The proper course is to return the plaint under Order VII Rule 10 of the Code of Civil Procedure for presentation before the proper ordinary civil court.
A Single Judge Bench of Justice N. J. Jamadar first explained the purpose of the Commercial Courts Act, and noted that the Act creates a special and speedier mechanism for resolution of commercial disputes, originally for high-value claims and later extended to lower-value claims as well. Because the Act provides a special procedure and stricter timelines, only disputes that clearly fall within the statutory definition of “commercial dispute” can be tried by Commercial Courts; ordinary civil disputes cannot be brought into that framework merely by broad interpretation.
The Court identified the central issue as whether this dispute arose out of an agreement relating to immovable property “used exclusively in trade or commerce” under Section 2(1)(c)(vii) of the Act. The Court reproduced the statutory language and emphasized that the real controversy was the meaning of the words “used exclusively in trade or commerce”.
Referring to the Supreme Court’s decision in Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP [(2020) 15 SCC 585], the High Court said the word “used” in Section 2(1)(c)(vii) means “actually used” and not “likely to be used”, “ready for use”, or “to be used” in future. The Court stressed that a dispute relating to immovable property becomes a commercial dispute only if the property was in fact being used exclusively in trade or commerce at the relevant time. A broad reading based on future or proposed use would defeat the object of the Act and unnecessarily expand Commercial Court jurisdiction.
Applying that test, the High Court found that the Commercial Court had proceeded on the wrong basis. It had focused on the intended use of the premises by the plaintiff for its interior designing business, instead of examining the actual use of the premises at the time the leave and licence agreement was executed. The High Court held that what mattered was the present and actual user of the premises at the time of the agreement, not the plaintiff’s future plan to use it for business.
The Court also held that the fact that the premises were described as “office premises” and were situated in a business park was not enough by itself to show that they were being used exclusively in trade or commerce. The agreement did not show that the defendants were themselves using the premises exclusively for trade or commerce when the agreement was entered into. The Court made it clear that use as an office does not automatically mean exclusive use in trade or commerce for the purpose of Section 2(1)(c)(vii).
Briefly, a petition was filed by the defendants against an order of the Commercial Court, Mazgaon, which had refused to reject a commercial suit filed by the plaintiff company. The underlying suit was for refund of a Rs. 5 lakh security deposit, along with interest, under a leave and licence arrangement. The defendants argued that the dispute was not a “commercial dispute” under the Commercial Courts Act, 2015, and therefore the Commercial Court had no jurisdiction to try it.
The plaintiff company was engaged in architectural and interior designing business, while the defendants were the joint owners of office premises at Neelkanth Business Park, Vidyavihar, Mumbai. In March 2020, the parties executed a registered leave and licence agreement for 36 months from 1 April 2020 to 31 March 2023. The agreement required the plaintiff to pay a security deposit of Rs. 5 lakhs and provided for staggered monthly licence fees over the three-year term. The premises were to be used by the plaintiff as an office for carrying on its business and allied lawful activities.
According to the plaintiff, the defendants failed to hand over possession of the licensed premises despite repeated demands. The plaintiff claimed that because possession was not delivered, it had to continue with another premises and suffered losses. It therefore terminated the leave and licence agreement by communication dated 10 June 2020 and sought refund of the security deposit. The defendants, however, blamed the plaintiff and the dispute eventually resulted in the suit before the Commercial Court for refund of the deposit with interest.
The defendants then filed a notice of motion seeking rejection of the plaint on the ground that the dispute did not qualify as a commercial dispute. The Commercial Court rejected that objection, holding that since the plaintiff was a commercial entity and the premises were intended to be used as an office for its business in a business park, the matter fell within Section 2(1)(c)(vii) of the Commercial Courts Act.
