[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 BackgroundThe 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 VerdictThe 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...

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

Upasna Agrawal

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