Dispute Over Property Used Exclusively For Trade Constitutes Commercial Dispute Even If Situated In Residential Area: Delhi High Court

The Delhi High Court held that a dispute arising from a lease agreement under which premises were used actually used for running a retail showroom qualifies as a commercial dispute under section 2(1)(c)(vii) of the Commercial Courts Act, 2015 even if the property is situated in a residential zone under the Municipal Law. A Division Bench of Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar set aside the Patiala Court's decision of returning the plaint on the ground that the place was residential and not used exclusively in trade and commerce. The court held that the parties executed a lease expressly permitting commercial use and the place was used for running a retail TCNS showroom, the dispute falls within the ambit of the Commercial Courts Act. TCNS clothing company entered in a nine year lease agreement for premises at Mahipalpur, New Delhi to operate a branded retail garment showroom. The lease contained multiple clause showing that the property was take solely for commercial operations. The Municipal Corporation sealed the premises in 2018 for an unauthorised commercial use. TCNS terminated the lease and claimed refund of ₹7.6 lakh security deposit. The TCNS filed a commercial suit when the landlord failed to refund the amount. The District Judge returned the plaint holding that since the property was residential under the Master Plan, the dispute did not qualify as a commercial dispute. TCNS had filed an appeal under Order XLIII Rule 1(a) read with Section 151 of the Code of Civil Procedure, 1908 before the High Court. The Court observed that the property was actually used for trade and commerce. Therefore, the dispute falls squarely within the ambit of the Commercial Courts Act. It relied on the Supreme Court's judgment in Ambalal Sarabhai Enterprises where it was held that "used" mean actually used or being used exclusively for trade. “For the purpose of exercising jurisdiction under the CC Act and in particular Section 2(1)(c)(vii), the immovable property must be “actually used” or is “being used” “exclusively in trade or commerce”. Both the Hon‟ble Judges have clearly concurred that the manner in which the said section would need to be construed is based on a determination as to whether the property was “actually used” or “being used” for the purpose of trade or commerce”, the court observed quoting the Supreme Court in Ambalal. Based on the above, the court held that the property was used as a garment showroom. Rejecting the reasoning in Soni Dave, the court held that municipal zoning violations are regulatory issues, not matters that determine the jurisdiction of the commercial courts. It further held that illegality under municipal laws does not render the lease void under section 23 of the Indian Contract Act. It held that “the alleged restriction on commercial use of the premises emanates from municipal or zoning regulations, which are regulatory in nature and primarily require the obtaining of appropriate licenses and permits, as has been provided for in Clause 18 of the Lease Deed. Such restrictions, even if breached, may invite administrative action, action under the Municipal laws or necessitate regularization; however, they do not, per se, render the underlying contract void within the meaning of Section 23 of the Indian Contract Act, 1872.” A large number of establishments operate in a mixed or residential areas in cities like Delhi, excluding them from the purview of the Commercial Courts Act would render it ineffective, the court said. The court held that “if the actual agreement as between the parties relates to the carrying out of some trade or commerce from an immoveable premises, which activity of trade or commerce itself, is per se, neither illegal nor prohibited, the mere fact that the agreement for such an activity pertains to the carrying out of the same from an immoveable property, where such activity may not be permitted to be carried out, would not, by itself remove such disputes from the ambit of the CC Act..” The court invoked the principle nullus commodum capere potest de injuria sua propria holding that the parties cannot take benefit of their own wrong. It said that “Having themselves executed and derived benefit under a lease for commercial use of the premises, the respondents cannot now disavow the commercial nature of the lease.” Accordingly, the Court allowed the appeal, holding that a property actually used exclusively for commercial purposes cannot be excluded from the ambit of the Commercial Courts Act merely because it was situated in a residential area. Case Title: TCNS CLOTHING COMPANY LIMITED versus SUNIL KUMAR & ANR.Citation: 2025 LiveLaw (Del) 1552 Case Number: FAO (COMM) 2/2025 Judgment Date: 17/11/2025 For Appellate: Mr. Mukesh Aggarwal, Advocate For Respondent: Mr. Jitender Solanki, Mr.Praveen Sehrawat and...

Dispute Over Property Used Exclusively For Trade Constitutes Commercial Dispute Even If Situated In Residential Area: Delhi High Court

Mohd Malik Chauhan

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