The Conundrum Of “Commercial Disputes”

Background

India opened up its economy to the world in 1991, however the requisite changes in the judiciary to support this step weren't prioritized. This resulted in an overburdened judiciary plagued by lack of infrastructure and trained judges required to resolve high value complex commercial matters. Thus, a need arose to establish a court specialized in resolving high value commercial litigation in a time-bound manner which would help attract more foreign investment into India. To achieve this goal, the Commercial Courts Act (“Act”) was enacted in the year 2015. The Act identifies and categorizes 'commercial disputes', in order to resolve them swiftly which would promote the ease of doing business in India.

Since the Act prioritizes swift resolution of disputes, it becomes vital to categorize and segregate disputes as commercial disputes and non-commercial disputes. Such segregation ensures that the benefits of the Act are available to those who are primarily involved in trade and commerce, thereby ensuring that businesses are not entangled in prolonged and costly legal battles, which would adversely impact their business. However, since commercial courts are imbued with a sense of urgency and fast-tracking of matters, eager litigants try and categorize every dispute as a commercial dispute in order to reap these benefits. Thus, categorization of disputes as 'commercial dispute' or non-commercial disputes becomes pivotal to ensure the intention behind enactment of the Act is met, in both letter and spirit.

Judicial Interpetations

Though the Act at Section 2(1)(c) lays down a list of disputes which are considered as 'commercial disputes', the said list is not an exhaustive one and thus courts need to consider the facts of each case to determine whether the underlying subject matter is in fact a commercial dispute ^[3]. One of the landmark decisions with respect to commercial disputes was propounded by the Apex Court in the matter of Ambalal Sarabhai Enterprises Ltd. Vs. K.S. Infraspace LLP and Ors^[4]. In the said case, the Supreme Court has held that the very purpose of the Act was to provide early disposal of high value commercial disputes and hence, the provisions of the Act require to be strictly construed. The Apex Court has held that entertaining non-commercial disputes in commercial courts would clog up the system and block the way for disposal of genuine commercial disputes, while emphasising that quick disposal of commercial disputes will benefit the litigants especially those who are engaged in trade and commerce which will in turn further economic growth of the country. This interpretation posited by the Supreme Court makes it abundantly clear that the Act is intended to benefit those who further economic advancement of the country as opposed to just high-value litigations or litigations which influence only the private sphere.

In consonance with the above view, the Telangana High Court in Smt. Sharada Devi Kedia Vs. Kisna Avenues Pvt. Ltd.^[5] has held that 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 court questioned as to whether every agreement with a measure of trade or commerce serve as a starting point of a commercial dispute. The court disagreed and held that categorisation of a dispute under the Act depends on particular facts of each individual case and there can hardly be a standardized formula for assessment and categorization. This interpretation emphasises that the impact of the transaction must be considered in categorization rather than relying on the terminology used therein.

While dealing with a case of an employment contract, the Karnataka High Court has held in the case of Sanjay Kumar vs. Elior India Food Services LLP ^[6] that merely because a dispute arises from or out of a business or trade, all of them cannot be categorized as commercial disputes. The Court while holding that employment contracts would not constitute a commercial dispute has explained that a simple contract of employment cannot be given a colour of a commercial dispute by dressing it to be a provision of services and also held that if every employment contract is brought within the ambit of commercial dispute then it will be opening the pandora's box or opening the flood gates that would clog the commercial courts.

The comprehensive categories of agreements included in Section 2(1)(c) leaves no doubt that the Act intends not only to deal with the disputes mentioned therein, but also to bring within its fold an inclusive range of disputes where the underlying purpose of the transaction has a commercial interest of the parties^[7]. Additionally, it has also been clarified that in cases wherein more than one relief has been sought and only one of them is of a commercial dispute, litigants need not approach multiple forums to seek relief qua the other reliefs^[8].

It is an undisputed fact that whether a dispute is commercial in nature or not depends on the particular facts of each individual case and a strait jacket formula for categorization cannot be formulated. However, the plethora of orders dealing with this topic have all categorically held that in order to qualify as a 'commercial dispute', the dispute in question must be of such nature as to affect the economy at large and not just an individual's predicament. Therefore, organizations which are contemplating knocking on the doors of the Commercial Courts must keep in mind that if a dispute is not specifically mentioned in Section 2(1)(c) of the Act, then it must be of such a nature which would have a larger effect on the economy. However, if there are multiple reliefs being sought, and one of them is commercial in nature, then the aggrieved need not approach multiple forums to deal with the disputes arising out of a single transaction.