A dispute involving a lease agreement for a property used for trade or commerce is a "commercial dispute"

Delhi High Court Affirms Commercial Nature of Lease for Garment Showroom in Residential Area The court rules that a lease agreement for property in a residential area, used for commercial purposes, qualifies as a "commercial dispute" under the Commercial Courts Act, 2015.

In a significant ruling, the Delhi High Court has concluded that a lease agreement for a property located in a residential area, which was used for commercial activities, qualifies as a "commercial dispute" under the provisions of the Commercial Courts Act, 2015. The division bench, comprising Justices Anil Kshetarpal and Harish Vaidyanathan Shankar, delivered the judgment in the case of TCNS Clothing Company Limited v. Sunil Kumar, reversing an earlier judgment by the District Judge (Commercial Court)-02, Patiala House Court.

The dispute arose from a lease agreement executed in 2016, wherein TCNS Clothing Company Limited leased a property in Mahipalpur, New Delhi, to operate a garment showroom. The property, though situated in a residential area, was used for commercial purposes, which led the Municipal Corporation of Delhi to seal it in 2018. Following this, TCNS terminated the lease and sought a refund of the security deposit, which the respondents refused, leading to a legal battle.

The primary issue before the court was whether such a lease agreement qualifies as a commercial dispute under Section 2(1)(c)(vii) of the Commercial Courts Act, which pertains to agreements related to immovable property used exclusively in trade or commerce. The District Judge had earlier ruled that the dispute did not qualify as a commercial dispute since the property was residential by nature according to the Master Plan and local laws.

The High Court, however, emphasized the actual use of the property at the time of the agreement and during its operation as the determining factor. Relying on the precedent set in Ambalal Sarabhai Enterprises Ltd. v. Kanoria Chemicals and Industries Ltd., the court noted that the property was "actually used" for commercial purposes as a garment showroom, thus satisfying the definition of a commercial dispute.

Furthermore, the court rejected the argument that the property's residential classification under municipal laws disqualified it from being considered a commercial dispute. It highlighted that any illegal or unauthorized use of an immovable property would be regulated by municipal authorities but does not render the underlying contract void.

This ruling underscores the court's inclination to interpret the provisions of the Commercial Courts Act in a manner that aligns with practical commercial realities and supports the intent of the legislature to expedite the resolution of commercial disputes.

Bottom Line:

Commercial Courts Act, 2015 - A dispute involving a lease agreement for a property used for trade or commerce, even if situated in a residential area, qualifies as a "commercial dispute" under Section 2(1)(c)(vii), provided the property was actually used for commercial purposes.

Statutory provision(s): Commercial Courts Act, 2015, Section 2(1)(c)(vii); Code of Civil Procedure, 1908, Order XLIII Rule 1(a), Section 151, Order VII Rule 11(d); Indian Contract Act, 1872, Section 23.

TCNS Clothing Company Limited v. Sunil Kumar, (Delhi)(DB) : Law Finder Doc Id # 2810153