The Bombay High Court has clarified a critical jurisdictional threshold under the Commercial Courts Act, 2015: a dispute arising from a Leave and License Agreement qualifies as a commercial dispute only if the immovable property in question is actually used in trade or commerce, not merely intended for such use. This judgment underscores the need for strict interpretation of statutory definitions to prevent clogging of commercial courts with ordinary civil disputes.
Background & Facts
The Dispute
The petitioners, Jayshree Jagdish Thakker and Jagdish L Thakker, are joint owners of an office premises (D-714, Neelkanth Business Park, Vidyavihar, Mumbai). In February 2020, they entered into a Leave and License Agreement with the respondent, Pragati Infra Interiors Pvt Ltd, for a term of 36 months commencing from 1st April 2020. The agreement stipulated:
- A security deposit of Rs. 5,00,000
- Licence fees escalating from Rs. 95,000/month (first 12 months) to Rs. 1,05,000/month (final 12 months)
- The premises was to be used as an office for the respondent’s interior designing business
The petitioners failed to deliver possession of the premises despite repeated demands. The respondent claimed this forced them to extend the licence term of another premises, incurring losses. On 10th June 2020, the respondent terminated the agreement and demanded a refund of the security deposit. The petitioners, however, denied liability and raised false defences in a communication dated 19th June 2020.
Key Facts
- 4th March 2020: Leave and License Agreement executed for 36 months (1st April 2020 to 31st March 2023)
- Security deposit: Rs. 5,00,000 paid by the respondent
- Licence fees: Rs. 95,000/month (first year), Rs. 99,500/month (second year), Rs. 1,05,000/month (third year)
- June 2020: Petitioners sought further time to vacate the premises
- 10th June 2020: Respondent terminated the agreement via written communication
- 19th June 2020: Petitioners responded with fabricated defences, denying liability
- Subsequent legal notice: Issued by the respondent demanding refund of the security deposit with 15% interest
Procedural History
- Commercial Suit No. 100360 of 2023: Filed by the respondent before the Commercial Court at Mazgaon, seeking refund of Rs. 5,00,000 with 15% interest
- Notice of Motion No. 101534 of 2024: Filed by the petitioners seeking rejection of the plaint on the ground that the dispute was not a commercial dispute under the Commercial Courts Act, 2015
- 9th December 2024: Commercial Court rejected the Notice of Motion, holding the dispute fell under Section 2(1)(c)(vii) of the Act
- Present Petition: Filed under Article 227 of the Constitution challenging the Commercial Court’s order
Relief Sought
The petitioners sought:
- Quashing of the Commercial Court’s order dated 9th December 2024
- Rejection of the plaint on the ground of lack of jurisdiction
- Return of the plaint to the respondent for presentation before the appropriate civil court
The Legal Issue
The central question was whether a dispute arising from a Leave and License Agreement for an office premises qualifies as a commercial dispute under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, where the property was never actually used in trade or commerce, but was merely intended for such use.
Arguments Presented
For the Petitioners
- The Commercial Court misconstrued Section 2(1)(c)(vii) of the Act, which requires the immovable property to be exclusively used in trade or commerce
- The intended use of the premises (as an office) is irrelevant; what matters is the actual use at the time of the agreement
- The respondent never occupied the premises, and thus, the dispute does not satisfy the statutory test
- The Commercial Court ignored material facts, including the petitioners’ financial loss due to non-delivery of possession
- Reliance was placed on the Supreme Court’s judgment in Ambalal Sarabhai Enterprises Limited v. K.S. Infraspace LLP, which mandates actual use of the property in trade or commerce
For the Respondent
- The Leave and License Agreement explicitly stated the premises was to be used for business purposes
- The premises was situated in a commercial complex, and the respondent is a commercial entity
- The refund of security deposit upon termination of the agreement constitutes a commercial dispute under Section 2(1)(c)(vii) read with the Explanation thereto
- The Delhi High Court’s judgment in TCNS Clothing Company Limited v. Sunil Kumar supports the view that intended use suffices for jurisdiction
- The Commercial Courts Act is intended to cover disputes between commercial entities, and the nature of the agreement (not its execution) determines jurisdiction
The Court's Analysis
The Court undertook a purposive interpretation of Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, which defines a commercial dispute as one arising from agreements relating to immovable property used exclusively in trade or commerce. The Explanation clarifies that such disputes do not cease to be commercial merely because they involve recovery of immovable property or monies secured by it.
Key Legal Principles
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Actual Use vs. Intended Use: The Court relied on the Supreme Court’s judgment in Ambalal Sarabhai Enterprises Limited v. K.S. Infraspace LLP, which held that the expression “used exclusively in trade or commerce” must be interpreted strictly. The word “used” denotes actual use, not “ready for use”, “likely to be used”, or “intended to be used”. The Commercial Courts Act is designed for speedy resolution of genuine commercial disputes, and a liberal interpretation would defeat its object by clogging commercial courts with ordinary civil disputes.
“The words ‘used exclusively in trade or commerce’ are to be interpreted purposefully. The word ‘used’ denotes ‘actually used’ and it cannot be either ‘ready for use’ or ‘likely to be used’ or ‘to be used’. It should be ‘actually used’. Such a wide interpretation would defeat the objects of the Act and the fast tracking procedure discussed above.”
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Distinction Between Actual and Intended Use: The Commercial Court erred by focusing on the intended use of the premises (as an office for business) rather than its actual use at the time of the agreement. The Leave and License Agreement described the premises as an “office”, but there was no indication that it was exclusively used in trade or commerce. The mere fact that the premises was in a commercial complex or that the respondent intended to use it for business does not satisfy the statutory test.
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Precedential Value of TCNS Clothing Company Limited: The Court distinguished the Delhi High Court’s judgment in TCNS Clothing Company Limited v. Sunil Kumar, where the lease agreement explicitly stated the property was to be used for a retail showroom. In that case, the intended use was clear from the agreement itself, and the lack of regulatory permission did not detract from the commercial nature of the dispute. However, in the present case, the agreement did not indicate actual use in trade or commerce, and the respondent never occupied the premises.
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Jurisdictional Limits of Commercial Courts: The Court emphasised that ordinary civil disputes must be entertained by civil courts to prevent clogging of commercial courts. If non-commercial disputes are allowed to be tried as commercial disputes, it would defeat the legislative intent of providing expeditious resolution for genuine commercial disputes.
“If the ordinary suits are entertained as the commercial suits by unduly expanding the definition of ‘commercial dispute’, such suits would clog the system and block the way for the genuine commercial disputes which may have to be entertained by the Commercial Courts as intended by the law makers.”
The Verdict
The Court partly allowed the petition and set aside the Commercial Court’s order dated 9th December 2024. The Notice of Motion No. 101534 of 2024 was partly allowed, and the plaint in Commercial Suit No. 100360 of 2023 was directed to be returned to the respondent for presentation before the ordinary City Civil Court. The plaint was ordered to be returned on 28th July 2026. The rule was made absolute, and no costs were awarded.
What This Means For Similar Cases
Strict Interpretation of “Used Exclusively in Trade or Commerce”
- Practitioners must emphasise actual use of the property in trade or commerce to invoke Commercial Courts Act jurisdiction
- Intended use or proposed use is insufficient to bring a dispute within the ambit of Section 2(1)(c)(vii)
- Agreements must explicitly state that the property is actually used for trade or commerce, not merely intended for such use
Jurisdictional Challenges in Commercial Disputes
- Commercial Courts lack jurisdiction over disputes where the property was never actually used in trade or commerce
- Defendants can challenge jurisdiction by demonstrating that the property was not exclusively used for commercial purposes at the time of the agreement
- Plaints may be returned for presentation before the appropriate civil court if the dispute does not meet the statutory definition of a commercial dispute
Practical Implications for Leave and License Agreements
- Draft agreements carefully: Ensure that the purpose clause explicitly states actual use in trade or commerce if the parties intend to invoke Commercial Courts Act jurisdiction
- Document actual use: Maintain records (e.g., utility bills, business registrations) proving the property was actually used for commercial purposes
- Jurisdictional strategy: If the property was not actually used for trade or commerce, consider filing in civil courts to avoid jurisdictional challenges
