Commercial Dispute Classification: Supreme Court Clarifies Applicability of Commercial Courts Act

The Supreme Court of India, in the case of Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP & Anr., clarified the scope of commercial disputes under the Commercial Courts Act, 2015. The judgment addressed whether an agreement related to immovable property qualified as a commercial dispute. The appellant had filed a suit before the Commercial Court in Vadodara, which was later transferred by the Gujarat High Court to an appropriate civil court. The Supreme Court upheld the High Court’s decision, stating that the transaction in question did not meet the criteria for a commercial dispute.

The case revolved around an agreement to sell land, followed by an assignment of rights and a mortgage deed. The appellant argued that the transaction fell within Section 2(1)(c)(vii) of the Commercial Courts Act, which covers disputes related to immovable property “used exclusively in trade or commerce.” However, the respondents contended that the land was not in commercial use at the time of the transaction.

Arguments by the Appellant

The appellant, represented by senior counsel, argued that the land in question had historically been used for industrial purposes and was intended for further commercial development. The appellant emphasized that:

• The land was part of a business transaction involving commercial property.
• The mortgage deed and memorandum of understanding were executed as part of a commercial agreement.
• The nature of the business activities on the land should be considered as trade and commerce.

Arguments by the Respondents

The respondents argued that:

• The appellant had ceased operations on the land years before the transaction.
• The land was not actively used for trade or commerce at the time of the sale.
• The Commercial Courts Act applies only to immovable property that is actually used for trade or commerce, not property that is merely intended for future commercial use.

Supreme Court’s Verdict

A bench comprising Justices A.S. Bopanna and R. Banumathi ruled in favor of the respondents, stating:

“A dispute relating to immovable property per se may not be a commercial dispute. But it becomes a commercial dispute if it falls under sub-clause (vii) of Section 2(1)(c) of the Act, viz. agreements relating to immovable property used exclusively in trade or commerce.”

The Court held that for a property transaction to be classified as a commercial dispute:

• The property must be in actual use for trade or commerce at the time of the transaction.
• A mere intention to use the property for commercial purposes in the future is not sufficient.
• The transaction should involve the active engagement of the property in trade or commerce.

Final Ruling

The Supreme Court upheld the Gujarat High Court’s decision to transfer the case to a civil court, ruling that:

• The dispute did not qualify as a commercial dispute under the Commercial Courts Act.
• The appellant failed to establish that the property was in active commercial use at the relevant time.
• The Commercial Court lacked jurisdiction over the case, as it fell outside the Act’s purview.

This judgment sets a significant precedent in defining the applicability of the Commercial Courts Act, ensuring that only disputes directly related to ongoing commercial activities are classified under its jurisdiction.

Petitioner Name: Ambalal Sarabhai Enterprises Ltd..
Respondent Name: K.S. Infraspace LLP & Anr..
Judgment By: Justice A.S. Bopanna, Justice R. Banumathi.
Place Of Incident: Vadodara, Gujarat.
Judgment Date: 04-10-2019.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Ambalal Sarabhai Ent vs K.S. Infraspace LLP Supreme Court of India Judgment Dated 04-10-2019.pdf