Does A Dispute Arising After A Joint Venture Exit Remain A Commercial Dispute? Kerala High Court Answers
The Kerala High Court has recently held that a dispute arising from an agreement executed to facilitate a partner's exit from a joint venture continues to qualify as a "commercial dispute" under the Commercial Courts Act, 2015, even if the claim is based on the dishonour of a cheque issued pursuant to the exit arrangement.
Justice Easwaran S. delivered the judgment while dismissing a plea challenging an order of the Commercial Court, Devikulam, rejecting an objection to the maintainability of a commercial suit.
The dispute arose from a joint venture agreement between the parties. The respondent decided to exit the venture, following which the parties entered into an agreement on September 10, 2021. Under the agreement, the petitioner agreed to pay ₹20 lakh to the respondent. A cheque issued towards the agreed amount was subsequently dishonoured due to insufficient funds, prompting the respondent to institute a commercial suit before the Commercial Court at Devikulam.
The petitioner entered appearance in the suit but failed to file a written statement within the mandatory period of 90 days or even within the outer limit of 120 days prescribed for commercial suits. Thereafter, he filed an interlocutory application contending that the dispute did not arise from a commercial transaction and therefore ought to be tried as an ordinary civil suit rather than as a commercial suit.
The petitioner argued that once the respondent had exited the joint venture, the subsequent dispute relating to dishonour of the cheque no longer arose out of the joint venture agreement. Consequently, he submitted that the claim fell outside the definition of a "commercial dispute" under Section 2(1)(c)(xi) of the Commercial Courts Act.
The respondent relied on decisions of the Delhi High Court, including Jatin Jain v. Anuj Jain and others (2024) to contend that the expression "arising out of" in Section 2(1)(c) has a wide ambit and encompasses disputes relating to obligations flowing from joint venture agreements.
The High Court first observed that the petitioner's failure to file a written statement within the mandatory timeline under Order VIII Rule 1 of the Code of Civil Procedure, as applicable to commercial suits, was a significant factor. The court observed that the objection could perhaps have been raised in the written statement and that the defendant's failure to deliver his defence was a relevant factor while considering the later application.
The Court further held that Section 2(1)(c)(xi) expressly includes disputes arising out of joint venture agreements within the ambit of commercial disputes. The Court observed that accepting the petitioner's argument would defeat the legislative purpose behind the Commercial Courts Act, which was enacted to ensure speedy resolution of commercial disputes.
The court relied on Delhi High Court's decision in T.V. Today Network Limited v News Laundry Media Private Ltd. (2022) where the Court interpreted that the words "arising out of" are broad enough to cover disputes relating to contractual obligations, damages, and mutual rights and liabilities connected with joint venture agreements
The Court held that the exit agreement under which the respondent agreed to leave the joint venture was itself intrinsically connected to the original joint venture arrangement. Even if the dishonoured cheque had not been issued, the respondent could have sought enforcement of the exit agreement, which directly stemmed from the joint venture. Therefore, the dispute retained its commercial character.
“Admittedly, in the present case the plaintiff exited from the joint venture agreement based on the agreement entered into between the parties as evident from Ext.P4. The defendant had no case that he is not bound by the terms and conditions of Ext.P4 agreement. Even assuming, for the sake of argument, that the defendant had not issued cheque which is the subject matter of the suit, even then, he was entitled to maintain the suit for recovery of money by seeking specific performance of Ext. P4 agreement, which, in turn, directly leads to the issue arising out of the Joint Venture Agreement.” Court observed.
The court thus held that the Commercial Court was justified in rejecting the application questioning the maintainability of the suit and dismissed the Original Petition.
For Petitioner: Advocate Latheesh Sebastian
For Respondent: Advocates Manu Vyasan Peter, P.B. Subramanyan, Sabu George,