Intended Business Use Of Office Premises Does Not Make Dispute Commercial: Bombay High Court

The Bombay High Court has recently reiterated that merely intending to use office premises for business is insufficient to bring a dispute within the jurisdiction of a Commercial Court.

It ruled that the Commercial Courts Act requires the immovable property to have been actually used exclusively in trade or commerce and not merely intended or proposed to be so used.

Justice N.J. Jamadar observed, “Indeed, the Commercial Courts Act,2015 does not define the expression “trade” or “commerce”. However, words “trade” and “commerce” have definite connotations. The mere fact that a premises used as an office premises does not necessarily imply that the said premises is being used for trade or commerce."

The ruling came while allowing in part a petition filed by Jayshree Jagdish Thakker and Jagdish L. Thakker challenging an order of the Commercial Court at Mazgaon, which had refused to reject a commercial suit on the ground that the dispute did not qualify as a "commercial dispute."

Pragati Infra Interiors Pvt. Ltd., an architectural and interior designing company, had entered into a registered leave and licence agreement dated March 4, 2020 with the owners of an office premises at Neelkanth Business Park.

The agreement, commencing from April 1, 2020 for 36 months, required the company to pay a security deposit of ₹5 lakh and monthly licence fees ranging from ₹95,000 to ₹1.05 lakh. The premises were agreed to be used as an office for carrying on its business and allied lawful activities.

According to the company, the owners repeatedly failed to hand over possession of the premises despite demands. It terminated the agreement in June 2020 and sought a refund of the security deposit with interest before the Commercial Court.

The owners sought rejection of the plaint, contending that the dispute did not fall within the definition of a commercial dispute because the premises had never been actually used in trade or commerce. They also argued that the company never occupied the premises and, therefore, they were justified in forfeiting the security deposit.

The company opposed the plea, arguing that the premises had been licensed for business purposes, were situated in a commercial complex and the claim for a refund of the security deposit following termination of the agreement was therefore a commercial dispute.

Examining the rival submissions, the court considered Section 2(1)(c)(vii) of the Commercial Courts Act in the light of the Supreme Court's decision in Ambalal Sarabhai Enterprises Limited v. K.S. Infraspace LLP.

The court noted,“The Supreme Court has emphasised that the expression “used exclusively in trade or commerce” is to be interpreted in a purposive manner. 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”. Lest, the wide interpretation would defeat the objects of the Commercial Courts Act and the fast track procedure enshrined therein.”

Applying that principle, the court held that the Commercial Court had incorrectly treated the intended use of the premises as sufficient. What the statute required was proof of the actual use of the property at the time of execution of the leave and licence agreement.

The court observed, “In substance, what was required to be considered by the learned Judge was the use of the subject premises in praesenti (at the time of execution of the Agreement for Leave and License) and not its proposed or intended user.”

The court also rejected the company's reliance on the Delhi High Court's decision in TCNS Clothing Company Limited v. Sunil Kumar & Anr. It noted that, unlike the agreement in that case, the present leave and licence agreement merely described the premises as office premises and did not indicate that they were actually being used exclusively for trade or commerce. The court further noted that the company never took possession of the premises.

Holding that the dispute did not fall within the ambit of a commercial dispute, the court nevertheless clarified that the plaint could not be rejected on that ground. Instead, the proper course was to return it for presentation before the competent ordinary civil court under Order VII Rule 10 of the Code of Civil Procedure.

The High Court accordingly set aside the Commercial Court's order and directed that the plaint be returned for presentation before the ordinary City Civil Court.