Telangana High Court
Smt.Sharada Devi Kedia vs Kisna Avenues Pvt. Ltd. on 16 July, 2024
THE HON'BLE SMT. JUSTICE MOUSHUMI BHATTACHARYA
AND
THE HON'BLE SMT. JUSTICE M.G.PRIYADARSINI
CIVIL REVISION PETITION No.1622 OF 2024
ORDER:
(Per Hon'ble Justice Moushumi Bhattacharya)
The Civil Revision Petition arises out of an impugned docket
order passed by the Trial Court on 03.04.2024 on an application
filed by the petitioners herein for impleading certain parties as
respondents in the Arbitration Original Petition (ARB.O.P.No.13 of
2023).
2. The impugned order however discusses the nature of the
dispute between the petitioners (also petitioners in the Trial Court)
and the respondents and concludes that the dispute between the
parties is not a commercial dispute and the Court accordingly has
jurisdiction to entertain the petition.
3. We should clarify that the parties in the Civil Revision
Petition have argued on the nature of the dispute, that is, whether
the dispute is a "Commercial Dispute" as defined under the
provisions of The Commercial Courts Act, 2015, and whether the
Trial Court, not being a designated Commercial Court, had the
jurisdiction to entertain the petitioners' application for addition of
parties. In essence, learned counsel appearing for the petitioners
argues that the learned Ist Additional District Judge, Ranga Reddy
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District at L.B. Nagar, did not have jurisdiction to entertain the
petition since it is not a "Commercial Court" as defined under
sections 2(1)(b) and 3(1) of the 2015 Act, while learned counsel
appearing for the respondents urges otherwise.
4. The issue of extension of the Arbitrator's mandate under
section 29-A of The Arbitration and Conciliation Act, 1996, as
applied for by the respondent No.1/claimant was not the issue
before the Trial Court. Counsel have mentioned this issue as a
part of the back-story to the dispute.
5. We proceed to give our reasons only on the point of the
nature of the dispute brought before the Trial Court.
What is a "Commercial Dispute"?
6. Whether a dispute qualifies as a 'commercial dispute' as
delineated under section 2(1)(c) of The Commercial Courts Act,
2015, would essentially be a matter of interpretation of the
Agreement. Section 2(1)(c) defines 'commercial dispute' as a
dispute arising out of a wide array of agreements from ordinary
transactions of merchants and bankers to export and import of
merchandise, admiralty and carriage of goods, license agreements,
JVAs, technological development agreements, intellectual property
rights, insurance and contracts of agency. The Explanation to
Section 2(1)(c) clarifies that an action for recovery of immovable
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property or where one of the contracting parties is the State or a
private body carrying out public functions may qualify as a
commercial dispute. The range of agreements from (i) - (xxii) of
section 2(1)(c) presumes that the agreements must have a
commercial substratum i.e., a commercial flavour with regard to
the understanding of the parties to the agreement and the impact
of the agreement on trade and commerce as a whole.
7. In essence, a commercial dispute would be one where the
nature of the agreement or the consequence arising therefrom
would take the effect of the agreement beyond the private sphere of
the contracting parties and create a ripple-effect of commercial
movement beyond the main actors to the agreement. The specific
nomenclatures of the agreements in section 2(1)(c) indicates that a
dispute cannot readily be presumed to be a commercial dispute.
The object and specific clauses of the agreement would always be
the determinant of whether the source-agreement fits into 1 or
more of the sub-clauses to section 2(1)(c) of the 2015 Act. The
criterion is whether the parties to the agreement understood and
envisaged the agreement as one falling under sub-clause 3 (i) -
(xxii) to section 2(1)(c) and intended to treat the agreement as such.
8. Which begs the question: can each and every dispute
automatically be categorized as a 'commercial dispute' under
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Section 2(1)(c) of the 2015 Act? The answer to this question must
be an emphatic "NO".
The more relevant question would be: Would every agreement
with a measure of trade or commerce serve as the starting-point of a
commercial dispute?
The answer to this must also logically and invariably be in
the negative. The reason for this view comes in the later part of
this judgment.
The Development Agreement from which the dispute arises:
9. In the facts of the present case, the petitioners/landowners
entered into a Development Agreement-cum-General Power of
Attorney (DAGPA) dated 27.07.2007 with the respondent No.1
developer in the form of an Agreement of Sale of the land located at
Ranga Reddy District in the State of Telangana. The respondent
No.1 developer agreed to develop and sell the land to any
prospective purchasers and execute Sale Deeds in favour of the
purchasers as well as complete the registration of the Sale Deed on
behalf of the Vendors/petitioners/landowners. The respondent
No.1 further agreed to develop and divide the land into plots and
lay roads and amenities by obtaining sanction from the concerned
authorities. The petitioners and the respondents agreed to share
the farm units on a 60% - 40% ratio, respectively.
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10. Clause 6 of the DAGPA provides that the respondent
No.1/developer agrees to develop the land according to the layout
plan and physical possession of the land to the petitioners
(landowners) within 12 months from the date of payment save and
except completion of the Club House and other amenities. This
forms the crux of the work which the respondent No.1/developer
was to carry out for the petitioners/landowners. The construction
activity which the respondent No.1/developer was to carry out
includes construction of compound walls, BT roads, underground
drainage pipes, main gate, security guard room and overhead tank.
The Stand taken by the Parties:
11. The petitioners argue that the dispute arising out of the
DAGPA is a 'commercial dispute' since it falls under section
2(1)(c)(vi) of the 2015 Act i.e., 'Construction and Infrastructure
Contracts, including tenders'. Learned counsel appearing for the
petitioners supplements the argument with the claim statement
filed by the respondent No.1/developer in the arbitration
proceedings to urge that the respondent No.1 (claimant) sought for
a direction on the petitioners to pay Rs.50 Lakhs with interest @
24% p.a. and a further Rs.60.65 crores along with interest @ 24%
p.a. Counsel submits that the respondent's Statement Of Claim
read with Section 12 of the 2015 Act - Determination of Specified
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Value - would qualify the dispute as "commercial" being in excess
of Rs.1 crore; Telangana State Tourism Development Corporation
Limited Vs. M/s.A.A. Avocations Pvt. Ltd. 1
12. Learned counsel appearing for the respondent No.1 on the
other hand argues that the DAGPA is not a commercial contract
and more specifically not a dispute arising out of a 'construction
and infrastructure contract' and that the respondent
No.1/developer only agreed to develop the land into farm plots.
Counsel submits that the parties did not intend to put the farm
plots to commercial use.
13. The question which therefore arises is whether the DAGPA
can be slotted under section 2(1)(c)(vi) of the 2015 Act "construction
and infrastructure contracts, including tenders".
Case Law:
14. Contracts of this nature have received judicial attention in
several decisions where the consensus is that the words
"construction" and "infrastructure" cannot be seen disjunctively
and that a contract must involve construction as well as
infrastructure in its intention and performance :Blue Nile
Developers Private Limited Vs. Movva Chandra Sekhar 2. To repeat,
1 2022 (4) ALT 238
2 2021 SCC OnLine AP 3964
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the relevant question would be whether every agreement involving a
measure of both construction and infrastructure would qualify as
an agreement under section 2(1)(c)(vi) of the 2015 Act leading to a
commercial dispute.
15. The adjudication of whether the dispute is a 'commercial
dispute', more often than not, forms a preliminary issue in matters
where the opposing party argues that the Suit is a regular one that
is, a non-commercial Suit without the exacting regime of
compliances required under the 2015 Act.
16. In fact it is much less of an arduous task to slot an
agreement under any 1 of the 22 sub-clauses of section 2(1)(c) of
the 2015 Act. The more difficult task is to consider the scope of the
agreement and determine whether the agreement would qualify as
the source of a commercial dispute under section 2(1)(c) of the said
Act. The usual markers to this issue would be one of the parties
being a developer with experience in construction/infrastructure;
or that the contract has high stakes or involves sharing of profits
running into lakhs and crores and finally that the agreement falls
within the benchmark of section 12 of the 2015 Act i.e., involves a
specified value over and above the designated amount as indicated
in section 12(1) of the said Act.
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The relevant provisions of The Commercial Courts Act, 2015:
17. The relevant sections of the Act of 2015 are required to be
highlighted in this context. Section 2(1)(i) of the 2015 Act defines
'Specified Value' as the value of the subject matter in respect of a
Suit in relation to a commercial dispute as determined under
Section 12 which is not less than Rs.3 lakhs or of a higher value as
may be notified by the Central Government. The Specified Value of
the subject matter in respect of a Suit involving a commercial
dispute determines the forum, that is, whether the Suit would
attract the jurisdiction of a Commercial Court or a Commercial
Division of a High Court under sections 3 and 4 of the Act,
respectively.
18. The first determinant is whether the dispute is a 'commercial
dispute' by dint of arising out of any of the agreements/
transactions under section 2(1)(c)(i)-(xxii) read with the Explanation
thereto. It is only on the satisfaction of the dispute being a
commercial dispute within the meaning of section 2(1)(c) of the
2015 Act and having a Specified Value under section 2(1)(i) read
with section 12 of the said Act that a Commercial Court or a
Commercial Division of a High Court can assume jurisdiction over
the dispute.
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19. The above is qualified by Section 11 of the 2015 Act which
imposes a bar on a Commercial Court or a Commercial Division
from entertaining or deciding any Suit/Application/or proceeding
relating to a commercial dispute where the jurisdiction of the civil
Court is expressly or impliedly barred under any existing law.
Section 11 operates notwithstanding any other provision of the
2015 Act.
20. In the present case, the petitioners submit that any value
over and above Rs.1 Crore would satisfy the requirement of section
12 of the 2015 Act and would consequently bring it within the
purview of a commercial dispute. The petitioners rely on the
Statement of Claim filed by the respondent no.1/claimant in the
arbitration being in excess of Rs.16 Crores.
21. We have dwelt on the above aspect only to clarify that the
respondent's claim in the arbitration alone will not expand the
financial implications of the DAGPA/Agreement to bring it within
the definition of a 'construction and infrastructure contract'.
22. It is clear from a careful reading of the DAGPA that the
Agreement is essentially of a private nature i.e., executed between
the petitioners (landowners) and the respondent No.1 (developer)
with a profit-sharing between the parties at an agreed percentage.
In essence, the developer agreed to divide the land into farm plots
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and develop the same in the form of agreed construction activity
which included laying underground drainage pipes, roads,
provision for lights and electricity supply and construction of
overhead tank.
Section 2(1)(c)(vi) of the Act calls for a purposive construction:
23. We are however of the view that a commercial dispute arising
out of a construction and infrastructure contract must necessarily
have an impact which stretches beyond the contracting parties.
"Infrastructure", by definition relates to permanent or long-lasting
structural changes and modifications which potentially affects a
larger circle of beneficiaries. Similarly, the term "construction"
should also extend beyond mere division of farm plots and
developing the land for the use and benefit of the contracting
parties, that is to say, the end product must have a commercial use
and purpose. In other words, a construction and infrastructure
contract must partake of a commercial character in terms of
conception of the project, the performance of it and end with a
commercial product - one that promises good exchange value in
terms of profitability.
24. Even a cursory glance at sub-clauses (i) - (xxii) of clause (c) of
section 2 of the 2015 Act would make it clear that the agreements
mentioned therein contemplate creation of circles of influence
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(phrase borrowed from social media) rather than an agreement
which is simply executed between two parties for conducting a
measure of development work on farm plots.
25. The eagerness of litigants (and lawyers) to put a tag of
"commercial dispute" or an action involving a dispute can be
related to the Statements of Objects and Reasons of The
Commercial Courts Act, 2015 which pitches for speedy disposal of
high-value commercial disputes and for an independent
mechanism for their early resolution. Commercial Courts and
Commercial Divisions are hence imbued with a sense of urgency
and fast-tracking of matters.
26. It must however be kept in mind that the gateway to the 2015
Act is not necessarily a free-for-all entry where all kinds of disputes
would find easy seating within the arena of section 2(1)(c) of the
2015 Act. Each of the 22 sub-clauses under section 2(1)(c) must
strictly be construed and given a purposive meaning. The
agreement in question must underscore an inclination to commerce
and commercial activity in respect of a sizable section of persons.
27. It is also important to bear in mind that section 2(1)(c)
presumes the dispute "arising out of" the agreements enumerated
in (i) - (xxii) to be commercial in nature. Therefore, the base
agreement must have commercial underpinnings so that any
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dispute-formation out of that larger matrix would automatically be
affixed with the tag of a 'commercial dispute'.
28. In Blue Nile Developers (2 supra), the transactions reflected
development of a residential project in a phased manner within a
gated community including setting up of a club in the common
area of the project as well as deep-seated infrastructure changes.
The Delhi High Court in Raj Kumar Gupta Vs. Jagan Nath Bajaj 3
also found the Property Development Agreement to be in the nature
of a Collaboration Agreement under Section 2(1)(c)(xi) of the 2015
Act. Swastik Project Pvt, Ltd. Vs. City Enclave Pvt. Ltd. 4 considered
the sanctioned plan of the project relating to immovable property
for construction of a commercial building which was exclusively
used for trade and commerce.
29. Notwithstanding the aforesaid decisions, categorization of a
dispute under section 2(1)(c) of the Act depends on the particular
facts of each individual case where the Court is called upon to
decide whether the agreement in question can be treated as the
starting-point of a commercial dispute. Indeed, there can hardly be
a standardized formula for this assessment.
3 2022 SCC OnLine Del 2995
42021 SCC OnLine Cal 452
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30. Ambala Sarabhai Enterprises Vs. K.S. Infraspace LLP 5
considered the new regime brought in by The Commercial Courts
Act, 2015 in respect of the fast-track procedure for deciding
commercial disputes. The Supreme Court spoke in favour of a
narrow interpretation of the expression 'commercial dispute' under
section 2(1)(c) of the 2015 Act to mean agreements which are
exclusively used in trade and commerce. Although the Supreme
Court considered section 2(1)(c)(vii) in that decision, sub-clause (vi)
- 'Construction and Infrastructure Contracts' - would also call for a
similar, that is, a purposive interpretation.
31. The order dated 03.04.2024, which is impugned in the
present revision, held in favour of the respondent herein i.e., the
dispute being non-commercial in nature. The primary reason for
holding thus is that the agreement is for developing farm units.
Since equating farm units with a non-commercial dispute may get
entangled with Explanation (a) to section 2(1)(c) of the 2015 Act, we
intend to uphold the impugned order on the reasons given in the
foregoing paragraphs and essentially on the substance of the
DAGPA.
32. We reiterate that the protracted arguments made on
specification of the dispute i.e., commercial or otherwise, is only for
5(2020) 15 SCC 585
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the purpose of designating the forum for extension of the
arbitrator's mandate under section 29-A of The Arbitration and
Conciliation Act, 1996. We have been informed that the
respondent/claimant seeks an extension of the arbitrator's
mandate which has been refused by the petitioners before us.
33. C.R.P.No.1622 of 2024 is accordingly dismissed by
confirming the impugned order and holding that the dispute
between the parties is not a commercial dispute as defined under
Section 2 (1)(c) of The Commercial Courts Act, 2015. All connected
applications are disposed of in terms of this order.
There shall be no order as to costs.
____________________________________
MOUSHUMI BHATTACHARYA, J
_______________________________
M.G.PRIYADARSINI, J
July 16, 2024
BMS
