Are Disputes on Immovable Properties Commercial Disputes?

Property related disputes in India can be quite tedious and overwhelming to deal with, considering India is now the world’s most populous country and land plays a vital role.

In case of disputes related to properties, the location of the property in question is a major point of consideration. This is because the location of the property helps determine which Court of Law you need to approach for any dispute related to such a property.

Relevant Legal Provisions

The Commercial Courts Act, 2015 grants commercial Courts and the commercial divisions of High Courts to oversee and preside as the judge over commercial dispute cases of a specified value. The aim of passing the Act was to enable fast track resolution of commercial disputes and gain the trust of investors in India.

As per Section 2(1)(c)(vii) of the Act, commercial disputes refer to disputes originating from agreements related to immovable properties, which are used exclusively in trade or commerce.

The explanation for Section 2(c) also clarifies that commercial disputes shall stop being commercial disputes simply because they are involved in:

• An act of recovering immovable property,
• Making monies from immovable property that was handed over as security, or
• Any other relief related to immovable properties.

Discussion on the Provisions

A dispute related to any immovable property may not be considered as commercial dispute naturally; but if the immovable property is used solely in trade or commerce, the disputes arising out of such a property shall fall under commercial disputes.

Note: The words ‘used solely in trade or commerce’ must be interpreted purposefully. The word ‘used’ stands for ‘actually used’ and must not be interpreted as anything else, like ‘ready for usage’ or ‘expected to be used in the future’.

This basically means that the property in question must already be in use – exclusively for trade or commerce related purposes – on the date when the parties entered into the agreement.

For example, imagine an agreement to sell a flat in a residential society has been executed by the owner in favor of a third party. Any dispute arising out of the property must be filed as a civil suit and not as a commercial dispute. This is because, as mentioned above, there can be no element of commercial dispute when it comes to properties that are not exclusively used for trade or commerce at the time of signing the agreement.

However, now consider that an immovable property has been rented to an entity to conduct their trade and business and a suit to recover mesne profits (profits received by a person in wrongful possession of a property) has been filed against the entity. Such a case shall be filed as a commercial suit as it involves an immovable property that is being exclusively used to conduct trade or commerce.

It must be noted that the statement ‘any other relief related to immovable properties’ is highly significant and wide. These words have quite a broad scope and cannot be nullified by narrow interpretations.

Any dispute related to recovery of rent, security deposit, specific performance, breach of agreement, damages payable on account of such breach, injunction, mesne profits, etc., related to immovable properties used exclusively in trade or commerce shall fall under the scope of commercial disputes.

The fact whether the property is used exclusively for trade or commerce can be considered as the acid test to establish if a dispute should be filed as a civil suit or a commercial dispute. As such, any dispute related to immovable properties used exclusively in trade or commerce shall be considered a commercial dispute.

Conclusion

It is vital to note that Section 2(1)(c)(vii) cannot be interpreted with a restricted meaning. In addition, simply because an immovable property is involved in a suit, that in itself is not enough to categorize the suit as civil or commercial dispute.

However, it must be kept in mind that the test of whether the subject matter of a case constitutes a commercial dispute cannot be answered negatively simply because the property is residential. This is because doing so would remove disputes that arise out of large-scale construction contracts or development projects that may be undertaken over immovable property.
Only the fact whether the immovable property is exclusively used for trade or commerce shall give you the right answer when determining whether the suit shall be considered a civil dispute or a commercial dispute.