Employment Contract Is Not a Commercial Dispute: Delhi High Court Dismisses Plea to Reject Suit Over Fiduciary Breaches by Former Director

"An employment dispute does not transform into a commercial dispute merely because it touches corporate affairs or contains business-related clauses" — In a significant judgment impacting the intersection of employment law, commercial litigation, and company law, the Delhi High Court dismissed an application under Order VII Rule 11(d) CPC seeking rejection of a civil suit for alleged breaches of fiduciary and contractual duties by a former Managing Director. The suit, filed by ARM Digital Media Pvt. Ltd. against Ritesh Singh, survives legal scrutiny, as the Court held that the matter relates to personal service obligations and fiduciary misconduct, and is not barred by the Commercial Courts Act, 2015 or Companies Act, 2013.

The case involved claims of unauthorized salary hikes, misuse of confidential data, and employment with a competitor post-resignation—all arising from a 2016 Employment Agreement. The defendant sought to reject the plaint as barred by law, invoking Section 2(1)(c)(xii) and Section 12A of the Commercial Courts Act and Section 430 of the Companies Act.

“Contract of Personal Service Is Not a Commercial Agreement” – Court Rejects Attempt to Recast Employment Dispute as Commercial Litigation

Justice Purushaindra Kumar Kaurav framed the core question succinctly: Can a civil suit alleging breach of an employment agreement, confidentiality, non-solicitation, and fiduciary duties by a former director be rejected at the threshold as being barred by law?

The answer was a categorical no.

The Court ruled: “Any dispute relating to an employment agreement cannot be treated to be a commercial dispute within the purview of Section 2(1)(c) of the CC Act.”

The Court rejected the argument that the employment agreement was part of a broader Share Subscription-cum-Shareholders’ Agreement (SSSA), holding that the SSSA had already been terminated and the Employment Agreement survived independently. Thus, the employment obligations did not acquire a commercial character merely by being annexed to a now-defunct investment agreement.

Relying on decisions including Chanda Kochhar v. ICICI Bank Ltd., Ekanek Networks v. Aditya Mertia, and Rachit Malhotra v. One97 Communications Ltd., the Court reiterated:

“The mere presence of ancillary clauses such as confidentiality, IP assignment or non-compete does not metamorphose an employment contract into a commercial arrangement.”

Section 430 of Companies Act Doesn’t Bar Civil Jurisdiction in Employment or Fiduciary Breach Cases

The defendant further argued that the civil court’s jurisdiction was ousted under Section 430 of the Companies Act, which confers exclusive jurisdiction on the NCLT for company affairs. The High Court, however, rejected this submission, noting:

“The bar under Section 430 applies only when the matter squarely falls within the exclusive jurisdiction of the NCLT... Breaches of personal employment obligations, fiduciary duties, and confidentiality covenants fall outside that scope.”

The Court clarified that while certain company-related issues may be pending before the NCLT (including allegations of oppression and mismanagement), this suit raised a distinct civil cause of action under employment law, arising from conduct during and post tenure as Managing Director.

“Entire Suit Cannot Be Dismissed If Any One Relief Survives” – Partial Rejection Not Permissible Under Order VII Rule 11

In a key finding on procedural law, the Court held that even if one or two prayers in the plaint arguably fall within NCLT’s ambit, the plaint cannot be rejected in part under Order VII Rule 11(d) CPC.

Referring to the Supreme Court's recent judgment in Central Bank of India v. Prabha Jain, (2025) 4 SCC 38, the High Court reiterated:

“Where multiple, distinct causes of action exist and even a single relief survives scrutiny, the plaint must proceed to trial in its entirety.”

The Court warned against dissecting the plaint or making adverse observations on reliefs at the pre-trial stage. The threshold for rejection of plaints under Order VII Rule 11 is strictly limited to cases where the suit is barred by law on its face—a bar that was clearly not attracted in the present case.

Fiduciary Breaches and Confidentiality Violations Are Maintainable Civil Claims

The High Court concluded that the crux of the plaintiff’s allegations—unauthorised increase of remuneration, failure to ensure statutory compliance, and joining a rival entity in violation of non-compete obligations—emanated from personal service obligations and Section 166 duties under the Companies Act.

Quoting Clause 2 of the Employment Agreement, which imposed exclusivity, non-compete, and full-time devotion requirements on the executive, the Court observed:

“It is evident that the arrangement lacks any commercial element. It remains, in essence, a private agreement between the parties and cannot be stretched to give it the character of a shareholders’ agreement.”

The Court distinguished the present case from precedents cited by the defence, such as Baskar Naidu v. Arvind Yadav, where the disputes originated solely from shareholder agreements without employment components.

Civil Suit Against Former Director Over Fiduciary and Contractual Breaches Is Maintainable

Dismissing the application under Order VII Rule 11(d) CPC, the Court held:

“The suit is fundamentally civil in nature, centered on employment and related obligations, and is maintainable as a regular civil suit.”

The Court granted liberty to the defendant to raise all jurisdictional and factual objections during trial but refused to short-circuit the process at the threshold.

This judgment sets an important precedent in delineating the scope of civil courts vis-à-vis commercial courts and NCLT in employment-related litigation involving directors and shareholders, and reinforces the principle that employment disputes—even with commercial undertones—do not fall within the commercial court framework.

Date of Decision: 01 December 2025