Gratuitous License For Commercial Property Is A 'Commercial Dispute' Under Commercial Courts Act: Delhi High Court

"Alleged permissive gratuitous use will not make the agreement non-commercial for deciding the applicability of Commercial Courts Act." Delhi High Court, in a significant ruling dated May 26, 2026, held that a dispute concerning a gratuitous license for an immovable property used for trade or commerce falls within the ambit of a "commercial dispute" under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015.

A bench of Justice Manoj Kumar Ohri observed that the commercial character of an arrangement is determined by the nature of the property and its use, rather than the presence or absence of a license fee. The Court noted that since the property was an industrial shed used for business activities, the arrangement possessed the "commercial flavour" required under the Act.

The appellant/plaintiff filed a suit seeking recovery of possession, damages, and permanent injunction against his brother regarding an industrial shed in Okhla. The plaintiff alleged that he had permitted his elder brother to run a partnership business from the premises out of familial respect, without any commercial consideration. When the brother refused to vacate after the dissolution of his firm, the plaintiff approached the court. The Trial Court held the suit to be a commercial one and directed the return of the plaint under Order VII Rule 10 of the CPC.

The primary question before the court was whether a permissive, gratuitous arrangement regarding an industrial property constitutes an "agreement relating to immovable property used exclusively in trade or commerce" under Section 2(1)(c)(vii) of the Commercial Courts Act. The court was also called upon to determine whether a suit lacking subject matter jurisdiction should be returned under Order VII Rule 10 or transferred under Section 24 of the CPC to save prior proceedings.

Strict Interpretation Of Commercial Disputes

The Court initiated its analysis by referencing the Supreme Court's decision in Ambalal Sarabhai Enterprise Limited v. K.S. Infraspace LLP, emphasizing that the Commercial Courts Act requires strict construction. The bench noted that a liberal interpretation would defeat the objective of speedy disposal of high-value commercial disputes. It was clarified that the expression "used exclusively in trade or commerce" must refer to property actually being used for commercial purposes at the time of the dispute.

Actual Use Determines Commercial Nature Of Property

In the present case, the court observed that the plaint itself described the suit property as a commercial/industrial shed. It was further admitted by the plaintiff that the defendant was permitted to use the premises specifically for running business activities. The bench held that since the property was being put to actual commercial use, the dispute squarely fell within the scope of Section 2(1)(c)(vii) of the Act.

Payment Of License Fee Not Essential For License Under Easements Act

The Court examined Section 52 of the Indian Easements Act, 1882, which defines a 'license.' Relying on the Apex Court's ruling in Prabhudas Damodar Kotecha v. Manhabala Jeram Damodar, the bench observed that the payment of a license fee is not an essential attribute for the subsistence of a license. A licensor can permit a person to enter and use a property without any consideration, and such a "gratuitous licensee" is legally recognized.

Gratuitous Nature Does Not Negate Commercial Character Of Dispute

The appellant had argued that because the use was permitted out of respect and without consideration, it could not be a "commercial" agreement. However, the High Court rejected this contention, stating that the issue was whether the arrangement possessed the commercial character contemplated by the 2015 Act. The bench held that the permissive gratuitous use of a commercial shed for business activities does not strip the agreement of its commercial character for jurisdictional purposes.

"The issue in the present case is not whether a gratuitous licence is legally valid, but whether the arrangement pleaded in the plaint possesses the commercial character contemplated under Section 2(1)(c)(vii) of the Commercial Courts Act."

Recourse To Section 24 CPC To Save Pending Proceedings

While upholding the commercial nature of the suit, the Court addressed the procedural aspect of returning the plaint. It noted that the suit was instituted in 2017, prior to the mandatory pre-institution mediation requirements established in Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd. To avoid the "abrupt and disruptive consequences" of Order VII Rule 10 CPC, which would result in the loss of all proceedings conducted since 2017, the Court decided to invoke Section 24 of the CPC.

Transfer Rather Than Return Of Plaint

The High Court observed that Section 24 CPC empowers the High Court or District Court to transfer any suit to a subordinate court competent to try it. Unlike Order VII Rule 10, Section 24(2) allows the transferee court to proceed from the point at which the suit was transferred, thereby saving prior judicial efforts. The bench held that since Section 24 was not amended by the Commercial Courts Act, it continues to apply in full force to commercial disputes.

The High Court set aside the Trial Court’s order returning the plaint and instead directed the transfer of the suit to the concerned Commercial Court. The bench concluded that while the dispute was commercial, the interest of justice required the preservation of proceedings already undertaken since 2017. The question of compliance with Section 12-A regarding pre-suit mediation was kept open for the transferee court to determine.

Date of Decision: 26 May 2026