Delhi High Court Holds Oral Lease Agreement Valid as ‘Commercial Dispute’ Based on Tangible Actions and Property’s Commercial Use for Banking Business

Court’s Decision:

The Delhi High Court dismissed the petitioner’s challenge and upheld the trial court’s order labeling the dispute as a ‘commercial dispute’ under the Commercial Courts Act, 2015. The Court emphasized that an agreement can be oral or written and that an oral lease agreement, if acted upon, is as valid as a written one. The Court concluded that the nature of the dispute—seeking possession and damages—qualified as a commercial dispute, even though the lease agreement was oral.

Facts:

The petitioner filed a suit seeking recovery of possession, damages, and mesne profits for an additional space of 302 square feet on the ground floor of a property in Safdarjung Development Area, New Delhi. This space had been leased to the respondent (a bank) on 1st January 2019 without a written agreement. Earlier, in 2012, a formal written lease agreement had been executed between the same parties for a different area of the same property. The petitioner had already initiated a separate suit for the enforcement of the 2012 lease agreement, which was pending before a Commercial Court. In the present dispute, the petitioner claimed that despite making modifications worth ₹14,74,388 to the property as per the bank’s requirements, the respondent did not execute a new written lease deed and continued to occupy the additional space on an ad-hoc basis.

Issues:

The primary issue was whether the dispute over the additional leased space, based on an oral agreement, could be characterized as a ‘commercial dispute’ under the Commercial Courts Act, 2015.

Petitioner’s Arguments:

The petitioner argued that the dispute could not be classified as a commercial dispute because there was no written agreement for the additional space. The petitioner further contended that the dispute arose due to the respondent’s failure to execute a lease agreement and not out of any existing lease agreement.

Respondent’s Arguments:

The respondent bank acknowledged that the additional space had been leased but argued that the petitioner did not revert to the bank for executing a new lease deed. Additionally, the bank claimed it had repeatedly requested the petitioner to take back possession of a different portion of the property (1132 sq. feet in the basement) that was of no use to them, but the petitioner delayed taking possession without any valid reason.

Analysis of the Law:

The court analyzed the definition of ‘commercial dispute’ under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, which includes disputes relating to agreements connected to immovable property used exclusively in trade or commerce. The Court clarified that the definition of a ‘commercial dispute’ does not require an agreement to be in writing. An oral agreement, if acted upon, retains its enforceability under law. Furthermore, the explanation to the section states that a commercial dispute shall not cease to be so merely because it also involves recovery of immovable property or realization of monies out of such property.

Precedent Analysis:

The Court referred to previous rulings, such as Nanak Builders and Investors Pvt. Ltd Vs. Vinod Kumar Alag and Aloka Bose Vs. Parmatma Devi & Ors, where it was held that an oral agreement is valid and enforceable. The Court also cited the Jagmohan Behl Vs. State Bank of Indore judgment, which stated that disputes arising out of oral agreements related to immovable property used in trade or commerce qualify as commercial disputes. The judgment emphasized that the phrase “arising out of” in relation to immovable property agreements should be interpreted broadly to include oral agreements as well.

Court’s Reasoning:

The Court reasoned that the existence of the oral agreement was corroborated by tangible actions—such as handing over the possession and subsequent demands for possession and mesne profits—making it a valid agreement under the law. The Court also noted that the purpose of the property (used for banking business) made the dispute inherently commercial, satisfying the conditions of the Commercial Courts Act.

Conclusion:

The petition was dismissed. The High Court found no error in the trial court’s decision to treat the dispute as a commercial dispute, holding that the lack of a written agreement does not preclude the dispute from being classified as commercial in nature.

Implications:

The judgment reaffirms that oral agreements, if substantiated by actions, are enforceable and can be considered under the scope of ‘commercial disputes’ if the property in question is used exclusively in trade or commerce. This ruling will impact future litigations where the validity of oral agreements in commercial transactions is contested. The court’s interpretation broadens the ambit of what constitutes a commercial dispute, ensuring that such matters are adjudicated under specialized commercial courts for swift resolution.

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