PREFACE
In broader terms, every contract which is made by traders or contracts is classified as commercial contracts based on their commercial nature. Disputes related to commercial contracts are governed through special acts in some countries; on the other hand they can also be resolved through arbitration.
In India the term "Commercial" is defined through the following provisions:
- Section 2 (1)(f) of the Arbitration & Conciliation Act, 1996
- Section 2 (1)(c) of Commercial Courts Act, 2015
- UNCITRAL Model Law
Under which the term "commercial" has been given a very wide interpretation. It includes supply or exchange of goods or services, distribution agreement, commercial representation or agency, consulting, licensing, investment, financing, banking, joint venture and other forms of industrial or business cooperation, carriage of goods, etc.1 The essentials for the term "Commercial" can be classified into three basic points:
- Disputes must arise out of legal relationships
- Nature of legal relationship: Commercial
- Nature of Party.2
Moreover, Section 2(1) (c) of the Commercial Courts Act, 2015 defines "Commercial disputes". It means a dispute arising out of every ordinary transaction of merchants, bankers, financiers, and traders. It also includes export or import of merchandise, agreements in trade or commerce, distribution and licensing agreements, joint venture agreements, intellectual property rights, insurance, etc.
EXPLANATION TO THE SECTION PROVIDES THAT:
- A commercial dispute shall not cease to be a commercial dispute
merely because--
(a) It involves relief about the immovable property
(b) One of the contracting parties is carrying out public functions
JUDICIAL PRONOUNCEMENTS
A. R.M. INVESTMENT & TRADING CO. PVT. LTD. V. BOEING CO.3
This is a landmark case which deals with the issue of commercial transactions. In this case, RM Investment, an Indian company, and Boeing, an US company, agreed that the former will provide consultancy service for the promotion of sale of Boeing Aircraft in India. The question arises whether rendering of consultancy services by RMI for promoting such commercial transaction as a consultant is covered under "Commercial Transaction" or not.
For this, the Supreme Court relied on Article 301 which assures freedom of trade, commerce, and intercourse, and held:
"Trade and commerce do not mean merely traffic in goods, i.e., exchange of commodities for money or other commodities. In the complexities of modern conditions, in their wide sweep are included carriage of persons and goods by road, rail, air and waterways, contracts, banking, insurance, transactions in the stock exchanges and forward markets, communication of information, supply of energy, postal and telegraphic services and many more activities - too numerous to be exhaustively enumerated - which may be called commercial intercourse.
Here, while construing the expression 'commercial relationship', the court also followed Model Law prepared by UNCITRAL wherein relationships of a commercial nature include commercial representation or "agency" and "consulting". The learned judges have construed the word "commercial" in the light of the decisions of this court in Atiabari Tea Co. Ltd. v. the State of Assam4 and Fatehchand Himmatlal v. the State of Maharashtra5 and the Model Law prepared by UNCITRAL and have held that "the transaction between RMI and Boeing is commercial and they do stand in a commercial relationship" and, on that view, it has been held that the suit is liable to stay under Section 3 of the Foreign Awards (Recognition & Enforcement) Act, 1961, since the conditions which are required to be fulfilled for the application of Section 3 as indicated by this court in Renusagar Power Co. Ltd. v. General Electric Co.6 are fulfilled in the case.
B. LADYMOON TOWERS PRIVATE LIMITED VS. MAHENDRA INVESTMENT ADVISORS PVT. LTD.7
The issue or moot question which arises in the present decision was "whether the suit, filed before a Commercial Division of this Court, should be tried under the provisions of the Commercial Courts Act, 2015 {Under Section 2 (1)(c)(i)} or be heard as a regular suit". The claim in the present suit is for the recovery of money as a short-term financial accommodation with an accrued rate of interest.
In this case, the defendant vigorously argues that the suit cannot be classified as a commercial suit as the dispute between the parties is not a commercial dispute, as defined in the Act. The court observed that a "commercial dispute" has been defined under Section 2(1)(c) of the Commercial Courts Act, 2015, as a dispute arising out of a broad spectrum of transactions and agreements qualified by an explanation that provides an action for recovery of immovable property or for the realization of monies or where one of the contracting parties is the State or a Private body carrying on public functions the dispute shall not cease to be a commercial dispute within the meaning of Section 2(1)(c) of the said Act. So, the thrust of the present matter was whether the dispute in the suit falls within Section 2(1) (c)(i) of the Commercial Courts Act, 2015.
The case of Punjab University vs. Unit Trust of India8, set out the definition of the term 'commercial' as defined in Stroud's Judicial Dictionary. Under this definition, commercial action was meant to include any cause arising out of the ordinary transactions of merchants and traders and without prejudice to the generality of the foregoing words, any cause relating to the construction of a mercantile document, the export or import of merchandise, affreightment, insurance, banking, mercantile agency, and mercantile usage. The decision also explained that the words "commercial purpose" would cover an undertaking the object of which is to make a profit out of the undertaking.
The court held that none of the criteria mentioned in Section 2(1) (c) (i) of the Commercial Courts Act 2015 has been met by the factual conspectus in the present case. This case is directed to be de-listed from the Commercial Division and transferred to the appropriate list governing the hearing of ordinary suits.
INTERNATIONAL ASPECT – INTERPRETATION ACROSS OTHER JURISDICTIONS
Each jurisdiction interprets the word "commercial" differently, giving rise to many problems. UNCITRAL Model Law helps in this issue for the unification and harmonization of ICA Laws across the world.
UNITED STATES OF AMERICA
U.S. court interpreted the term broadly in the case of Faberge Intern. Inc. vs. Di Pino. In this case, the court included employment agreement as "commercial" and hence disputes arising out of it could be submitted to arbitration. The decision is notable because the commentary to the drafting of Modern Law indicates the legislative intent to exclude employment agreements from the scope of the word "commercial."
CANADA
Canadian court, in the case of R v. Wah Kee,9 held that every business of profit which includes trading in some article of commerce is classified as a commercial contract.
FRANCE
In Kuwait Foreign Trading Contracting and Investment Company vs. ICORI Estero Spa, 10 the court held that the notion of "commercial" in ICA is distinct from the narrow and technical view employed in a domestic context. It would be commercial when it relates to an economic transaction involving the movement of goods and services.
Singapore as well as the U.K., have specialized courts for dealing with "Commercial Disputes". The SICC (Singapore International Commercial Court Committee) is part of Singapore's three-pronged strategy to promote the jurisdiction as an international dispute resolution hub. The other two prongs are Singapore International Arbitration Centre and the recently launched Singapore International Mediation Centre. In the United Kingdom, commercial disputes are resolved through specific courts called commercial courts.
CONCLUSION
While construing the expression "commercial" under Section 2(1)(f) of the Arbitration & Conciliation Act, 1996, it has to be borne in mind that the Arbitration Act is designed to subserve the cause of facilitating international trade and promotion. Since it will help in speedy settlement of disputes arising in such trade through arbitration, so any expression or phrase occurring therein should be construed liberally
The definition under the Commercial Courts Act, 2015, only contemplates a "commercial dispute" and not any other form of dispute where the basis of disagreement between the parties has a non-commercial cause. The gradation of disputes under Section 2(1)(c) of the Commercial Courts Act, 2015, takes into account all possible forms of agreements from which a "commercial dispute" may arise. This makes it clear that the framers of the statute emphasized the commercial nature of the transaction as opposed to agreements entered between parties without a commercial purpose.
In the current era of globalization, a broad construction should be adopted for interpretation of terms so that it will help in speedy resolution otherwise the world would be occupied interpreting the word "commercial" and it will defeat the purpose of commercial arbitration. Countries that have defined the concept of commercial disputes, already created specialized forums for the resolution. They are also providing legal certainty to the business community. International Commercial Arbitration will serve its purpose and be considered beneficial to business communities only when countries and courts agree to provide flexible and objective interpretation to the term called commercial disputes.
Footnotes
1 Article 1 (Sphere of Application) of the UNCITRAL Model Law on Electronic Commerce (1996).
2 Section 2 (1) (c) of Commercial Courts Act, 2015.
3 R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co 1994 SCC (4) 541).
4 Atiabari Tea Co., Ltd. vs. the State of Assam and Ors. (26.09.1960 - SC) : MANU/SC/0030/1960.
5 Fatehchand Himmatlal and Ors. vs. State of Maharashtra (28.01.1977 - SC) : MANU/SC/0041/1977.
6 Renusagar Power Co. Ltd. vs. General Electric Company and Ors. (16.08.1984 - SC) : MANU/SC/0001/1984. 7 Ladymoon Towers Private Limited vs. Mahendra Investment Advisors
Private Limited (13.08.2021 - CALHC) : MANU/WB/0547/2021.
8 Punjab University vs. Unit Trust of India; MANU/SC/0599/2014 : (2015) 2 SCC 669
9 1920 CarswellAlta 169.
10 Case discussed in E. Gaillard, "France: The "Commercial" Requirement in ICA", 1(1) International Arbitration Law Review (1997) at N11-12.
Originally Published December 2021
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