Employment Contracts do not constitute "Commercial Disputes"

Delhi High Court Rules Employment Disputes Do Not Qualify as Commercial Disputes Civil Courts Retain Jurisdiction Over Employment Agreement Breaches, Excludes Commercial Court's Purview

In a significant ruling by the Delhi High Court, presided over by Mr. Justice Purushaindra Kumar Kaurav, it was determined that disputes arising from employment agreements do not qualify as "commercial disputes" under Section 2(1)(c) of the Commercial Courts Act, 2015. This decision came in the case of Arm Digital Media Pvt. Ltd. v. Ritesh Singh, emphasizing that civil courts maintain jurisdiction over such disputes, including breaches of employment agreements and fiduciary duties by directors.

The case involved Arm Digital Media Pvt. Ltd., a digital marketing firm, against its former Managing Director, Ritesh Singh. The plaintiffs alleged Singh violated his contractual and fiduciary obligations, including unauthorized remuneration increases and failure to ensure statutory compliances. Post-resignation, Singh joined a competing entity, allegedly breaching non-compete and confidentiality clauses.

The defendant moved to dismiss the plaint under Order VII Rule 11 of the Civil Procedure Code, arguing that the dispute constituted a commercial dispute necessitating jurisdiction under the Commercial Courts Act. However, the court disagreed, emphasizing that employment contracts inherently involve personal service obligations, not commercial transactions. The court also clarified that the inclusion of non-compete or confidentiality clauses does not transform such agreements into commercial ones.

Further, the court rejected the argument that the suit was barred under Section 430 of the Companies Act, 2013, which excludes civil court jurisdiction for matters within the National Company Law Tribunal's domain. The court held that such employment-related disputes do not fall within the NCLT's exclusive jurisdiction.

The court's decision underscores the distinction between personal service obligations and commercial transactions, reaffirming the boundaries of jurisdiction between civil courts and commercial courts. This ruling potentially impacts how employment-related disputes are classified and adjudicated in the future.

Bottom Line:

Employment Contracts do not constitute "Commercial Disputes" under Section 2(1)(c) of the Commercial Courts Act, 2015, and civil courts retain jurisdiction over disputes arising from breaches of employment agreements, personal service obligations, and director's fiduciary duties under Section 166 of the Companies Act.

Statutory provisions: Commercial Courts Act, 2015 Section 2(1)(c), Companies Act, 2013 Section 166, Civil Procedure Code, 1908 Order VII Rule 11

Arm Digital Media Pvt. Ltd. v. Ritesh Singh, (Delhi) : Law Finder Doc Id # 2815818