Employment Contract cannot be Identified as Commercial Dispute

Source: Delhi High Court 

Why in News? 

Justice Purushaindra Kumar Kaurav of the Delhi High Court in ARM Digital Media Pvt. Ltd. v. Ritesh Singh (2025) dismissed an application seeking rejection of plaint, holding that employment agreements do not constitute commercial disputes under the Commercial Courts Act, 2015, and such disputes remain maintainable before civil courts. 

What was the Background of ARM Digital Media Pvt. Ltd. v. Ritesh Singh (2025) Case? 

• The case involved an Employment Agreement dated 08.09.2016 between ARM Digital Media Pvt. Ltd. (plaintiff) and Ritesh Singh (defendant), who served as Managing Director and later as non-executive director. 
• The plaintiffs alleged multiple breaches including unilateral increase in remuneration, failure to ensure statutory compliances, and violations discovered between late 2022 and early 2023. 
• Following resignation from Managing Director position on 31.03.2023, the defendant joined competing entity Insite Digital Private Limited as Chief Growth Officer. 
• The plaintiffs contended violations of non-compete, confidentiality, and non-solicitation obligations under the Employment Agreement and Articles of Association. 
• The defendant filed an application under Order VII Rule 11(d) CPC seeking rejection of plaint arguing: the dispute constitutes a commercial dispute requiring exclusive Commercial Court jurisdiction, non-compliance with mandatory pre-institution mediation under Section 12A, and civil court jurisdiction barred under Section 430 of Companies Act 2013. 
• The defendant argued the Employment Agreement formed an inseparable part of the Share Subscription-cum-Shareholders' Agreement (SSHA) dated 08.09.2016, making it a commercial dispute under Section 2(1)(c)(xii). 
• The plaintiffs countered that the SSHA was terminated by Share Purchase Agreement dated 04.08.2022, the Employment Agreement remained independent, and the dispute arose from breaches of employment obligations and fiduciary duties under Section 166 of Companies Act 2013. 

What were the Court's Observations? 

Scope of Order VII Rule 11 CPC: 

• The Court emphasized that only averments in the plaint are examined to determine whether a cause of action is disclosed or if the suit is barred by law, without inquiring into truth of allegations. 

Employment Contracts Not Commercial Disputes: 

• The Court held that employment agreements fundamentally constitute contracts of personal service and cannot be treated as commercial disputes under Section 2(1)(c) of Commercial Courts Act 2015. 
• Applying ejusdem generis principle, "commercial disputes" must relate to relationships primarily commercial in character involving trade, business operations, or mercantile dealings. 
• Mere presence of ancillary clauses like confidentiality, IP assignment, or non-compete obligations does not transform employment contract into commercial arrangement. 
• The Court relied on Ekanek Networks Pvt. Ltd. v. Aditya Mertia (2024), holding "provision of services" must be accorded strictly commercial connotation and cannot include contract of service governed by employer's control. 

Inseparability Argument Rejected: 

• The Court rejected the defendant's contention that Employment Agreement was inseparable from SSHA, noting the SSHA had been terminated while Employment Agreement remained operative. 
• Mere reference to SSHA in recitals does not merge Employment Agreement into SSHA or convert employment dispute into commercial dispute. 

Final Determination: 

• The Court dismissed the application, holding the suit is fundamentally civil in nature, centered on employment and related obligations, and maintainable as regular civil suit. 

What is the Commercial Courts Act, 2015? 

About: 

• The Commercial Courts Act, 2015 is a specialized legislation enacted to address the growing complexity of commercial disputes in India, which came into effect on 23th October 2015, as Act No. 4 of 2016, establishing a dedicated framework for resolving commercial disputes efficiently. 
• The Act establishes Commercial Courts at the district level with specialized jurisdiction over commercial matters, ensuring accessibility to litigants while maintaining expertise in commercial dispute resolution through specially trained judges who have experience in handling complex commercial matters. 
• It provides a comprehensive definition of "commercial disputes" encompassing various commercial transactions, contracts, and agreements, thereby creating clarity and certainty regarding which matters fall under its jurisdiction and can be adjudicated by Commercial Courts. 
• The legislation mandates strict timelines for different stages of litigation and expeditious disposal of cases, aiming to minimize delays that are typically associated with commercial litigation in regular courts. 
• A distinctive feature of the Act is its creation of a specialized judicial infrastructure with judges having expertise in commercial matters, enabling informed and quick decision-making while fostering confidence among commercial litigants in the dispute resolution process. 
• The Act represents a significant reform in India's commercial dispute resolution mechanism, addressing the specific needs of the business community by providing a streamlined, efficient, and specialized forum for resolving commercial disputes. 

Commercial Dispute under Commercial Courts Act, 2015: 

• Section 2(1)(c) of Commercial Courts Act 2015 defines "commercial dispute" as dispute arising out of specified categories including ordinary transactions of merchants, export/import, construction contracts, franchise agreements, shareholders agreements, and various other commercial relationships. 
• The definition is inclusive and expansive, covering mercantile relationships arising from contracts or otherwise, joint venture agreements, and business cooperation arrangements.