Dispute Relating To Employment Agreement Can’t Be Treated As Commercial Dispute Under Commercial Courts Act: Delhi High Court
The Delhi High Court reiterated that where multiple, distinct causes of action exist and even a single relief survives scrutiny, the plaint must proceed to trial in its entirety.
Justice Purushaindra Kumar Kaurav, Delhi High Court
The Delhi High Court held that any dispute relating to an employment agreement cannot be treated as a commercial dispute under Section 2(1)(c) of the Commercial Courts Act, 2015 (CC Act).
The Court held thus in an Application seeking rejection of a Plaint on the ground that the suit is barred by law.
A Single Bench of Justice Purushaindra Kumar Kaurav observed, “… any dispute relating to an employment agreement cannot be treated to be a commercial dispute within the purview of Section 2(1)(c) of the CC Act. … Turning to the facts of the present dispute, the core allegations clearly arise out of the Employment Agreement dated 08.09.2016 and the defendant’s statutory fiduciary duties as a director under Section 166 of the Companies Act, 2013.”
The Bench said that mere presence of ancillary business-related clauses such as confidentiality, intellectual property assignment, or non-compete obligations does not metamorphose an employment contract, which is fundamentally a contract of personal service, into a commercial arrangement.
Advocate Bishwajit Dubey appeared on behalf of the Plaintiffs, while Advocate Sitikanth Nayak appeared on behalf of the Defendant.
Brief Facts
The suit was related to an Employment Agreement executed between the Plaintiff, a private limited company and the Defendant. The Plaintiffs alleged that the Defendant committed various breaches of his contractual and fiduciary obligations, including unilaterally increasing his own remuneration and failing to ensure statutory and secretarial compliances that fell within his area of responsibility. These issues were allegedly discovered between late 2022 and early 2023, leading to his redesignation and eventual resignation from the position of Managing Director. Following his resignation, the Defendant joined a competing entity as Chief Growth Officer, which the Plaintiffs contended that the same violates non-compete, confidentiality, and non-solicitation obligations under the Employment Agreement and the Articles of Association (AoA).
The principal objections urged by the Defendant were: (i) that the dispute constitutes a “commercial dispute” within the meaning of Section 2(1)(c)(xii) of the CC Act, thereby requiring the suit to be instituted exclusively before the Commercial Court and rendering it non-maintainable before the High Court; (ii) Consequently, that the suit is barred for want of compliance with the mandatory pre-institution mediation contemplated under Section 12A of the CC Act; and (iii) that the jurisdiction of the Civil court is expressly ousted under Section 430 of the Companies Act, 2013.
Reasoning
The High Court in view of the above facts, noted, “The definition of “commercial dispute” is undoubtedly inclusive and expansive, covering mercantile relationships arising from contracts or otherwise, joint venture agreements, business cooperation arrangements, and a long list of specified relationships.”
The Court said that the allegations include unauthorized self-approved salary hikes, failure to ensure statutory secretarial compliances, misuse of confidential information post-resignation, joining a direct competitor (Icogz), solicitation of clients, and attempts to disrupt corporate meetings through frivolous and malicious requisitions.
“Every one of these allegations flows from personal service obligations and director’s fiduciary duties not from any commercial contract. The alleged misconduct, even when it touches upon corporate governance, remains inextricably anchored in the defendant’s role as an employee and Managing Director”, it added.
The Court observed that the agreement itself is between the company and the executive, not between the investor and the executive and, therefore, cannot be subsumed under the commercial umbrella of the SSSA (Share Subscription-cum Shareholders’ Agreement).
“Even if the investor signed as a confirming party, that does not alter the fundamental nature of the relationship, which remains one of personal service. … It is evident that the arrangement lacks any commercial element. It remains, in essence, a private agreement between the parties and cannot be stretched to give it the character of a shareholders’ agreement”, it remarked.
The Court was of the view that the fiduciary breaches, misuse of confidential information, and employment-related wrongs can be adjudicated entirely within the framework of the Employment Agreement.
“In light of the above discussion, the defendants’ contention that the suit is barred under Section 430 of the Companies Act is wholly misconceived. The gravamen of the dispute, as discussed above, arises out of the Employment Agreement and the defendant’s personal service obligations, coupled with his fiduciary duties under Section 166 of the Companies Act. Disputes of this nature lie outside the exclusive domain of the NCLT, which has no jurisdiction to adjudicate breaches of employment contracts, enforce personal service obligations, or grant consequential reliefs such as injunctions, damages, and confidentiality-related remedies. Hence, the civil court’s jurisdiction remains intact. Accordingly, the bar under Section 430 has no application to the present suit”, it further said.
Conclusion
The Court reiterated that where multiple, distinct causes of action exist and even a single relief survives scrutiny, the plaint must proceed to trial in its entirety.
“In the present case, the plaintiffs have sought several reliefs such as declarations of breach of non-compete and non-solicitation obligations, injunctions restraining competitive activity and misuse of confidential information, damages, and ancillary reliefs which fall squarely within the jurisdiction of a civil court and lie wholly outside the competence of the NCLT. Therefore, at this preliminary stage, the plaint cannot be dissected or rejected in part, and the suit must be permitted to proceed for adjudication on all surviving issues”, it also noted.
The Court, therefore, concluded that the suit is fundamentally civil in nature, centered on employment and related obligations, and is maintainable as a regular civil suit.
Accordingly, the High Court dismissed the Defendant’s Application.
Cause Title- ARM Digital Media Pvt. Ltd. & Ors. v. Ritesh Singh (Neutral Citation: 2025:DHC:10726)
Appearance:
Plaintiffs: Advocates Bishwjit Dubey, Mohit Rohatgi, Ashwini Tar, and Nutan Keshwani.
Defendant: Advocates Sitikanth Nayak, Samiksha Tiwari, Vaibhav Tyagi, Ashutosh Gupta, Gaurav Rana, Saurabh Seth, Neealampreet Kaur, Abhiroop Rathore, Kabir Dev, and Sukhbir Singh.
