Implication of a Narrowed Thinking: SPA Issues Not to Be Considered as a Commercial Dispute?
Author: Naman Gulechha, Associate, Wadia Ghandy & Co.
Recently, the Karnataka High Court in Bhaskar Naidu vs. Arvind Yadav decided on January 27, 2025 held that disputes arising out of a Share Purchase Agreement (SPA) do not constitute a commercial dispute under Section 2(1)(c)(xii) of the Commercial Courts Act, 2015. The court reasoned that while the Act explicitly includes shareholder agreements, it does not mention SPAs. However, this interpretation is overly restrictive and warrants reconsideration.
A broader perspective is necessary at this juncture. The definition of "goods" under the Sale of Goods Act, 1930, includes "shares" and "stocks." Since an SPA is an agreement for the sale or purchase of shares, it should logically be treated as a contract for the sale of goods, making it triable by a commercial court. This narrow reading of the law creates uncertainty in the transactions industry and raises concerns about the need for a more expansive approach to agreements in India's evolving commercial landscape.
Additional Practical Reasoning: Why This Narrow Interpretation is Problematic
Apart from the implications under the Sale of Goods Act, an SPA often includes obligations relating to warranties, indemnities, and post-closing adjustments. Such obligations are frequently linked to financial and operational conditions that impact business transactions. Moreover, many SPAs incorporate clauses related to competition law, regulatory approvals, and representations concerning ongoing commercial operations. These factors indicate that an SPA dispute is not merely contractual but has broader commercial implications, making it more appropriate for adjudication in a commercial court.
Furthermore, under the Specific Relief Act, 1963, the enforcement of contractual obligations in an SPA, such as specific performance or damages for breach, has a direct bearing on commercial relationships. Limiting SPA disputes to regular civil courts could lead to inconsistent rulings, slower adjudication, and unnecessary procedural hurdles. Given India’s increasing inflow of foreign and domestic investment, a rigid interpretation of commercial disputes could adversely impact deal-making efficiency and legal certainty.
India is witnessing significant growth in investment transactions, both domestically and from foreign sources. In this context, a more open-minded interpretation of the law is needed—one that upholds the spirit of commercial adjudication while ensuring transactional certainty. A broader reading of the Commercial Courts Act, aligned with business realities, would support investor confidence and the enforceability of commercial agreements in India’s rapidly evolving economic environment.
The Karnataka High Court in Bhaskar Naidu vs. Arvind Yadav (2025) ruled that disputes arising from a Share Purchase Agreement (SPA) do not qualify as commercial disputes under the Commercial Courts Act, 2015. This restrictive interpretation overlooks that shares are classified as "goods" under the Sale of Goods Act, 1930. SPAs also include warranties, indemnities, and regulatory obligations, making them inherently commercial. Excluding SPA disputes from commercial courts may hinder deal-making ef ficiency and legal certainty. A broader interpretation is necessary to align with India’s growing investment landscape and ensure consistency in adjudicating complex commercial agreements.
For daily legal updates, visit our website legalwiki.co
