Home » Between The Lines » Supreme Court: Definition of commercial disputes under the Commercial Courts Act, 2015 to include immovable property ‘actually used’ and not ‘likely to be used’, ‘ready to be used’ or ‘to be used’

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The Honourable Supreme Court of India (“Supreme Court”) in its judgement, in Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP &Anr. {Civil Appeal No. 7843 of 2019} (decided on October 04, 2019) held that as far as disputes arising out of agreements relating to immovable property are concerned, only those disputes which arise of immovable property being actually and exclusively used in trade or commerce, shall be categorised as ‘commercial disputes.’

On February 14, 2012, Ambalal Sarabhai Enterprises Limited (“Appellant Company”) executed an agreement (“Agreement”) to sell a piece of land (“Said Land”) to one Ketan Bhailalbhai Shah (“Respondent No. 2”). Thereafter, Respondent No. 2 assigned and transferred all his rights under the Agreement to K.S. Infraspace LLP (“Respondent No. 1”), by executing a Deed of Assignment (“Assignment Deed”) dated October 12, 2017. Consequently, Respondent No. 1 purchased the Said Land from the Appellant Company by way of a Deed of Conveyance (“Conveyance Deed”) dated November 03, 2017. Since there were some aspects of the Said Land that were to be changed, particularly with reference to its nature of use, the right of the Appellant Company was required to be protected. In pursuance of the same, a Memorandum of Understanding dated November 03, 2017 (“MOU”) was executed amongst the Appellant Company, Respondent No. 1 and Respondent No. 2. As per the terms of the MOU, a mortgage deed was to be executed in favour of the Appellant Company. Accordingly, a Mortgaged Deed (“Mortgage Deed”) was executed on November 03, 2017, albeit it was not registered. The Appellant Company, thereafter, sought to enforce execution of the Mortgage Deed, by filing a Commercial Civil Suit (“Suit”) before the Commercial Court at Vadodara (“Commercial Court”). Furthermore, the Appellant Company also sought permanent injunction and other reliefs before the Commercial Court.

On being notified of the Suit, Respondent No. 1 and Respondent No. 2 (collectively referred to as “Respondents”) contended that since the dispute was not a ‘commercial dispute’ as per Section 2(1)(c)(vii) of the Commercial Courts Act, 2015 (“CC Act”), the Suit would not be maintainable. In addition, the Respondents filed an application under Order VII Rule 10 of the Civil Procedure Code, 1908 (“Application”) seeking that the plaint be presented in the Court in which such a Suit should have been actually instituted. However, the Commercial Court rejected the Application by way of its order dated October 17, 2018. The Commercial Court had relied upon the Memorandum of Association and Articles of Association of the Appellant Company to take note of the business that the Appellant Company could undertake.

Thereafter, the Commercial Court concluded that the Appellant Company seemed to be carrying on a business as an estate agent and thus the dispute that had transpired between the Appellant Company and the Respondents was a ‘commercial dispute.’ Aggrieved by the aforementioned order of the Commercial Court, the Respondents filed an appeal in the High Court of Gujarat (“High Court”). The High Court passed an order dated March 01, 2019, that allowed the petition of the Respondents and set aside the order dated October 17, 2018, passed by the Commercial Court. By the aforementioned order, the High Court also allowed the Application, directing that the plaint was to be returned to the Appellant Company, in order to be presented to an appropriate Court. The High Court had taken a conclusive view that the immovable property, was in fact, not being used for either trade or commerce. The Appellant being aggrieved by the order of the High Court, thereby approached the Supreme Court.

Whether a dispute arising out of an agreement involving an immovable property could be considered as a ‘commercial dispute’ so as to enable the Commercial Court to entertain such a suit?

The Appellant Company contended that it was running an industry on the Said Land and had indeed acquired the same for the very purpose. Furthermore, it contended that the Respondent No. 1 had purchased the Said Land for developing it and thus, the Said Land is being used for trade and commerce purposes.

On the other hand, the Respondent No. 1 contended that the Appellant Company had ceased to function for the past several years. Owing to the factum that the Appellant Company was defunct, the Said Land was not being used for either trade or commerce. Respondent No. 1, further elaborated that though it had sought for change in the use of Said Land for developing it, the same would be subject to such change of land use that would be granted and the use for which would it would be put to, in the future. Therefore, the Said Land, at present was not being used for either trade or commerce and thus, the dispute would not be maintainable before the Commercial Court.

Moreover, Section 2(1)(c)(vii) of the CC Act states, “a commercial dispute means a dispute arising out of agreements relating to immovable property used exclusively in trade or commerce.” With regard to the same, the Appellant Company relied on the decision of the Division Bench of the High Court of Delhi in Jagmohan Behl v.State Bank of Indore [2017 SCC On Line Del 10706] (“Appellant Company’s Case Law”). Herein, it was held that the expression “arising out of” and “in relation to immovable property” should not be given the narrow and restricted meaning and the expression would include all matters relating to agreements in connection with immovable property.

The Respondents relied on the decision of the Division Bench of the High Court in Vasu Healthcare Private Limited v. Gujarat Akruti TCG Biotech Limited [AIR 2017 Gujarat 153] (“Respondent’s Case Law No. 1”). Herein, the High Court concluded that on a plain reading of Section 2(1)(c) of the CC Act, the expression “used” must mean “actually used” or “being used”. It was elaborated in the aforesaid decision that if the legislature had intended to expand the scope of the definition, it would have employed phrases such as “likely to be used” or “to be used”. The Respondents also relied on Federation of A.P. Chambers of Commerce and Industry and Others v. State of A.P. and Others [(2000) 6 SCC 550] (“Respondent’s Case Law No. 2”) wherein, the Supreme Court had observed that the terminology “land is used for any industrial purpose” and “land is used for any other non-agricultural purpose” meant that there has to be a finding of the fact that the land at present, is being used for an industrial purpose, or a commercial purpose, or any other non-agricultural purpose. The Supreme Court has also observed that such juxtaposition was important to ascertain whether a piece of land should be assessed at the rate specified for a land used for an industrial purpose.

The Appellant Company argued that the strict interpretation applied in the facts of Respondent’s Case Law No. 2 emanated from the point that in the particular instance, it was the case of a taxing statute. It was argued that unlike the strict interpretation applied in taxing statutes, it would not be appropriate to adopt an identical approach in issues relating to jurisdiction. The Appellant Company contended that the statements of objects and reasons of the CC Act provided that the reason for enacting the CC Act was the speedy disposal of high value commercial disputes so as to create a positive image to the investors world about the independent and responsive Indian legal systems. It was also argued that a wider purport must be assigned while considering the dispute to be a ‘commercial dispute’.

The Supreme Court was of the view that since the dispute is a civil suit, the nature of the dispute and the jurisdiction to try the dispute should be reflected in the plaint. However, the Supreme Court observed that the plaint filed in the Commercial Court had neither mentioned the nature of the land nor the type of use to which it was being put to, as on the date of Agreement or MOU or as on the date of the Suit.

Para 22 of the plaint which provided for the jurisdiction of the Commercial Court is reproduced herein below:

“22. Jurisdiction: The Plaintiff states that the Defendants having their office at Vadodara land which is the subject matter of the instant suit is situated within the territorial jurisdiction of this Hon’ble Court and hence this Hon’ble Court has the jurisdiction to hear and decide the matter.”

The Supreme Court was of the view that the Appellant Company had not mentioned any reason as to why the Commercial Court had exclusive jurisdiction to try the said dispute. It would not suffice to point that simply because the office of the Respondents and the Said Land is situated at Vadodara, it would automatically confer jurisdiction upon the Commercial Court. It was also noted that the plaint sought for specific performance of the terms of the MOU, particularly, wherein it was agreed that the Mortgage Deed will be executed. The Supreme Court stated that even if the immovable property under the Mortgage Deed was the subject matter of dispute, it was necessary to plead and indicate that such immovable property was being used for trade or commerce purposes as only in such cases, can the jurisdiction of a Commercial Court be invoked.

The Supreme Court observed that the Appellant Company’s Case Law pertained to those immovable properties which were undoubtedly being used for either trade or commerce, and where the suit was instituted for recovery of rent or mesne profit, security deposit, etc. for the use of such immovable property. The Supreme Court, therefore, concurred with the views expressed by the High Court in Respondent’s Case Law No. 1.

Referring to the purpose of the CC Act, the Supreme Court is of the firm belief that the purpose of the CC Act would be defeated if a wider interpretation is given to the term ‘commercial disputes’. The reason being that every suit which is filed because of its high value and with the intention of seeking an early disposal, would lead to clogging of the systems and blocking the way for genuine commercial disputes. Moreover, even if the CC Act is strictly interpreted, it would not mean that litigants will be excluded from any other remedy. It is notable that such litigants can always approach an ordinary Civil Court.

Justice Bhanumati has written a concurring opinion offering strong reasoning as to the true intention of the CC Act. With immense transparency, it was brought to fore that the CC Act is to be interpreted to enable quick disposal of commercial litigations, at a fair and reasonable cost. It was noted that merely because an immovable property is likely to be used in relation to trade or commerce, it cannot attract the jurisdiction of the Commercial Court. It was brought to fore that the expression “used exclusively in trade or commerce” is to be interpreted purposefully. It was reiterated that the expression “used” should only mean “actually used”, and not “ready for use”, “likely to be used” or “to be used”. A wide interpretation would essentially defeat the objects of the CC Act and implementation of its fast track procedure.

The Supreme Court dismissed the appeal stating that neither the Agreement mentioned that the immovable property was exclusively used for the purpose of trade or commerce, nor was there any pleading to that effect in the plaint filed before the Commercial Court. Furthermore, the relief sought by the Appellant Company is for execution of the Mortgage Deed in the manner of specific performance of the terms of the MOU. Herein also, there is no reference to the immovable property being used in trade or commerce as on the date of the Suit.

Vaish Associates Advocates View
It is quite discernible from the judgement of the Supreme Court that a plaint filed in a Commercial Court is required to have a certain degree of specification. It was pointed out that the plaint did not provide substantial reasoning as to why a Commercial Court was to be conferred with jurisdiction. It is one thing to claim that an immovable property happens to be within the territorial jurisdiction because of a mere address and an entirely different thing to establish with staunch reasoning as to how dispute relating to an immovable property at hand fits the bill for a ‘commercial dispute’ within the meaning of the CC Act. There can be innumerable disputes of different forms that have remedies at ordinary Civil Courts. However, it is the nature of current usage of the property that gives the dispute relating to it, a certain level of credibility to qualify into a ‘commercial dispute’.

The judgement has also affirmatively cleared the coast as to the true interpretation of the expression “used”, that the expression indicates actual and current usage and not a hypothetical likelihood or a distant historical association with trade or commercial usage. It is also pertinent for the parties that the commercial documents relating to immovable property be appropriately registered and clauses be drafted with skill to reflect on record as to how an immovable property is indeed exclusively, being used for trade or commercial purposes. The disputes that may possibly spiral out with reference to an immoveable property would not automatically be a commercial dispute merely because of its high value or some underlying assumption. This development definitely provides a judicious insight to parties that plan on approaching Commercial Courts.

For more information please write to Mr. Bomi Daruwala at [email protected]