Supreme Court clarifies “commercial dispute” under Commercial Courts Act: Ambalal Sarabhai Enterprises Ltd. vs. K.S. Infraspace LLP (2019)

Date of the Judgment: 4 October 2019

Citation: (2019) INSC 1122

Judges: A.S. Bopanna, J., R. Banumathi, J. (Concurring)

Can a dispute over a mortgage deed related to immovable property be classified as a “commercial dispute” under the Commercial Courts Act, 2015? The Supreme Court addressed this question in a case where a company sought to enforce a mortgage deed, and the defendants argued that the matter did not qualify as a commercial dispute. The core issue revolved around whether the immovable property was “used exclusively in trade or commerce” at the time of the dispute. The Supreme Court, in this judgment, clarified the interpretation of the term “used” in the context of commercial disputes related to immovable property. The judgment was delivered by a bench of Justices A.S. Bopanna and R. Banumathi, with Justice Banumathi writing a separate concurring opinion.

Case Background

The appellant, Ambalal Sarabhai Enterprises Ltd., entered into an agreement to sell land with respondent No. 2 on 14 February 2012. Respondent No. 2 later assigned these rights to respondent No. 1 through an assignment deed on 12 October 2017. Subsequently, a sale was executed via a Deed of Conveyance on 3 November 2017. To secure the appellant’s interests during the land use change process, a Memorandum of Understanding (MoU) was also signed on 3 November 2017, requiring respondent No. 1 to execute a Mortgage Deed in favor of the appellant. Though a Mortgage Deed was executed on 3 November 2017, it was not registered. The appellant then filed a Commercial Civil Suit No. 41/2018 to enforce the execution of the Mortgage Deed, along with other related reliefs. The respondents filed an application under Order VII Rule 10 of the Civil Procedure Code (CPC), arguing that the dispute was not a commercial one.

Timeline

Course of Proceedings

The Commercial Court at Vadodara initially rejected the respondents’ application to return the plaint, noting that the appellant’s business activities, as per its Memorandum and Articles of Association, included real estate, thus classifying the dispute as commercial. However, the High Court of Gujarat overturned this decision. The High Court found that the Commercial Court had erred by relying on the Memorandum and Articles of Association and held that the immovable property was not being used for trade or commerce. The High Court, therefore, directed the return of the plaint to be presented in the appropriate court.

Legal Framework

The core legal provision at the heart of this case is Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, which defines a “commercial dispute” as one arising from “agreements relating to immovable property used exclusively in trade or commerce.” The Supreme Court had to interpret the meaning of the phrase “used exclusively in trade or commerce.” The court also considered the purpose of the Commercial Courts Act, 2015, which is to provide speedy disposal of high-value commercial disputes.

Arguments

Appellant’s Submissions:

• The appellant argued that the land was originally acquired for industrial purposes and the appellant was running an industry on the said land.
• They contended that the respondent No. 1 purchased the land for development, thus the land is used for trade and commerce.
• The appellant relied on the decision in Jagmohan Behl vs. State Bank of Indore, 2017 SCC OnLine Del 10706, arguing that the term “arising out of” should be interpreted broadly to include all matters relating to agreements concerning immovable properties.

Respondents’ Submissions:

• The respondents argued that the appellant had ceased operations, making the land not in use for trade or commerce.
• They contended that the future use of the land was uncertain as it was subject to change of land use permissions.
• The respondents relied on the decision in Vasu Healthcare Private Limited vs. Gujarat Akruti TCG Biotech Limited, AIR 2017 Gujarat 153, which held that the term “used” must mean “actually used” or “being used” and not “likely to be used.”

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the transaction between the parties could be considered a “commercial dispute” under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, thus enabling the Commercial Court to entertain the suit?

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court:

• Jagmohan Behl vs. State Bank of Indore, 2017 SCC OnLine Del 10706 – Delhi High Court: The court considered this case, which held that the term “arising out of” should be interpreted broadly to include all matters relating to agreements concerning immovable properties. However, the Supreme Court distinguished this case on facts.
• Vasu Healthcare Private Limited vs. Gujarat Akruti TCG Biotech Limited, AIR 2017 Gujarat 153 – Gujarat High Court: The court relied on this case, which held that the term “used” must mean “actually used” or “being used” and not “likely to be used.”
• Federation of A.P. Chambers of Commerce & Industry and Ors. vs. State of A.P. and Ors., (2000) 6 SCC 550 – Supreme Court of India: This case was cited to emphasize that the present use of land is relevant, as opposed to its intended future use.

Legal Provisions Considered by the Court:

• Section 2(1)(c)(vii) of the Commercial Courts Act, 2015: This provision defines “commercial dispute” as a dispute arising out of agreements relating to immovable property used exclusively in trade or commerce.

Judgment

The Supreme Court dismissed the appeal, affirming the High Court’s decision. The Court held that the dispute did not qualify as a “commercial dispute” under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, because the immovable property was not being “actually used” for trade or commerce at the time of the dispute.

How each authority was viewed by the Court:

• Jagmohan Behl vs. State Bank of Indore, 2017 SCC OnLine Del 10706: The Court distinguished this case on facts, stating that the broad interpretation of “arising out of” was not applicable in the present case.
• Vasu Healthcare Private Limited vs. Gujarat Akruti TCG Biotech Limited, AIR 2017 Gujarat 153: The Court agreed with the interpretation that “used” means “actually used” or “being used,” and not “likely to be used.”
• Federation of A.P. Chambers of Commerce & Industry and Ors. vs. State of A.P. and Ors., (2000) 6 SCC 550: The Court relied on this case to emphasize that the present use of land is relevant.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the literal interpretation of Section 2(1)(c)(vii) of the Commercial Courts Act, 2015. The court emphasized that the term “used” must mean “actually used” or “being used” at the time of the dispute, rather than the property being “likely to be used” in trade or commerce. This strict interpretation was driven by the need to ensure that the Commercial Courts are not overburdened with cases that do not strictly qualify as commercial disputes, thereby defeating the purpose of the Act, which is to provide speedy resolution of genuine commercial disputes.

Logical Reasoning:

The court considered alternative interpretations but rejected them. The appellant argued for a broader interpretation of “arising out of” and “used,” but the court favored a strict, literal interpretation. The court emphasized that the purpose of the Commercial Courts Act, 2015, would be defeated if every suit filed before the Commercial Court was entertained, regardless of whether it genuinely qualified as a commercial dispute. The court’s decision was based on the need to maintain the integrity of the Commercial Courts and ensure that they are used for their intended purpose.

The court quoted from the judgment:

• “The question therefore would be that, in the instant case though the parties have entered into a sale transaction of the immovable property and presently in the suit the registration of a Mortgage Deed pertaining to the immovable property is sought, whether the immovable property involved could be considered as being used exclusively in trade or commerce.”
• “On plain reading of the relevant clause it is clear that the expression “used” must mean “actually used” or “being used”. If the intention of the legislature was to expand the scope, in that case the phraseology used would have been different as for example, “likely to be used” or “to be used”. The word “used” denotes “actually used” and it cannot be said to be either “ready for use” or “likely to be used”; or “to be used”.”
• “In that view it is also necessary to carefully examine and entertain only disputes which actually answers the definition “commercial disputes” as provided under the Act.”

Justice Banumathi’s concurring opinion emphasized the need for a strict interpretation of the Commercial Courts Act, 2015, to ensure the fast-tracking procedure is not undermined. She highlighted that the object of the Act is to provide speedy disposal of high-value commercial disputes, and this would be defeated if a liberal interpretation was adopted.

Key Takeaways

• The term “used exclusively in trade or commerce” in Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, means the property must be “actually used” or “being used” for trade or commerce at the time of the dispute.
• A dispute over immovable property does not automatically qualify as a “commercial dispute” unless the property is actually used for trade or commerce.
• The Commercial Courts Act, 2015, is intended for speedy resolution of genuine commercial disputes, and a strict interpretation of its provisions is necessary to avoid overburdening the courts.
• The decision emphasizes the importance of pleadings in a suit, particularly when invoking the jurisdiction of a Commercial Court. The plaint must clearly state the nature of the land and its use in trade or commerce.

Directions

The Supreme Court directed the Commercial Court to return the plaint to the appellant, indicating a date for its presentation before the court with appropriate jurisdiction.

Specific Amendments Analysis

There is no discussion of any specific amendment in the judgment.

Development of Law

The ratio decidendi of this case is that for a dispute concerning immovable property to qualify as a “commercial dispute” under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015, the property must be “actually used” or “being used” for trade or commerce at the time of the dispute. This judgment clarifies the interpretation of the term “used” in the context of commercial disputes related to immovable property and reinforces the need for a strict interpretation of the Commercial Courts Act, 2015, to ensure its intended purpose is met. There is no change in the previous position of law; rather, this judgment clarifies the existing law.

Conclusion

In the case of Ambalal Sarabhai Enterprises Ltd. vs. K.S. Infraspace LLP & Anr., the Supreme Court clarified that a dispute over immovable property does not automatically qualify as a “commercial dispute” under the Commercial Courts Act, 2015. The court held that the property must be “actually used” or “being used” for trade or commerce at the time of the dispute. This decision emphasizes the need for a strict interpretation of the Act to ensure the efficient functioning of Commercial Courts and the speedy resolution of genuine commercial disputes. The court dismissed the appeal and directed the return of the plaint to be presented in the appropriate court.

Category

Parent Category: Commercial Courts Act, 2015

Child Category: Section 2(1)(c)(vii), Commercial Courts Act, 2015

Child Category: Commercial Dispute, Commercial Courts Act, 2015

Child Category: Immovable Property, Commercial Courts Act, 2015

FAQ

Q: What is a “commercial dispute” related to immovable property?

A: According to the Supreme Court, a commercial dispute related to immovable property is one where the property is “actually used” or “being used” for trade or commerce at the time of the dispute. It’s not enough that the property might be used for trade or commerce in the future.

Q: If I have a dispute about a property I own, does it automatically go to a Commercial Court?

A: No, not automatically. The property must be actively used for trade or commerce for the dispute to be considered a “commercial dispute” and be heard in a Commercial Court.

Q: What does “actually used” mean?

A: “Actually used” means that the property is currently and actively being used for trade or commerce. It is not sufficient if the property is ready for use or likely to be used in the future.

Q: Why is it important to have a strict definition of “commercial dispute”?

A: The strict definition ensures that Commercial Courts are not overburdened with cases that do not qualify as commercial disputes. This helps in the speedy resolution of genuine commercial disputes.

Q: What should I do if I think my dispute is a “commercial dispute”?

A: You should ensure that your pleadings clearly state that the immovable property is being “actually used” for trade or commerce at the time of the dispute.