THE HONOURABLE Ms. JUSTICE P.T. ASHA O.A.No.686 of 2019 in C.S.No.431 of 2019 Read full order

IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 17.07.2020
Delivered on : 14.08.2020
CORAM
THE HONOURABLE Ms. JUSTICE P.T. ASHA
O.A.No.686 of 2019
in
C.S.No.431 of 2019

1.R.Kumar

2.V.Mohanakrishnan … Applicants
Vs

1.T.A.S.Jawahar Ayya

2.Vinod Velappan

3.S.Suriya Narayanan

4.Mythili Subramaniam . .. Respondents

Prayer: Judges Summons filed under Order XIV Rule 8 of the Original Side Rules read with Section 94 &151 and Order 39 Rules 1 & 2 of the CPC praying to grant ad interim injunction restraining the 4th respondent / 4th defendant from in any way dealing with the schedule property pending disposal of the above suit.

For Applicants : Mr.K.V.Sundararjan

For Respondents 3 & 4 : Mr.K.Chandrasekhar

ORDER

This is an application filed by the plaintiffs seeking an ad-interim injunction restraining the 4th respondent / 4th defendant from alienating the property described in the schedule to the Judges summon. The applicants have filed the suit C.S.No.431 of 2019 for recovery of a sum of Rs.1,04,25,000/- together with interest at the rate of 30% per annum due towards the loan borrowed by the 1st defendant from the plaintiffs on the security of the simple mortgage deed.

2. When the above application was taken up for hearing Mr.K.Chandrasekhar, learned counsel for respondents 3 and 4 took out a preliminary objection stating that no orders can be passed in the application by this Court as the dispute involved in the suit is one that comes within the jurisdiction of the Commercial Court. The learned counsel requested this Court to consider this issue as a preliminary argument in the application. Mr.K.V.Sundararajan, learned counsel appearing for the applicants has no objection to the same.

3. The learned counsel for the respondents 3 and 4 would contend that the transaction between the applicants herein and the 1st respondent would squarely fall within the definition of a “Commercial Dispute” as provided in Section 2 (1) ( c ) (i) of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, herein after called the Act.

4. In order to appreciate the argument it would be apposite to briefly delve on the case of the applicants. The applicants would contend that the 1st respondent had approached them for a loan of Rs.60,00,000/- and as security had offered to mortgage the property which is described in the schedule to the plaint. The 1st respondent had undertaken to repay the said amount of Rs.60,00,000/- together with interest at 30% per annum.

5. The applicants would contend that despite executing the simple mortgage in favour of the applicants, the 1st respondent had sold the suit property and another property to the 3rd respondent vide registered sale deed 29.07.2016 and this sale deed was executed by the 2nd respondent as Power of Attorney Agent of the 1st respondent. Thereafter, the 3rd respondent had executed a settlement deed in favour of the 4th respondent on 03.05.2017 registered as Document No.1193 of 2017 on the file of the SRO, Periamet in respect of the suit property and other properties. It is the contention of the applicants that these transactions are sham and nominal made with an intent to keep the property out of the reach of the applicants. Be that as it may, the applicants would contend that the sale and the settlement are all subject to the mortgage executed in their favour. Since no payments were made by the 1st respondent, the applicants have come forward with the instant suit.

6. The mortgage deed has been filed as document No.7 along with the plaint. The recitals of the mortgage deed would read that the mortgagee, namely, the 1st respondent, has borrowed a sum of Rs.60,00,000/- for meeting his personal expenses. The declared value of the property is a sum of Rs.7,92,00,000/-.

7. The respondents more particularly the 4th respondent has filed his counter to the injunction application and the sum and substance of the counter is that the property in question has been mortgaged earlier under two registered mortgages in favour of Raja Holdings, Financiers and Merchants on 03.01.2014 registered as document No.14 / 2014 and 15 / 2014 on the file of the Sub Registrar, Periyamet, Chennai. The 4th respondent would further contend that the mortgage which is the subject matter of this suit is a collusive one and that the applicants are very well aware about the earlier mortgages in favour of the said M/s.Raja Holdings. In fact in some of the documents and letters executed by the 1st respondent, the 1st applicant has signed as a witness. The mortgage in favour of the applicants is created only for the purpose of defeating the rights of the said mortgagees under the two mortgage deeds. The 4th respondent has raised the defense that the suit is only maintainable before the Commercial Division of the High Court as the dispute involved is a commercial dispute.

8. It is in this background that the arguments which have now been adduced by the learned counsel for the 4th respondent has to be considered. The first argument which is advanced by the learned counsel for the 4th respondent was that the suit is of a value over Rs.1,00,00,000/- and therefore would fall within the Jurisdiction of the Commercial Division. Further, the transaction between the applicants and the 1st respondent is a commercial transaction as defined in Section 2 (1) ( c ) (i) of the Act since the money had been advanced by the applicant as a Financier. The learned counsel would submit that a reading of the above section would clearly indicate that the ordinary transaction of a financier is a commercial dispute and therefore the applicants being financiers, the entire transaction between the applicants and the 1st respondent is only a commercial dispute. The learned counsel relied on the Judgement reported in AIR 1965 SC 1954 – The Morvi Mercantile Bank Ltd and another Vs. Union of India through the General Manager, Central Railway. The facts contained therein does not relate to the issue relevant to the instant case; viz; the commercial nature of the transaction. He would also rely on the Judgement of the Division Bench of the Telangana High Court in C.R.P.No.6530 of 2018 in Rammohan Vedantham Vs. Arvind Reddy Kumbham. This case related to the interpretation of whether a Joint Venture would fall within the definition of a commercial transaction. Relying on Section 2 (c) (iii) the Bench held that a Joint Venture was a commercial transaction.

9. The arguments of the respondents 3 and 4 has been opposed by the learned counsel for the applicants who would contend that the 1st respondent has borrowed the sum of Rs.60,00,000/- as a personal loan and not in furtherance of any commercial activity. He would also rely upon the Judgement of the Delhi High Court in the matter of Kailesh Devi Khanna and others Vs. D D Global Ltd and others, where one of the issues framed was whether the suit in question dealt with a commercial dispute. The question has been answered against the plaintiff and the suit was directed to be re-numbered as an ordinary suit. While passing the order the learned Judge has observed that if a suit is not based on any transaction relating to a mercantile document it would not fall within the definition of a commercial dispute as contemplated under Section 2 (1) (c) of the Act. He would also rely on the Judgement of the Hon’ble Supreme Court reported in 2020 SCC OnLine SC 1 in the matter of Ambalal Sarabhai Enterprise Ltd Vs. K.S.Infraspace LLP Ltd and another, etc., in support of his prayer for grant of ad-interim injunction.

10. The arguments on both sides revolves around the nature and the interpretation of a commercial transaction as defined under the Act with particular reference to Section 2 (1) (c) (i) of the Act.

11. Before discussing the definition of a commercial dispute under the Act it is necessary for us to briefly touch upon the circumstances that had led to the enactment of this Act. The 253rd report of the Law Commission of India was presented on 29.01.2015 by the Chairman of the Law Commission of India. The report would narrate the sequence of events which had led to the drafting of the Act. The need for the constitution of Commercial Divisions in High Courts was felt on account of the changes in the economic policies of the country post 1991 and the perception internationally that the Indian Judicial System has collapsed due to inordinate delay as a result of which domestic and foreign investors were reluctant to invest in the country.

12. The 188th report of the Law Commission had earlier recommended the setting up of the Commercial Division in each of the High Court of India to expedite commercial cases of High pecuniary value. The report recommended a “Fast-Track procedure” for the disposal of suits in the Commercial Divisions by providing time lines right from the filing of the pleadings upto the delivery of Judgement. As a result of these recommendations the Lok Sabha had introduced Bill No.139 of 2009 on 16.12.2009. The salient features of the Bill apart from proposing the setting up of the Commercial Division in the High Courts also recommended that commercial disputes of a value over Rs.5,00,00,000/- and above were to be allotted to the Commercial Division.

13. The Bill also recommended that the commercial disputes pending in the High Court or elsewhere were to be transferred to the Commercial Division of the High Court. The Bill also recommended that applications under the Arbitration and Conciliation Act if relating to the commercial disputes of the specified value should also be transferred to the Commercial Division of the High Court. The Bill was passed by Lok Sabha. However, the members of the Rajya Sabha expressed some reservations / concern regarding the Bill and the Bill was referred to the Select Committee on the Commercial Division of the High Courts Bill, 2009. This Committee had submitted its report on 29.07.2010 and one of the recommendation that was made was that the definition commercial dispute should be expanded to include joint venture agreements, shareholders’ agreements, subscription and investment agreements and pertaining to service industry, including outsourcing of services, business process outsourcing, banking and finance, financial services and the like.
This really sets the tenor of the proposed Act to be one to encompass commercial transactions of all kinds.

14. Based on this recommendation the Bill was re-drafted and placed before the Rajya Sabha for consideration. Several concerns were once again raised by the members and therefore the Government withdrew the Bill. It was decided that the Bill required reconsideration and a fresh study of the provisions regarding scope of commercial dispute was undertaken. The 253rd report was the culmination of the study that has been under taken. The Commission had recommended the re-framing of the Commercial Division of the High Courts Bill, 2009 and in Chapter III of the report the Commission has examined the need to update and re-frame the Commercial Division of the High Courts Bill, 2009. The Commission has set out the need for Commercial Courts in India. The report would state:
“Concept of Commercial Court – dedicated forum aimed at resolving a complex commercial disputes between the parties – is an idea that has merit in its own right. This can be seen from the fact that around the world, many nations have adopted Commercial Courts as a means to ensure speedy delivery of Justice in Commercial Cases”.

15. The entire trajectory of the report was to ensure an efficient and definite dispute resolution mechanism in order to aid the development of Trade and Commerce. The report also aimed to bring about the changes in order to improve the international image of the Indian Justice delivery system in Commercial matters. The report had recommended the setting up of Commercial Divisions and Commercial Courts having special procedures for this forum making the entire procedure time bound in the summary of its recommendations.

16. The report would reiterate that the commercial disputes should be defined broadly to mean disputes arising out of an ordinary transactions of the merchants, bankers, financiers, traders such as those relating to mercantile documents; joint venture and partnership agreements; intellectual property rights; insurance and other such areas as have been defined in the proposed 2015 Bill. The Select Committee of the Parliament and the Law Commission report would clearly emphasise that the proposed Bill seeks to encompass within its Jurisdiction only Commercial disputes and none else.

17. In the statements and objects of the Bill, namely, the Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015, which forms the precursor for the Act, it has been clearly spelt out that the Bill was to provide for constitution of Commercial Divisions and Commercial Appellate Divisions in High Courts and for creation of Commercial Courts in other parts of the country for adjudicating the commercial disputes, the procedure to be adopted in deciding commercial disputes and for matters connected therewith and incidental thereto. The objects of the Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015 are as follows:

“1. WHEREAS it has been observed that owing to greater economic activity, the number and value of Commercial Disputes are increasing significantly;

2. WHEREAS it has been observed that high value Commercial Disputes constitute a large proportion of civil disputes that remain pending before High Courts and various civil courts in the country;

3. WHEREAS to ensure further economic growth, greater foreign investment, and to make India an attractive place to do business, it is essential that Commercial Disputes are decided in a fair, effective and timely manner;

4. WHEREAS there is a need to ensure that the adjudication of Commercial Disputes ensures speedy relief to those engaged in trade and commerce so that the lack of efficacious remedies do not impede the growth of trade and commerce by rendering nugatory their rights in law and equity;

5. WHEREAS it is advisable, in accordance with international best practices, to create new courts and provide for judicial manpower trained in commercial law to decide Commercial Disputes so as to reduce the growing pendency of commercial disputes and to achieve efficacious and expeditious disposal of such cases; and

6. WHEREAS it is necessary to provide for substantive changes in the procedural laws that are applicable for deciding Commercial Disputes to achieve these objectives.”

18. A reading of this statement of objects would clearly indicate that the Bill seeks to set up the Commercial Courts for the purpose of deciding commercial disputes. The Bill received the assent of the President on 31st December 2015 and the Act came to be published in the Gazette of India on 1st January 2016. A reading of the definition of commercial dispute as provided in Section 2 (1) ( c ) (i) of the Act in the above background would clearly show that the Act is framed to bring within its fold only disputes of a Commercial nature. The object of the Act has been very succinctly described as follows:
“An Act to provide for the constitution of Commercial Court, Commercial Division and Commercial Appellate Division in High Courts for adjudicating commercial disputes of specified value and matters connected therewith or incidental thereto”.

19. In order to more fully appreciate the arguments, it is necessary to extract the said provision which is the bone of contention in the instant case; viz; Section 2 (1) ( c ) (i):
“(i)Ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents including enforcement and interpretation of such documents;”

20. The learned counsel appearing for the 4th respondent would argue that the definition of the commercial dispute as contained in Section 2 (1) ( c ) (i) would indicate that any ordinary transaction of merchants, bankers, financiers and traders would constitute a commercial dispute. The plaintiffs being financiers, the dispute involved is a commercial dispute. The learned counsel has failed to appreciate that the definition does not restrict describing the transaction of those classes like merchants, bankers, financiers and traders to only their ordinary transactions but have gone on to elaborate these ordinary transactions as one relating to mercantile documents.

21. Therefore, read in tandem it means that the ordinary transaction of the 4 classes of persons relating to / arising out of mercantile documents alone would fall within the definition of a commercial dispute. Section (2) ( c ) (i) cannot be read in isolation but has to be read along with all the other classes of disputes which have been included into the definition. The Sub Sections to Section 2 (1) would clearly indicate that transactions which are of a commercial nature alone is covered under the said definition. In fact the emphasis is on the document evidencing the transaction and not the persons transacting. Every transaction of these classes of persons does not automatically become a commercial transaction unless the transaction is effected through a mercantile document. The objects of the Act would also lend support to this view. The view of this Court finds support in the Judgement of the Delhi High Court referred supra where the learned Judge has spelt out that only where the transactions relating to a mercantile document that falls within the definition of a Commercial dispute is contemplated under the Act. The Court has to look into the documents / the evidences of the transaction. In the instant case the mortgage deed which is filed as document No.7 would read that the transaction is one entered into between the applicant, as an individual and the 1st respondent, as an individual. The recitals would show that the 1st respondent has borrowed money to meet his personal expenses.

22. The documents very clearly would indicate that the transaction is not of a commercial nature but for the personal needs of the 1st respondent. Therefore, this Court is not in agreement with the arguments primarily put forward by the learned counsel for the 3rd and 4th respondents that this Court does not have jurisdiction as the transaction is of a commercial nature. The arguments is therefore rejected. The parties are directed to submit their arguments in O.A.No.686 of 2019 in C.S.No.431 of 2019 on 17.09.2020.
14.08.2020
Internet : Yes/No
Index :Yes/No
Speaking / Non-Speaking
kan

P.T. ASHA. J,

kan

Pre-delivery order in
O.A.No.686 of 2019 in
C.S.No.431 of 2019

14.08.2020

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