Dismissed

Mrs. Usha Narayana Rao v. M/S Vinod Brothers

Karnataka HC8 Nov 2022WP/14971/2022

Case brief

AI extract

What is this about?

The High Court of Karnataka dismissed writ petitions challenging an order rejecting defendants' applications to return plaints to ordinary civil courts. The Court upheld jurisdiction of the Commercial Court, holding that a mortgage on industrial property used exclusively for trade/commerce fits Section 2(1)(c)(vii) of the Commercial Courts Act, 2015.

What did the court decide?

The writ petitions filed under Article 227 of the Constitution of India were dismissed, upholding the jurisdiction of the Commercial Court.

Mrs. Usha Narayana Rao Vs M/S Vinod Brothers — Company and Corporate | Karnataka HC (2022)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8^TH DAY OF NOVEMBER, 2022

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BEFORE

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THE HON’BLE MR. JUSTICE R.NATARAJ

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WRIT PETITION NO.14969 OF 2022 (GM-CPC) C/W WRIT PETITION NO.14971 OF 2022 (GM-CPC)

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IN W.P.No.14969/2022

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BETWEEN:

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MRS. USHA NARAYANA RAO W/O LATE B.K. NARAYANA RAO, AGED ABOUT 78 YEARS,

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MRS. ANUPAMA ARJUN W/O LATE ARJUN BELMAR, AGED ABOUT 49 YEARS,

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MR. VISSRUDH BELMAR S/O LATE ARJUN BELMAR, AGED ABOUT 20 YEARS,

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ALL 1 TO 3 ARE RESIDING AT BELMAR ESTATE, NAGASANDRA POST, YESHWANTHPUR HOBLI, BANGALORE-560 073.

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…PETITIONERS

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(BY SRI. JAYAKUMAR S. PATIL, SENIOR ADVOCATE FOR SRI. N.N.DAMODAR, ADVOCATE)

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AND:

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M/S VINOD BROTHERS A PROPRIETORSHIP CONCERN OF MR. VINOD KUMAR AGARWAL,

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PROPRIETOR, S/O SRI. BHAGIRATH PRASAD AGARWAL NO.31, TBR TOWER, 4^TH FLOOR, NEW MISSION ROAD, 1^ST CROSS, J.C. ROAD, BANGALORE -560 027.

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…RESPONDENT

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(BY SRI. S. SREEVATSA, SENIOR ADVOCATE FOR SRI. PRASANTH V.G., ADVOCATE)

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THIS WRIT PETITION IS FILED UNDER ARTICLE 227 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 16.07.2022 DISMISSING INTERLOCUTORY APPLICATION FILED UNDER ORDER 7 RULE 10 R/W SEC.151 OF CPC FILED BY THE DEFENDANTS IN COM.O.S.NO.464/2021 ON THE FILE OF LEARNED LXXXVII ADDL. CITY CIVIL AND SESSIONS JUDGE, (EXCLUSIVE DEDICATED COMMERCIAL COURT) AT BANGALORE (CCH-88) VIDE ANNEXURE-H AND THEREBY ALLOW THE SAID INTERLOCUTORY APPLICATION DIRECTING THE SAID COURT TO RETURN THE PLAINT IN COM.O.S.NO.464/2021 TO BE PRESENTED TO THE COURT IN WHICH THE SAID SUIT SHOULD HAVE BEEN INSTITUTED.

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IN W.P.NO.14971/2022

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BETWEEN:

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MRS. USHA NARAYANA RAO W/O LATE B.K. NARAYANA RAO, AGED ABOUT 78 YEARS,

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MRS. ANUPAMA ARJUN W/O LATE ARJUN BELMAR, AGED ABOUT 49 YEARS,

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MR. VISSRUDH BELMAR S/O LATE ARJUN BELMAR, AGED ABOUT 20 YEARS,

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ALL 1 TO 3 ARE RESIDING AT BELMAR ESTATE, NAGASANDRA POST,

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YESHWANTHAPURA HOBLI, BANGALORE-560 073.

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…PETITIONERS

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(BY SRI. JAYAKUMAR S. PATIL, SENIOR ADVOCATE FOR SRI. N.N.DAMODAR, ADVOCATE)

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AND:

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M/S VINOD BROTHERS A PROPRIETORSHIP CONCERN OF MR. VINOD KUMAR AGARWAL, PROPRIETOR, S/O SRI. BHAGIRATH PRASAD AGARWAL NO.31, TBR TOWER, 4^TH FLOOR, NEW MISSION ROAD, 1^ST CROSS, J.C. ROAD, BANGALORE -560 027.

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…RESPONDENT

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(BY SRI. S. SREEVATSA, SENIOR ADVOCATE FOR SRI. PRASANTH V.G., ADVOCATE)

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THIS WRIT PETITION IS FILED UNDER ARTICLE 227 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 16.07.2022 DISMISSING INTERLOCUTORY APPLICATION FILED UNDER ORDER 7 RULE 10 R/W SEC.151 OF CPC FILED BY THE DEFENDANTS IN COM.O.S.NO.465/2021 ON THE FILE OF LEARNED LXXXVII ADDL. CITY CIVIL AND SESSIONS JUDGE, (EXCLUSIVE DEDICATED COMMERCIAL COURT) AT BANGALORE (CCH-88) VIDE ANNEXURE-H AND THEREBY ALLOW THE SAID INTERLOCUTORY APPLICATION DIRECTING THE SAID COURT TO RETURN THE PLAINT IN COM.O.S.NO.465/2021 TO BE PRESENTED TO THE COURT IN WHICH THE SAID SUIT SHOULD HAVE BEEN INSTITUTED.

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THESE PETITIONS HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 02.08.2022 AND COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE COURT MADE THE FOLLOWING:-

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ORDER

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These petitions arise out of Com.O.S.Nos.464/2021 and 465/2021 pending trial before the LXXXVII Addl. City Civil and Sessions Judge, Bengaluru. The petitioners have challenged the orders dated 16.07.2022 passed in the above suits, by which applications filed by them to return the suits for want of jurisdiction, were rejected.

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The plaintiff/respondent herein filed O.S.Nos.464/2021 and 465/2021 before the Commercial Court for recovery of Rs.13,09,23,763/and Rs.6,33,16,495/- respectively. The plaintiff claimed that it was a proprietary concern and had advanced loan of Rs.6,00,00,000/- and Rs.3,00,00,000/- respectively to the defendant No.1 and her son Mr. Arjun Belmar on the security of a mortgage by deposit of title deeds of an immovable property, which were used for industrial purposes. The plaintiff claimed that the defendant No.1 and her son had paid the monthly interest in respect of the loan of Rs.6,00,00,000/- till May, 2018. However, in

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respect of the loan of Rs.3,00,00,000/-, the defendant No.1 and Mr. Arjun Belmar failed to pay any amount whatsoever. The plaintiff was forced to issue a notice dated 23.09.2018 calling upon the defendant No.1 and her son to pay a sum of Rs.72,00,000/- and Rs.36,00,000/respectively towards the defaulted interest. The plaintiff alleged that the defendant No.1 and Mr. Arjun Belmar replied jointly on 27.09.2018 acknowledging the default and undertook to make necessary payments by or before 14.10.2018. The plaintiff claimed that despite this reply, neither the defendant No.1 nor Mr. Arjun Belmar honoured their undertaking as well as their liability under the memorandum of deposit of title deeds. The plaintiff claimed that despite its several attempts, it was unable to recover the outstanding amount. The plaintiff contended that Mr. Arjun Belmar died on 05.09.2020 leaving behind the defendant Nos.2 and 3, who succeeded to the estate of Mr. Arjun Belmar and were correspondingly liable to clear the debt of Mr. Arjun Belmar. The plaintiff therefore, caused a notice dated 28.12.2020 calling upon the

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defendants to clear the outstanding within a period of 15 days. On the failure of the defendants to do so, the plaintiff filed the present suits for the recovery of the amounts mentioned supra.

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The plaintiff categorically pleaded in the plaint that the suit was a commercial dispute as it arose out of an agreement relating to immovable property that was being used exclusively in trade and commerce.

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The defendants entered appearance and filed applications under Order VII Rule 10 of the Code of Civil Procedure, 1908 (henceforth referred to as 'CPC' for short) read with Section 151 of CPC, contending that there was no commercial transaction between the plaintiff and the defendants and therefore, the Commercial Courts had no jurisdiction to adjudicate the suits filed by the plaintiff. These applications were opposed by the plaintiff.

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The Trial Court after considering the contentions urged by the plaintiff and the defendants,

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rejected the applications on the ground that the mortgaged property was industrial land where industrial sheds were established and therefore were exclusively used for the purpose of an industry, which fell within the meaning of a commercial dispute under Section 2(1)(c)(vii) of the Commercial Courts Act, 2015 (henceforth referred to as 'Act' for short). It also relied upon the explanation to Section 2(1)(c) of the Act and held that the suit was a commercial dispute. It also held that the Court had earlier passed an order dated 23.03.2022, where it had elaborately discussed the said issue and had formed an opinion that the transaction was a commercial dispute and the Court had jurisdiction to pass a summary judgment. It held that since the defendants had not challenged the order dated 23.03.2022, the Court was vested with the jurisdiction to decide the case.

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Being aggrieved by the rejection of the applications, the defendants have filed these writ petitions.

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The learned Senior counsel representing the

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petitioners/defendants submitted that the transaction between the plaintiff and the defendants was not in the course of any trade or business and therefore, did not partake the character of a commercial dispute. He submitted that the averments of the plaint clearly indicated that the transaction between the parties was a private transaction, which was secured by executing the deed of mortgage. He submitted that the averments of the plaint is the basis for determining the jurisdiction of the Court and therefore, the suit was not a commercial dispute. He further contended that the assumption of the Trial Court that the mortgaged property was converted for industrial purpose and therefore, the dispute is commercial in nature was thoroughly ill-founded. He also submitted that for the Commercial Court to assume jurisdiction, the property should be used "exclusively for trade or commerce". The learned Senior counsel has relied upon the judgment of the division bench of this Court in Com.Appeal No.99/2021 dated 19.07.2021 to contend that

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a commercial dispute should necessarily arise out of an agreement relating to an immovable property which is exclusively used for trade or commerce.

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Per contra, the learned Senior counsel representing the respondent/plaintiff raised a threshold contention that the instant writ petitions were not maintainable as an appeal is provided under Section 13 of the Act. He submitted that the plaintiff was a trader, while the deceased - Mr. Arjun Belmar was also businessman and he had mortgaged the property to raise a loan from the plaintiff and the mortgaged property was industrially converted land where industrial sheds were constructed. He therefore, submitted that the immovable property, which was mortgaged was being used exclusively in trade and commerce. He submitted that the mortgage deed executed by the defendant No.1 and Mr. Arjun Belmar would indicate the commercial nature of the transaction between them and therefore, qualified to be treated as a commercial dispute.

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I have considered the submissions made by

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the learned Senior counsel appearing for the plaintiff and the defendants.

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10. Since a question regarding the maintainability

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of these writ petitions is raised on the ground that the Act provides a remedy of an appeal, the same are taken up for consideration. It is relevant to note that Section 13 of the Act provides for appeals from judgment or Orders of a commercial Court. The proviso to Section 13 (1) and (1A) specifies that an appeal shall lie from such orders that are specifically enumerated under Order XLIII of the Code of Civil Procedure. However, under Order XLIII Rule 1(a) an appeal would lie from an order under Rule 10 of Order VII “returning a plaint” but not against an order rejecting an application for return of a plaint. Thus, the petitioner has no other remedy and cannot be left remediless and hence a petition under Article 227 of the Constitution of India is maintainable. Hence the contention raised by the learned

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Senior Counsel for the plaintiff/ respondent herein regarding maintainability of the writ petition is rejected.

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Now turning to the question whether the dispute in question is a commercial dispute or not as defined under Section 2(1)(c) of the Act, the learned Senior counsel has relied heavily on the averments of the plaint to contend that the loan paid to Mr. Arjun Belmar by the plaintiff was a private transaction. It is trite that whenever a doubt arises regarding the jurisdiction of a Court which cannot be easily resolved, then the Court is bound to rule in favour of the Court possessing jurisdiction rather than holding that it has no jurisdiction. In the case on hand, the averments of the plaint disclose that the transaction between the plaintiff and the defendant No.1 and Mr. Arjun Belmar related to a loan advanced by the plaintiff to the defendant No.1 and her son. In order to secure the said loan, a deed of mortgage was executed in respect of a property, which was converted for industrial use and where industrial units were set up. The mortgage

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deed does not bear any reference to the purpose for which the loan was advanced by the plaintiff to the defendant No.1 and her son. The averments made in the plaint do not even remotely suggest that the loan so raised was for any commercial/ industrial purpose. However, the plaintiff has innocuously pleaded that "the instant suit is a commercial suit as it is in respect of an agreement relating to an immovable property that is being used exclusively in trade and commerce."

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In view of the above, the question whether the

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dispute alleged by the plaintiff arose out of an agreement relating to immovable property used exclusively in trade or commerce, falls for consideration.

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For the sake of immediate reference, the relevant portion of Section 2(1)(c)(i) and (vii) of the Act, 2015 and Explanation (A) are extracted below:-

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“(c) “commercial dispute” means a dispute arising out of–– (i) ordinary transactions of merchants, bankers, financiers and traders such as those

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relating to mercantile documents, including enforcement and interpretation of such documents; (ii) to (iv) xxxxxx

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(vii) agreements relating to immovable property used exclusively in trade or commerce; (viii) to (xxii) xxxxxxx

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Explanation.––A commercial dispute shall not cease to be a commercial dispute merely because— (a) it also involves action for recovery of immovable property or for realisation of monies out of immovable property given as security or involves any other relief pertaining to immovable property;”

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For a dispute to fall within the meaning of a

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commercial dispute under Section 2(1)(c)(vii) of the Act, the agreement should relate to an “immovable property” and such immovable property should be “exclusively used in trade or commerce”. The immovable property that is the subject matter of the agreement must be "used" exclusively in trade or commerce and not “capable of being used” or “ready to be used” for trade or commerce and only then a dispute arising out of such agreement relating to such immovable property, qualifies to be a commercial

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dispute under the Act. This interpretation is in sync with the scope and intent of the legislature and the purpose of establishment of commercial Courts in the country. This Court is mindful of the legislative wisdom and the purpose of constitution of commercial courts which is to augment the ease of doing business by enabling business houses to avail a quick judicial intervention in commercial disputes. Some such agreements are (i) an agreement of sale of a business/commercial/industrial property (ii) raising contracts (iii) lease/ rent of business/commercial/industrial property (iv) prospecting lease (v) investment agreements in business/commercial/industrial property (vi) Special purpose vehicles in business/commercial/industrial property etc. The usage of the immovable property and the agreement concerning that immovable property determines the nature of the transaction. In order to determine the nature of the transaction, it is the agreement alone that needs to be looked into to check whether the dispute arises from such agreement.

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It is apposite to refer to the judgment of the

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Hon'ble Apex Court in the case of Ambalal Sarabhai Enterprises Limited vs. K.S. Infraspace LLP and another [(2020) 15 SCC 585] , where the Hon'ble Apex Court was considering a case involving the following facts:-

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The appellant therein had executed an agreement to sell dated 14.02.2012 in favour of the respondent No. 2 in respect of the land which is described in the agreement. The respondent No. 2 assigned and transferred all his rights under the said agreement to sell in favour of respondent No.1 by executing an assignment deed dated 12.10.2017. In that view, the respondent No. 1 herein was to purchase the lands which were the subject matter of the agreement from the appellant herein. Accordingly, the sale was made under a Deed of Conveyance dated 03.11.2017. Since certain other aspects were to be completed regarding the change relating to the nature of the use of the land for conclusion of the transaction, the right of the appellant in respect of the land was to be protected. In that view a Memorandum of Understanding dated 03.11.2017 was entered into between the appellant and the respondents therein. As per the same, a Mortgage Deed was required to be executed by respondent No. 1 therein in favour of the appellant. Accordingly, a Mortgage Deed dated 03.11.2017 was executed but the same had not been registered. It is in

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that light the appellant therein filed a Commercial Civil Suit No. 41/2018 so as to enforce the execution of a Mortgage Deed. Consequently, the relief of permanent injunction and other related reliefs were sought. It is in the said suit, summon was issued to respondents therein who are the defendants in the suit, wherein on filing the written statement, the application under Order VII Rule 10 of CPC was filed.

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In that case, the Trial Court held that a dispute was a commercial dispute under Section 2(1)(c)(vii) of the Act, while the High Court held that the agreement did not relate to property which was exclusively used in trade and commerce and hence, ordered return of the plaint.

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The Hon'ble Apex Court in the aforesaid case, after considering the purpose of the Commercial Courts Act, 2015, held as follows:-

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“Having taken note of the submission we feel that the very purpose for which the CC Act of 2015 has been enacted would be defeated if every other suit merely because it is filed before the Commercial Court is entertained. This is for the reason that the suits which are not actually relating to commercial dispute but being filed merely because of the high

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value and with the intention of seeking early disposal would only clog the system and block the way for the genuine commercial disputes which may have to be entertained by the Commercial Courts as intended by the law makers. In commercial disputes as defined a special procedure is provided for a class of litigation and a strict procedure will have to be followed to entertain only that class of litigation in that jurisdiction. If the same is strictly interpreted it is not as if those excluded will be non-suited without any remedy. The excluded class of litigation will in any event be entertained in the ordinary Civil Courts wherein the remedy has always existed.”

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Further the Hon'ble Apex Court held as follows:

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“It appears that the trial court has proceeded under the footing that the parties to the suit more particularly, the appellant-plaintiff seems to be carrying on business as Estate Agent and to manage land, building, etc. and the very object as enumerated in Memorandum and Articles of Association of the appellant-plaintiff company established that the property in question are being used exclusively in trade or commerce rather in the business of the plaintiff. As rightly pointed out by the High Court, there is nothing on record to show that at the time when agreement to sell came to be

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executed in 2012, the property was being exclusively used in trade and commerce so as to bring dispute within the ambit of sub-clause (vii) of Section 2(1)(c) of the Act. Merely because, the property is likely to be used in relation to trade and commerce, the same cannot be the ground to attract the jurisdiction of the Commercial Court.

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In the case of Ujwala Raje Gaekwar v. Hemaben Achyut Shah 2017 SCC Guj 583, a Special Civil Suit No.533/2011 was instituted for declaration that the sale deed valued at Rs.17.76 crores executed by the appellant-original defendant No.1 in favour of respondent No.4 be declared illegal and also, for permanent injunction with respect to the land in question. The appellantsdefendants thereon filed an application that in sale deed, it has been clearly mentioned that the agreement relating to immovable property used exclusively in trade or commerce and falls within the meaning of Section 2(1)(c)(vii) of the Commercial Courts Act and that the matters above, the value of rupees one crore are to be transferred to the Commercial Court. Trial court rejected the said application which was challenged before the Gujarat High Court. The Gujarat High Court held that the aim, object and purpose of establishment of Commercial Courts, Commercial Divisions and Commercial Appellate Divisions of the High Court is

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to ensure that the cases involved in commercial disputes are disposed of expeditiously, fairly and at reasonable cost to the litigant, and if such a suit which is as such arising out of the probate proceedings and/or is dispute with respect to the property are transferred to the Commercial Division/Commercial Court, there shall not be any difference between the Regular Civil Courts and the Commercial Division/Commercial Courts and the object for the establishment of the Commercial Division/Commercial Courts shall be frustrated.

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In Vasu Healthcare Private Limited v. Gujarat Akruti TCG Biotch Limited & Another [2017 SCC OnLine Guj 724, referred to in extenso by my learned Brother, it was held that “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”. We entirely agree with the above purposive interpretation adopted by the Gujarat High Court.

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The object and purpose of the establishment of Commercial Courts, Commercial Divisions and Commercial Appellate Divisions of the High Court is to ensure that the cases involved in commercial disputes are disposed of expeditiously, fairly and at reasonable cost to the litigants. Keeping in view the object and purpose of the establishment of the Commercial Courts and fast tracking procedure provided under the Act, the statutory provisions of the Act and the words incorporated thereon are to be meaningfully interpreted for quick disposal of commercial litigations so as to benefit the litigants especially those who are engaged in trade and commerce which in turn will further economic growth of the country.”

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If the case on hand is tested on the touch stone of the law declared in Ambalal Sarabhai

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Enterprises Limited, supra, it is not the case of either party that there was an agreement relating to a hand loan and following such agreement a “mortgage by deposit of title deeds” was executed. If that was the contextual facts, then it may not be an agreement relating to an immovable property but would be a private loan transaction and the

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doors of the commercial court would be closed. However, in the present case, the “mortgage by deposit of title deeds” qualified to be an “agreement relating to immovable property” and since the mortgaged property was exclusively used for industrial purposes, it fell within the meaning “used exclusively in trade or commerce”. As the dispute arose out of the mortgage, it did qualify to be a commercial dispute under Section 2(1)(c)(vii) of the Act. Any contra interpretation would result in causing injury to the language, scope and purport of Section 2(1)(c)(vii) of the Act. Explanation to Section 2 of the Act further clarifies that if a commercial dispute also involves realisation of money out of immovable property given as security, it could still be a commercial dispute.

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Hence, it is held that the suit before the Trial Court was a commercial dispute arising out an agreement relating to an immovable property used exclusively in trade or commerce. Therefore, the Trial Court was justified in rejecting the applications filed by the

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defendants for return of the plaint for re-presentation before the appropriate Court.

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In view of the above discussion, these writ petitions lack merit and are dismissed .

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Sd/JUDGE

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PMR

Mrs. Usha Narayana Rao v. M/S Vinod Brothers

Case brief

What is this about?

What did the court decide?

Mrs. Usha Narayana Rao v. M/S Vinod Brothers

Case brief

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