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Do disputes arising out of immovable property fall under the scope of Commercial Courts Act, 2015

June 26, 2021
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This article is written by Sanmathi Dayanand, pursuing a Certificate Course in Real Estate Laws from LawSikho.

Introduction

Commercial Courts are established in order to resolve business disputes such as fraud, unfair trade practices, breach of contract etc. and have jurisdiction on such issues. A commercial dispute is a business dispute wherein there is a disagreement between two businesses or between a business and its customer/clients. Examples of commercial disputes are infringement of contract, quality of products delivered are bad, breach of clauses of the contract, parties default in fulfilling their obligations, invalid price etc. Hence, the Commercial Courts Act, 2015 (“the Act”) was introduced to resolve the issues/ disputes of business in a smooth and quick way.

This article will analyse whether commercial courts have jurisdiction on disputes with respect to immovable properties and how the courts have interpreted the clauses of the Act w.r.t. disputes arising out of immovable properties.

The article will cover the following topics: Commercial Courts Act, 2015, the take of judiciary on whether disputes arising out of immovable property fall under the scope of Commercial Courts Act, 2015, case analysis: Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP & Anr. and conclusion.

Commercial Courts Act, 2015

The President of India on 03.05.2018 gave his assent to an ordinance amending the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. The Act was enacted for resolving commercial dispute matters faster. The ordinance applies only to proceedings instituted after the commencement of the ordinance and the significant changes are as follows: 

  1. Specified value: The ordinance enables the State Government to extend the Act to matters valued above Rupees Three Lakhs, whereas earlier the Act applied to matters above Rupees One Crore.
  2. Establishment of new commercial courts: State governments are now authorized to establish distinct commercial courts at the level subordinate to High Court.
  3. Pre-institution mediation: Mediation has been made compulsory in all cases except for suits or applications in which urgent interim relief is sought. 
  4. The name of the Act has been changed from ‘Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015’ to ‘Commercial Courts Act, 2015.’

Section 2 of the Act is the definition clause wherein Section 2(1)(c) lists down the instances/ circumstances which are applicable for a commercial dispute. Sub-clause (vii) of Section 2(1)(c) of the Act states that commercial dispute means a dispute arising out of agreements relating to immovable property used exclusively in trade or commerce. Hence, for attracting the jurisdiction of Commercial Court an immovable property should be “actually used” for trade and commerce purpose and cannot be “ready for use” or “likely to be used” or “to be used”.

The take of Judiciary on whether disputes arising out of immovable property fall under the scope of Commercial Courts Act, 2015

After getting a glimpse of the important provisions of Commercial Courts Act, it is important to visit some of the important case laws decided on this point.

In the case of Vasu Healthcare Private Limited vs. Gujarat Akruti TCG Biotech Limited (“Biotech Case”), the High Court of Gujarat has held that there must be a literal/ strict interpretation of statute and hence on plain reading of Section 2(1)(c)(vii) it is concluded that the word “used” means “actually used” and not “likely to be used”. 

In the case of Federation of A.P. Chambers of Commerce and Industry and Others v. State of A.P. and Others, the Supreme Court observed that the terminology “land is used for any industrial purpose” and “land is used for any other non-agricultural purpose” means that there has to be a finding of the fact that the land is presently being used for an industrial/ commercial/ any other non-agricultural purpose. 

In the case of Jagmohan Behl v. State Bank of Indore, the High Court of Delhi has 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. 

In the light of judgments given in these cases, let us analyse an important case law on this point.

Case Analysis: Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP &Anr.

FACTS: Ambalal Sarabhai Enterprises Limited (“Appellant”) had executed an agreement to sell with Ketan Bhailalbhai Shah (“Second Respondent”) on 14.02.2012, who further assigned and transferred his rights in the land to K.S. Infrasapce LLP (“First Respondent”) vide deed of assignment dated 12.10.2017. Consequently, First Respondent purchased the land from the Appellant Company vide Deed of Conveyance dated 03.11.2017. As there were some aspects of the land to be changed 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 03.11.2017 (“MOU”) was executed amongst the Appellant Company, First Respondent and Second Respondent. As per the terms of the MOU, a mortgage deed was to be executed in favour of the Appellant Company. An unregistered Mortgaged Deed was executed on 03.11.2017. 

The Appellant Company, thereafter, sought to enforce execution of the said Mortgage Deed, by filing a Commercial Civil Suit before the Commercial Court at Vadodara. Further, the Appellant Company also sought permanent injunction and other reliefs before the Commercial Court. The court referred to the Memorandum and Articles of Association of the Appellant company and took note of the Appellant’s business – estate agent. The Commercial Court, Vadodara held that the present suit should be entertained as a commercial dispute. 

The High Court of Gujarat also looked into the Memorandum and Articles of Association of the Appellant company and held that the immovable property in question is not being used for trade or commerce. Thus, setting aside the order passed by the Commercial Court, Vadodara. The Appellant being aggrieved by the order of the High Court approached the Supreme Court.

ISSUE/DISPUTE: 

Whether the transaction between the parties herein can be considered as a “commercial dispute” so as to enable the Commercial Court to entertain the present Suit?

APPLICABLE PROVISIONS:

Section 2(1)(c)(vii) of the Commercial Courts Act, 2015.

OBSERVATIONS OF THE SUPREME COURT AND JUDGEMENT: 

The Supreme Court in its decision dated 04.10.2019 has held that if the immovable property is likely to be used in relation to trade and commerce, it cannot be a ground for the jurisdiction of the Commercial Court. Whereas to attract the jurisdiction of the Commercial Court, the immovable property should be “actually used” in relation to trade and commerce. The purpose of the Act will be defeated if such a broad interpretation of the provisions of the Act is given and suits not relating to commercial disputes are filed at commercial courts as this will clog the system and block way for genuine commercial dispute suits. The agreement between the parties did not refer to the nature of the immovable property being exclusively used for trade or commerce as on the date of the agreement. Also, the relief sought in the suit was for execution of the unregistered mortgage deed which was in the nature of specific performance. The Memorandum and Articles of Association of the Appellant company did not show that the immovable property was being exclusively used in trade and commerce. 

It was held that there should be a literal interpretation of the term “used exclusively in trade or commerce” and the word “used” means “actually used” and it cannot be widely interpreted as “ready for use” or “likely to be used” or “to be used”. Further the nature of the land and for what it is used was also not included in the plaint.

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. It was stated by the Supreme Court that the plaint should mention that the said immovable property is being used for trade or commerce purposes to invoke jurisdiction of Commercial Courts. The Act needs to be interpreted in such a way that it accommodates quick disposal of commercial litigations at a reasonable and fair cost.

The Supreme Court has held that for a dispute regarding immovable property to fall under the scope of the Act, such an immovable property must be exclusively and actually used in trade or commerce.

ANALYSIS:

It needs to be established with staunch reasoning as to how a dispute relating to an immovable property falls under the ambit of the Act for a ‘commercial dispute’. There can be innumerable disputes regarding immovable properties, but only the disputes wherein the nature of present use of land qualifies it as a commercial dispute will come under the scope of the Act and the remaining disputes have remedies at ordinary Civil Courts. The Supreme Court judgement has provided clarity on the correct interpretation of the terminology “used” in the Act that the term indicates the current usage of land and not a likelihood of trade or commercial usage. The documents w.r.t. commercial immovable properties need to be registered and clauses must be drafted to reflect the current usage of such property. 

Conclusion

It can be concluded that commercial disputes arising out of agreements with respect to immovable property used exclusively for trade and commerce shall fall within the ambit of Section 2(1)(c)(vii) of the Act. The dispute can be with respect to recovery of the property or realisation of money which is given in the form of security or other reliefs with respect to immovable property. 

References

  1. AIR 2017 Gujarat 153
  2. (2000) 6 SCC 550
  3. 2017 SCC On Line Del 10706
  4. Civil Appeal No. 7843 of 2019 (Arising out of SLP (Civil) No. 9391 of 2019)
  5. https://www.mondaq.com/india/contracts-and-commercial-law/861690/are-disputes-arising-out-of-immovable-property-considered-as-commercial-disputes#:~:text=In%20one%20of%20its%20recent,or%20must%20be%20considered%20as
  6. https://www.livelaw.in/top-stories/commercial-disputes-immovable-property–148735

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