APPLICABILITY OF COMMERCIAL COURTS ACT 2015 IN MATTERS RELATED TO IMMOVEABLE PROPERTIES

 

 

APPLICABILITY OF COMMERCIAL COURTS ACT 2015 IN MATTERS RELATED TO IMMOVEABLE PROPERTIES

 

Ever since the enactment of Commercial Courts Act 2015 whereby, Commercial Courts and Commercial Division are created, the issue as regards the applicability of the Commercial Acts crops up and the courts are saddled with the issue. More particularly, the issue of lease agreements and the claim arising therefore seems to create some ambiguity. However, the issue has been settled by the Division Bench of hon’ble Delhi High Court in a matter captioned as Jagmohan Behl vs State Bank of Indore (Coram: Hon’ble Justice Sanjiv Khanna, hon’ble Justice A.K Chawla) in FAO (OS) 166 /2016

 

FACTUAL MATRIX

The issue raised in it relates to interpretation of Section 2 (1) (c) (vii) of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (In short “ the Act”.). The facts of the case are in narrow compass. The plaintiff (Appellant) had instituted a suit against the tenant bank for

recovery of mesne profits of Rs.1.08 crores along with interest from the defendant in respect of a property at Connaught Circus, New Delhi. The said property was given on lease to the bank in the year 1986 for a period of five year on a monthly rent of Rs.40,000/- with renewal clause for two further terms with enhancement of rent by 15%. The bank had also sanctioned a loan of Rs.24 lakhs with interest @ 17.5% per annum to the appellant/ plaintiff which was agreed to be paid by way of adjustment against the rent. It is of significance that the plaintiff had earlier filed a civil suit seeking possession in the year 2001 being Suit No.340/2001 in which a decree under Order XII Rule 6 of the Code of Civil Procedure, 1908 (Code, for short) was passed in May 2002. However, in RFA preferred by the bank (RFA No.361/2002) preferred by the Bank the execution was stayed. The bank had subsequently given an undertaking to vacate. the premises within one year and that was accepted on some terms of payment of mesne profits. Possession was handed over to the appellant.

However, CS (OS) NO. 2008/2010 was filed in the Delhi High Court for some claims of plaintiff, in view of the limit of pecuniary jurisdiction. However, vide office order dated 24th November, 2015, issued by the Chief Justice in exercise of power conferred under Section 4 of the Delhi High Court (Amendment) Act, 2015, pecuniary jurisdiction for ordinary suits, which were not “commercial disputes”, was raised to Rs.2 crores. The suits below Rs.2 crores were to be transferred to district courts. However, in cases of “commercial disputes” as defined under the Act, suits of specified value as determined vide Section 12 thereof, of not less than Rs.1 crore were to be tried by the High Court and were not to be transferred.

It may be added this was the law and procedure prevailing, then. However, the broad contour of the present topic is as regards transaction of immoveable property what shall constitute    “commercial dispute” and when the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.

The ld single Judge of Delhi High Court vide order dated 1st March, 2016, while referring to Section 2 (1) (c) (vii) of the Act has held that the suit was to be transferred to the District Court as it does not relate to a commercial dispute for no right under an agreement relating to immoveable property was sought to be enforced, inasmuch as the suit only seeks recovery of rent and mesne profits. It was held that the suit shall fall under Section 9 of the Act and not pursuant to an agreement. The order of single judge was impugned before the hon’ble Division bench.

The analysis by the Division bench:

 

(1) The definition clause, i.e. 2 (1) (c) (vii), of the Act may be gone through:

 

“Definitions.-(1) In this Act, unless the context otherwise requires- (c) “commercial dispute” means a dispute arising out of- (vii) agreements relating to immoveable property used exclusively in trade or commerce;

 

Explanation.-A commercial dispute shall not cease to be a commercial dispute merely because-

(a) It also involves action for recovery of immoveable property or for realisation of monies out of immoveable property given as security or involves any other relief pertaining to immoveable property;

 

(b) One of the contracting parties is the State or any of its agencies or instrumentalities, or a private body carrying out public functions;”

It was held that the explanation is of paramount importance and shall have to be read as part and parcel of clause (vii), as, the language of the explanation reflects the purpose, and its construction in sync with the object which is contained in the main provision. The main provision, thus, has to be read in conjunction with the explanation and in furtherance to that, the scope and ambit of sub-clause (vii) to clause(c), defining the expression “commercial dispute”, could be interpreted. The explanation harmonises and dispels any ambiguity or doubt when it comes to interpretation of the main provision.

The hon’ble Division bench also relied upon a judgment of the Apex Court captioned S. Sundaran Pillai and Ors. Vs. V.R. Pattabiraman & Ors. (1985) 1 SCC 591. What was reemphasized that explanation to a statutory provision could explain the meaning and intendment of the provision itself and any obscurity and opacity could be cleared from bare reading of explanation. The explanations shall therefore be a necessary adjunct of the provision and taking the explanation together with the main provision, the dominant object could be ascertained Needless to say that such explanation should be construed harmoniously and shall not take away the statutory right. The explanation, thus, aid in arriving at and facilitate the object and shall not cause any impediment in the interpretation of the same.

In this backdrop, the hon’ble Division bench has held that:  

“clause (c) defines the “commercial dispute” in the Act to mean a dispute arising out of different sub-clauses. The expression “arising out of” in the context of clause (vii) refers to an agreement in relation to an immoveable property. The expressions “arising out of” and “in relation to immoveable property” have to be given their natural and general contours. These are wide and expansive expressions and are not to be given a narrow and restricted meaning. The expressions would include all matters relating to all agreements in connection with immoveable properties. The immoveable property should form the dominant purpose of the agreement”

 

The Supreme Court in Doypack Systems (P) Ltd. vs Union of India (1988) 2 SCC 299 went into the meaning of the phrases "pertaining to", "in relation to" and "arising out of". The court in the said case observed in para no 48

". .....The expressions "pertaining to", "in relation to" and "arising out of", used in the deeming provision, they are used in the expansive sense, as per decisions of the court, meanings found in standard dictionaries and principles of broad and liberal interpretation in consonance with Article 39 (b) and (c) of the Constitution. xxxx 50. The expression "in relation to" (so also "pertaining to"), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context out of which the dispute arises …..”

There has been another significant stipulation in clause (vii) relating to immoveable property, i.e., the property should be used exclusively in trade or commerce. The natural and grammatical meaning of clause (vii) is that all disputes arising out of agreements relating to immoveable property when the immoveable property is exclusively used for trade and commerce would qualify as a commercial dispute. The immoveable property must be used exclusively for trade or business and it is not material whether renting of immoveable property was the trade or business activity carried on by the landlord. Use of the property as for trade and business is determinative. Properties which are not exclusively used for trade or commerce would be excluded.

Falling back on explanation, as narrated above , that stipulates that a commercial dispute shall not cease to be a commercial dispute, merely because it involves recovery of immoveable property, or is for realisation of money out of immoveable property given as security or involves any other relief pertaining to immoveable property, and would be a commercial dispute as defined in sub-clause (vii) to clause (c). The expression “shall not cease”, it could be asserted, has been used so as to not unnecessarily expand the ambit and scope of sub-clause (vii) to clause (c), albeit it is clarificatory in nature. The expression seeks to clarify that the immoveable property should be exclusively used in trade or commerce, and when the said condition is satisfied, disputes arising out of agreements relating to immoveable property involving action for recovery of immoveable property, realization of money out of immoveable property given as security or any other relief pertaining to immoveable property would be a commercial dispute. Therefore, the expression “any other relief pertaining to immoveable property” is significant and very wide. The contours are broad and should not be made otiose while reading the explanation and sub-clause (vii) to clause (c) which defines the expression “commercial dispute”. Any other interpretation would make the expression “any other relief pertaining to immoveable property” exclusively used in trade or commerce as nugatory and redundant.

The hon’ble Division Bench has thus held that reading of the explanation with sub-clause (vii) to clause (c) in sync with the object of the Act, would include all disputes arising out of agreements relating to immoveable property, when used exclusively for trade and commerce, be it an action for recovery of immoveable property or realization of money given in the form of security or any other relief pertaining to immoveable property.

In the aforesaid context thus, it is held that the immoveable property was being used exclusively in trade and commerce. It is also analysed as to if a suit involving action for recovery of mesne profits is a dispute arising out of agreements relating to immoveable property When one reads Order XX, Rule 12 of the Code and keep in mind the nature of the claim for “mesne profits”: The term  has been defined in sub-section(12) to Section 2 to the Code to mean those profits which a person in wrongful possession of such property actually received or might with the ordinary diligence have received together with interest on such profits but would not include profits due to improvements made by the person in wrongful possession. Mesne profits can be also claimed in suits for partition and possession from other co-owners and joint-holders. However, in the present case, the bench held that the issue was that a property given on rent, for being exclusively used for trade and business.

MESNE PROFIT

The hon’ble Supreme Court in Corporation of Madras Vs. M.K. Buhari (2000) 9 SCC 497 has held that mesne profit cannot be less than the rent payable in respect of the property given on rent. Mesne profits are in the form of damages which are payable by a person in wrongful possession. It protects the interest of the owner/landlord and is payable equivalent to the market rent by the person who has failed to deliver the possession and is holding over the property [See Marshal Sons and Co. Ltd. Vs. Sahi Oritrans(P). Ltd.& Anr. (1999) 2 SCC 325]. Claim for mesne profit can be joined with a suit for recovery of immoveable property under Order II Rule 4 of the Code and for this no leave of the Court is required. Order XX Rule 12 stipulates that when a suit is filed for recovery of possession and for rent or mesne profits, the Court may pass a decree for possession of the property. It can also pass a decree for mesne profits or direct an enquiry as to the mesne profits. Such enquiry can be from the date of institution of suit till delivery of possession to decree holder, relinquishment of possession by the judgment debtor with notice to the decree holder through court or expiration of three years from the date of decree, whichever occurs first. A decree of mesne profits under clauses (b) and (c) would be a final decree, which would be passed after the enquiry.

                          FINDING OF DIVISION BENCH

The hon’ble Division bench in the Jagmohan Behl case (Supra) has returned the finding that Lease of immoveable property is dealt with under the Transfer of Property Act in Chapter V thereof. The said enactment vide section 105 defines what is lease, lessor, lessee and rent and vide section 107 stipulates how leases are made and can be terminated. Leases can be both oral or in writing. Noticeably, sub-clause (vii) to clause (c) in Section 2 of the Act does not qualify the word “agreements” as referring to only written agreements. It would include oral agreements as well. The provisions of the Transfer of Property Act deal with the effect of non-payment of rent, effect of holding over and most importantly the determination of the leases or their termination. It cannot be disputed that action for recovery of immoveable property would be covered under sub-clause (vii) to clause (c) when the immoveable property is exclusively used in trade or commerce. The bench thus held that read in this manner, the claim for recovery of rent or mesne profit, security deposit etc., relating to immoveable property which was used exclusively in trade or commerce should only be treated as a commercial dispute in view of the language, ambit and scope of sub-clause (vii) to clause (c) to Section 2 of the Act. These would qualify and have to be regarded as commercial disputes. The use of expression “any other relief pertaining to immoveable property” would mean disputes relating to breach of agreement and damages payable on account of breach of agreement would be covered under sub-clause (vii) to clause (c) to Section 2 of the Act when it is arising out of agreement relating to immoveable property exclusively used in trade and commerce. The hon’ble Division bench has thus held that the appeal clearly fall within the domain of commercial courts Act and shall be treated as Commercial disputes.

 

CONCLUSION

The dicta laid down, as above, has therefore, set at rest ambiguity and as judicial courts had often been beset with, the aspect and issues, if the matter before them, relating to immoveable properties and benefits and money claim arising out of lease, agreement and even based on oral agreement shall be construed as Commercial dispute or not and whether that could fall within the domain of Commercial Courts Act or not? The dicta, as aforesaid, now leaves no manner of doubt that if the predominant object of the agreement or transaction is commercial in nature, the same shall be a commercial dispute and shall resultantly fall within the framework of Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 and Commercial Suit shall be the only option to parties to a lis and that will be maintainable.

 

Anil K Khaware

Founder & Sr Associate

Societylawandjustice.com