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
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