DISPUTE relating to lease of immoveable property: Whether a commercial dispute?

 

DISPUTE relating to lease of immoveable property: Whether a commercial dispute?

The applicability of Section 106 of Transfer of Property Act 1882( In short “TPA”)  in a suit under the Commercial Courts Act (CCA) 2015, has often been a topic of discussion and doubts are expressed of its applicability in matters related to lease and eviction suit in respect of immoveable properties. It is endeavoured to deal with the issue on the basis of judicial precedents vis a vis the provisions of CCA. In order to appreciate the matter further, a recent judgment pronounced by Calcutta High Court shall be worthy of reference and analysis. The case reported as T.E. Thomson & Company Limited vs Swarnalata Chopra Nee Kapur & Anr 2024 SCC Online Cal 8985. Why it is so, shall be evident in as much as in view of divergence of opinion between two Hon'ble Judges on the scope of the Commercial Courts Act 2015 to try and decide an eviction suit on expiry of the lease period, the following questions have been referred to the division bench for a decision on the following issues:

(a) Whether after issuance of notice under Section 106 of the Transfer of Property Act, 1882, the defendant or the parties cannot rely on the agreement/lease deed as the case may be?

(b) Whether only on the basis of the case initiated under Section 106 of the Transfer of Property Act, 1882, it can be said that Court cannot look into the agreement between the parties and thus, the suit cannot be treated as commercial suit in terms of Section 2 (1)(c) (vii) of the Commercial Courts Act, 2015?

(c) Whether if the Explanation Clause of Section 2 (1) (c) of the Commercial Courts Act, 2015 taken into consideration along with the Section 106 of the Transfer of Property Act, 1882, the suit can be treated as commercial suit in terms of the lease agreement/rent agreement entered between the parties?

        JURISDICTION OF COMMERCIAL COURTS

Before proceeding further, it is apt to delve into the Section 6 of the Commercial Courts Act, 2015 (in short "CC Act” or the Act of 2015") reads as follows:

"6. Jurisdiction of Commercial Court.--The Commercial Court shall have jurisdiction to try all suits and applications relating to a commercial dispute of a Specified Value arising out of the entire territory of the State over which it has been vested territorial jurisdiction."

The expression 'relating to' mentioned in Section 6 is of wide import. In order to decide whether a suit involves a commercial dispute, we may have to refer to a definition of 'commercial dispute' as given in Section 2 (1) (c)  of the Act of 2015.

It was felt that in order to effectively decide the issues , it is imperative to take into consideration the phrase 'arising out of' and 'relating to' immovable property used exclusively in trade or commerce. The said two phrases are of wide amplitude and should receive a purposive interpretation in the light of the object of the CC Act. In order to be familiar with the judicial interpretation of such phrases, whenever such phrases had come up, for consideration, the following judgment shall be of relevance:

i) Mansukhlala Dhanraj Jain & Ors Vs Eknath Vithal Ogale AIR 1955 SC 661

ii) State of Orissa vs. State of A.P, SCC 665 2006 (9) SCC 591  (paragraphs 11, 14 to 16)

In order to ascertain the commercial nature of the suit, what is to be taken note of is the fact that the disputes of immoveable properties should be 'arising out of' and 'relating to' the said immovable property, used exclusively in trade or commerce. It is felt that the said two phrases are of wide amplitude and hence should receive a purposive interpretation in the light of the object of the Commercial Courts Act. The above cited judgments are reflective of that.

As regards the explanation to  Section 2(1)(c), that brings out the legislative intent and the said explanation makes it clear that a commercial dispute could also involve an action for recovery of immovable property, amongst others, as mentioned in the explanation.

In The Bengal Immunity Company Limited Vs State of Bihar & Ors AIR 1955 SC 661 the scope and width of an explanation in interpreting a section has been analysed. It is held that the section 106 of the Transfer of Property Act only lays down a rule of construction of the lease agreement. The lease is  created by Section 105 of the Transfer of Property Act. The duration of a lease depending upon the nature of the lease and mode of its termination are what is stated in Section 106. 

                PRE-REQUISITES OF A COMMERCIAL DISPUTES

The lease agreement is required to be considered for deciding the nature and character of the jural relationship of the landlord and tenant for the purpose of ascertaining whether the lease is for manufacturing or agricultural purpose upon which the validity of notice under Section 106 of the Transfer of Property Act is required to be decided. The court cannot ignore the lease agreement, while deciding a suit filed after issuance of a notice under Section 106 of the Transfer of Property Act, 1882. No doubt, for seeking recovery of immovable property a civil suit is required to be filed and procedure entailing in Code of Civil Procedure shall have to be followed.

It was thus held that that to fall within a realm of commercial disputes, relating to an immovable property, used exclusively for trade or commerce, it has to be of a specified value as mentioned in the Commercial Courts Act and there are Four (4) basic test for ascertaining the same, if the dispute falls within the ambit of Commercial Courts Act . The tests are as under:

(i) it should be a dispute arising out of an agreement relating to immovable property,

(ii) the immovable property is used exclusively in trade or commerce;

(iii) the dispute shall be a specified value and

(iv) it has arisen within the jurisdiction of the Commercial Court established in the state.

                Section 106 of TPA and suit based on that

The first ingredient of the suits which stares in the face is that the suits are based on the statutory right conferred by Section 106 of the Transfer of Property  Act. The cause of action in each of the suits clearly arises by virtue of the rights conferred by the said section. A "dispute" can only be determined by the cause of action of the suit and not the preceding backdrop. Even if Section 106 of the Transfer of Property Act, deals with termination of the jural relationship of lessor and lessee, pre-supposing a prior lease agreement, the bundle of facts comprising the cause of action of the suit is the sole determinant of the "dispute" involved in the suit.

What follows is that while dealing with a suit, filed after issuance of a notice, issued under Section 106 of the Transfer of Property Act, the Court has to look into the contract between the parties, as the provisions of Section 106 relating to tenure and termination of the lease apply only subject to contract between the parties. Therefore, the contract between the parties has to be looked into and if it is a contract relating to immovable property used exclusively in trade or commerce, any dispute arising therefrom would be a commercial dispute. 

The Commercial Courts Act 2015 does not specify the disputes, arising out of agreements, relating to immovable property used exclusively in trade or commerce which would qualify as a 'commercial dispute' defined in Section 2(1) (c) of the Act. The Legislature has thus not limited the disputes to forfeiture for violation of any of the clauses of the lease agreements or specific performance of the agreements or renewal clauses and has in fact, widened the scope of disputes by the Explanation. In the Explanation of Section 2 (1) (c) it is mentioned that "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 realization of moneys out of immovable property given as security or involves any other reliefs pertaining to immovable property".

The judgment rendered by a single judge of Calcutta High Court in Deepak Polymers Private Limited Vs Anchor Investments Private Limited  2021 SCC OnLine Cal 4323 , though, related to a suit for possession of a property, let out for commercial purpose, still, Calcutta High Court had observed that if a suit is filed for recovery of possession, in respect of immovable property, on the ground of forfeiture for contravention of any of the terms and conditions of the agreement, it could be said to be a dispute "arising out of" such agreement. However, observing that, the dispute therein had arisen out of refusal by the defendants to comply with the notice issued by the lessor under Section 106 of the Transfer of Property Act, 1882, which was based on a statutory right, independent and irrespective of any clause of the lease agreements. Thus, it was held that such suit would squarely arise out of a statutory right conferred by Section 106 of the Transfer of Property Act, having no direct nexus with the lease agreements in respect of the immovable properties concerned. Resultantly, it was held that the precondition of the applicability of Section 2(1) (c) (vii), that is, the emanation of the dispute out of the lease agreement, was not satisfied.

What is of pertinence that in the case of Deepak Polymers (Supra), the Hon'ble Judge has not considered the Explanation Clause of Section 2(1)(c) of the Commercial Courts Act, 2015 and scope, purports and effect of Section 106 of the Transfer of Property Act, 1882. A bare perusal of Section 2 (1) (c) of the Commercial Courts Act would show that the Legislature intended to define certain jural relationships/transactions as commercial and the disputes arising out of such jural relationships/transactions as commercial disputes. The purpose of such classification is to set up an exclusive and dedicated Court system with a special codified law in the form of the Act of 2015 to receive, try and determine commercial disputes. The classification of the dispute is on the basis of the jural relationship between the parties out of which the dispute emanates and not the statue under which it is to be decided. A fortiori, a commercial dispute would not cease to be a commercial dispute merely because it is to be decided by application of any particular law. Accepting the contention of the defendants would lead to an absurd situation where all specified disputes would cease to be commercial disputes merely because the determination of the merits thereof is to be done on the basis of a particular statute.

Therefore, the judgment rendered in Deepak Polymers (Supra) is not correct.

SECTION 2(1) (c)(vii) Analysed

It is worthwhile to further refer, the definition clause of CC Act 2015.

2. Definitions.--(1) In this Act, unless the context otherwise requires,--

.....

(c) "Commercial Dispute" means a dispute arising out of __ ..... (emphasis supplied) 

The above referred clause (c) defines the "commercial dispute" in the Act to mean a dispute arising out of different sub-clauses. What is therefore explicit is that expression "arising out of" in the context of clause (vii) refers to an agreement in relation to an immoveable property. Moreover, 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 cannot be given a narrow and restricted meaning. The expressions shall have to include all matters relating to all agreements in connection with immoveable properties. The immoveable property should, of course, form the dominant purpose of the agreement out of which the dispute arises. Yet another dimension to be looked into is that in clause (vii) relates to immoveable property, i.e., the property should be used exclusively in trade or commerce. Obviously, the natural meaning or so to say, grammatical meaning of clause (vii) is that all disputes arising out of agreements relating to immoveable property, in case the immoveable property is exclusively used for trade and commerce and that should in itself 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.

What clearly emerges therefore is that a dispute relating to immovable property per se, may not be a commercial dispute, but, it becomes a commercial dispute, if it falls under sub-clause (vii) of Section 2 (1) (c) of the Commercial Courts Act 2015, if the agreements relating to immovable property used exclusively in trade or commerce". The words "used exclusively in trade or commerce" are to be interpreted purposefully. The word "used" denotes "actually used" and it cannot be either "ready for use" or "likely to be used" or "to be used". It should be "actually used".

In a suit in relation to an immovable property, the discussion is confined to sub- clause (vii) of Section 2 (1) (c) of the Act of 2015. The said sub-clause (vii) of 2 (1)(c) reads as follows:-

"2(1)(c)(vii)- agreements relating to immovable property used exclusively in trade or commerce".

As per the Section 6 of  the aforesaid clause of the Act of 2015 jurisdiction shall be conferred on the Commercial Court to decide a dispute arising out of an agreement relating to immovable property used exclusively in trade or commerce. The expressions "relating to" and "arising out of" are of wide import and considered to be same and similar to the expression "concerned with" or "connected with" the dispute, as would appear from the decision of the Hon'ble Supreme Court in Mansukhlal Dhanraj Jain (Supra) where in paragraphs 11, 14 to 16 the scope and ambit of these expressions were considered.

In Manish Kumar v Union of India & Anr, 2021(5)SCC 1 in which the Hon’ble Supreme Court while referring to S. Sundaram Pillai v V.R. Pattabiraman, 1985 (1)SCC 591 has in paragraph 297 expanded the scope of explanation by, inter alia, observing “if, in effect, in a particular case, an explanation does widen the terms of the main provision it would become the duty of the court to give effect to the will of the legislature.”

The purpose of an explanation is to harmonize and clear up any ambiguity and apart from its orthodox function to explain the meaning and effect of the main provision to which it is an explanation and to clear up any doubt or ambiguity, it needs to be construed according to its plain language and not on any a priori consideration. Paragraph 53 from the judgment in S.Sundaram Pillai 1985 (1)SCC 591  has been emphasized and reiterated in which the Court observed thus-

“53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is—

“(a) to explain the meaning and intendment of the Act itself,

(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,

(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,

(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and

(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.”

On the basis of above, it may clearly appear that the Court may not be required to go beyond the interpretation to an explanation as offered in S.Sundaram Pillai (Supra)   beyond (a), (b) and (c) and if the court is of the opinion that some gap in an enactment is left, sub-clause (d) can also be taken into consideration as it would advance the object of the Act. The cause of action in the suit is not merely the notice under Section 106 of the Transfer of Property Act. The decision of the Hon’ble Division Bench of the Delhi High Court in Jagmohan Behl Vs. State Bank of Indore 1 2017 SCC OnLine Del 10706 has correctly interpreted the explanation clause along with Section 2(1)(c)(vii) in arriving at a finding that the suit is a commercial suit and to be adjudicated under the Commercial Courts Act and in this regard reliance has been place upon paragraphs 9 to 13 of the said decision.

Section 2 (1) (c) defines a "commercial dispute" which may revolve to means "a dispute arising out of" a class of mattes mentioned therein. A dispute in simple terms would mean a controversy - something which has been questioned. It is not the same thing as a cause of action or a mere incurring of a liability. A dispute may mean an argumentative contention and difference of opinion. It can be a dispute of law as well as of fact. It can be a conflict of claims or rights; an assertion of a right, claim, or demand on one side, met by contrary claims or allegations on the other.

Undoubtedly, though, a dispute of a commercial nature arises out of an agreement and is resolved with reference to such an agreement with the possible exception where the issue arises as to whether there is a concluded contract. The dispute cannot arise in vacuum. The construction of the lease agreement is essential to understand the validity of the notice under Section 106 of the TPA. Hence one cannot disregard the agreement even when it is determined under Section106  of the TPA as settled by the catena of decision of the Hon'ble Supreme Court few of which we have referred earlier. There is a saying that  "no one is wiser then a statute". In the context of the relevance of the explanation in interpreting Section 2 (1) (c) (vii) of the Commercial Court Act. In harmonising the section with the explanation it is imperative to understand the legislative intent.

A commercial dispute is thus determined under Section 2 (1) (c)(vi) of the Act of 2015. Explanation clarifies that a dispute shall not cease to be a commercial dispute, merely because this is an action for recovery of possession of immoveable property. It is clear that whereas right to file a suit is governed by the Code of Civil Procedure, 1908 as contained in section 26 of CPC.  The suit is to be filed in accordance with the Rules of procedure contained in the Schedule of the Code of Civil Procedure.

                Deepak Polymer- An Anomaly

It is necessary for the plaintiff to prove that there exists a monthly tenancy or a lease for manufacturing or agricultural purpose and in spite of service of notice as contemplated under section 106 which is variable depending upon the nature of the agreement and duration of the lease the defendant had refused to vacate the premises in question. It was by reason of the failure of the defendant to deliver possession after the expiration of the notice period which could be 15 days in case of monthly tenancy or 6 months’ notice in case of manufacturing or agricultural lease that the plaintiff had filed the suit for recovery of possession. The proof of valid notice would presuppose a jural relationship between the parties. The judgment reported as Deepak Polymers Private Limited vs Anchor Investments Private Limited, 2021 SCC OnLine Cal 4323 is sub-silentio on the scope, purport and effect of the explanation to Section 2(1)(c) which expressly provides that a suit for recovery of possession of a property used exclusively for trade and commerce is a commercial dispute. The observation of single judge to the effect that suits squarely arising out of a statutory right conferred by Section 106 of the Transfer of Property Act would have no direct nexus with the lease agreement and hence for enforcement of such statutory right the Commercial Courts Act would have no manner of application and such suit is required to be heard as a non-commercial suit did not pass muster.

To elucidate it further, in Deepak Polymers (supra) it was held that suits based on statutory rights conferred under Section 106 of the TPA cannot be considered to be a “commercial dispute” within the meaning of the Commercial Courts Act 2015. The cause of action in each of such suits arises by way of rights conferred by Section 106 of the TPA. However, the division bench of Calcutta High Court in T.E. Thomson (Supra) has held otherwise.  

So far as section 106 of TPA is concerned, it is a substantive piece of legislation, but, it cannot by itself be construed as a standalone provision for the purpose of deciding the mutual rights of the parties. It only stipulates the procedure to be followed in case of termination of the lease. It can be safely inferred, thus, that it does not provide a remedy. The Code of Civil Procedure, though, on the other hand contains the remedy , in as much as, CPC read with the schedule has details and specifics carved out for this purpose. The Commercial Courts Act, 2015 , though, have carved out few disputes and classified them as commercial disputes to be exclusively decided by the Commercial Division subject to the fulfilling the requirement of specified value, but the remedy shall have to be undertaken, as stated, as per the provisions of Code of Civil Procedure.

 

The Division bench in TE Thomson (Supra) has thus concluded as under:

Q. (a) Whether after issuance of notice under Section 106 of the Transfer of Property Act, 1882, the defendant or the parties cannot rely on the agreement/lease deed as the case may be?

Answer- The lease agreement is to be looked into and considered for deciding the nature and character of jural relationship of landlord and tenant between the parties, that is to say, whether the lease agreement is for manufacturing or agricultural purpose, upon which will depend validity of notice under Section 106 of T P Act. The answer is in the negative.

Q.(b) Whether only on the basis of the case initiated under Section 106 of the Transfer of Property Act, 1882, it can be said that Court cannot look into the agreement between the parties and thus, the suit cannot be treated as commercial suit in terms of Section 2(1)(c) (vii)  of the Commercial Courts Act, 2015?

Answer - This question is included by necessary implication in question (a) and is answered in the negative.

(c) Whether if the Explanation Clause of Section 2 (1) (c) of the Commercial Courts Act, 2015 taken into consideration along with the Section 106 of the, 1882, the suit can be treated as commercial suit in terms of the lease agreement/rent agreement entered between the parties?

Answer- Yes. Explanation clause is an integral part and parcel of the Section 2(1) (c) (vii) of the said Act and has to be taken into consideration for deciding whether it is a commercial dispute or not. Explanation is very relevant because it reflects legislative intent that a commercial dispute will not cease to be commercial dispute, even if recovery of immoveable property is claimed, which will not change the character of a dispute if it has been held to be commercial dispute under Section 2(1) (c) (vii) of the said Act.

On the basis of aforesaid discussion, the proposition in law is settled, to the effect, that any disputes arising out of section 106 of Transfer of Property Act, if it falls within the trap of Section 2 (1) (c) (vii) of Commercial Courts Act, the same shall be a commercial suit. It was so, as the explanation appended to the provision even if taken in face value, shall categorically suggest as much. It cannot be said that as section 106 of TPA relates to statutory notice and suit for eviction or possession, therefore, cannot fall within the trap of Commercial Courts Act for that reason. The judgment rendered in Deepak Polymers (Supra) is also held to be not correct, since , it was held therein that any suit based on section 106 of TPA shall not be a commercial dispute. The contents of section 106 of TPA shall, no doubt, be relevant with a view to ascertain the terms of the lease agreement, but, it does not imply by any stretch of imagination, that the cause of action, arising out of that shall not fall within the meaning of Commercial Courts Act, 2015, even if it has trap of commercial cases. What would follow, therefore is that, if a dispute is of a commercial nature, and is otherwise, in sync with Section 2(1) (c) (vii) inclusive of explanation of the said Act and attached thereto, the dispute shall be treated as commercial dispute and commercial suit shall be maintainable.          

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Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com