India: Are Disputes Arising Out Of Immovable Property Considered As Commercial Disputes?

Last Updated: 7 November 2019
Article by Essenese Obhan and Shubhangi Agarwal

In one of its recent judgements, Ambalal Sarabhai Enterprises Limited versus K.S. Infrasapce LLP and Other1, the Supreme Court has pronounced that for an immovable property to fall under the scope of the Commercial Courts Act, 2015 (“CC Act“), such immovable property must be “used exclusively” or must be considered as “being used exclusively” in trade or commerce.

Section 2 of the CC Act

Section 2 of the CC Act is the definition clause wherein Section 2(1)(c) lists down the circumstances that are applicable for a dispute to be considered as a commercial dispute. Sub-clause (vii) of Section 2(1)(c) of the CC Act states that commercial dispute means a dispute arising out of agreements relating to immovable property used exclusively in trade or commerce.

Facts of the Case

Ambalal Sarabhai Enterprises Limited (“Appellant“) for the purpose of selling land, had executed an agreement with Ketan Bhailalbhai Shah (“Second Respondent“) on 14th February, 2012, who further assigned and transferred his rights in such land to K.S. Infrasapce LLP (“First Respondent“) by executing an assignment deed. In the given scenario, the First Respondent was the party which was supposed to purchase land from the Appellant. Since, certain aspects with respect to the change in the nature of the use of the land for the purpose of the conclusion of the transaction were to be completed, the right of the Appellant in respect of the land use was required to be protected. Thereafter, in that view on 3rd November, 2017 a Memorandum of Understanding (“MOU“) was executed between the Appellant, First Respondent and the Second Respondent. As per the terms of MOU, the parties had executed a deed of conveyance of the land. A mortgage deed (“Deed“) was executed simultaneously along with the MOU with respect to the part of the land admeasuring 15,000 sq.ft. in favour of the Appellant. However, the said Deed was not presented for registration.

It is in the above circumstances that the Appellant had filed a commercial civil suit (“Suit“) so as to enforce the execution of the Deed. The Respondents on being notified of the Suit, had filed an application which stated that the Suit filed is not maintainable since the dispute involved cannot be termed as a commercial dispute. However, such application filed by the Respondents was rejected by the Commercial Court, Vadodara. The Commercial Court, Vadodara had referred to the Memorandum and Articles of Association (“Memorandum & Articles“) of the Appellant company and taking note of the business that the Appellant company were engaged in arrived at the conclusion that the Appellant was an estate agent. In view of such findings, the Commercial Court, Vadodara had arrived at its conclusion that the Suit should be entertained as a commercial dispute. The Respondents however aggrieved by this order of the Commercial Court, Vadodara had approached the High Court of Gujarat which had found fault in the manner with which the Commercial Court, Vadodara had relied on the Memorandum & Articles and had further arrived at the conclusion that the immovable property in question is not being used for trade or commerce. The High Court of Gujarat had thus allowed the petition of the Respondents, setting aside the order passed by the Commercial Court, Vadodara.

Dispute

The fundamental question that was raised in the present appeal was whether the transaction between the parties herein which is the subject matter of the Suit could be considered as a “commercial dispute” so as to enable the Commercial Court to entertain the Suit.

The Appellant contended that the Appellant had been running an industry on the land concerned, which was acquired for that purpose and it was purchased for developing the said land. In this view the land is one which is used for the purpose of trade and commerce. On the contrary, the Respondents have contended that the Appellant had ceased to function for the past several years and the company being defunct, the land involved was not being used for trade or commerce and a suit at present would not be maintainable before the Commercial Court.

Decision of the Supreme Court

In Ambalal Sarabhai Enterprises Limited versus K.S. Infrasapce LLP and Other, the Supreme Court Bench comprising of Justice R. Banumathi and Justice A.S. Bopanna have set a precedent by pronouncing that 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. The Supreme Court further stated that for attracting the jurisdiction of the Commercial Court such immovable property should be “actually used” in relation to trade and commerce.

The Supreme Court referred to Vasu Healthcare Private Limited vs. Gujarat Akruti TCG Biotech Limited2 (“Biotech Case“) which was relied upon by the Respondents. In the Biotech Case, the High Court of Gujarat has held that, ” ... As per the cardinal principle of law while interpreting a particular statute or the provision, the literal and strict interpretation has to be applied. It may be noted that important words used in the relevant provisions are “immovable property used exclusively in trade or commerce”. If the submission on behalf of the original Plaintiff is accepted in that case it would be adding something in the statute which is not there in the statute, which is not permissible. 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”...”

The Supreme Court after considering the submissions of both the parties was of the view that the very purpose of the for which the CC Act has been enacted would be defeated if every other suit is entertained by the virtue of it being filed before the Commercial Court. Justice A.S. Bopanna further said that, “This is for the reason that the suits which are not actually relating to commercial dispute but being filed merely because of the high 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.

The Supreme Court agreed with the judgement passed by the High Court of Gujarat regarding the Suit. The Supreme Court was of the view that neither the agreement between the parties referred to the nature of the immovable property being exclusively used for trade or commerce as on the date of the agreement nor was there any pleading to that effect in the plaint. Further, the Supreme Court also pointed out that the relief sought in the Suit was for execution of the Deed which was in the nature of specific performance of the terms of MOU without reference to nature of the use of the immovable property in trade or commerce as on the date of the Suit.

Additionally, the Supreme Court also stated that the Commercial Court, Vadodara had erred in the interpretation of the Memorandum & Articles and that the High Court of Gujarat was correct in stating that there was nothing on record to show that at the time when the agreement to sell was 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 CC Act.

Justice R. Banumathi further observed 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 Act viz. “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”. Such a wide interpretation would defeat the objects of the Act and the fast tracking procedure discussed above.”

In the light of the above, the Supreme Court held that for attracting the jurisdiction of the Commercial Court an immovable property should be “actually used” in relation to trade and commerce

Footnote

1 Civil Appeal No. 7843 of 2019 (Arising out of SLP (Civil) No. 9391 of 2019)

2 AIR 2017 Gujarat 153

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