What constitutes a ‘Commercial Dispute’ under the Commercial Courts Act, 2015

In the matter of Ladymoon Towers Private Limited v. Mahendra Investment Advisors Private Limited (CS 99/2020) decided by the Hon’ble Calcutta High Court on 13.08.2021

FACTS: The petitioner had moved the instant plea seeking recovery of amount to the tune of Rs.64,50,000 along with accrued interest against the defendant. Furthermore, the petitioner had objected to the conduct of the defendant in not filing a written statement in an attempt to take advantage of the more liberal procedural regime that governs a regular suit in comparison to the timeframe envisaged under the 2015 Act.

ISSUE: The issue in consideration before the Court was whether a plea filed before the Commercial Division of the High Court should be tried under the provisions of the 2015 Act or be adjudicated upon as a regular suit.

HELD: The Court referred to Section 2(1)(c) of the 2015 Act wherein a ‘commercial dispute’ has been defined to be a dispute arising out of ‘ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents’

The Hon’ble Court then deemed it necessary to break down the classes of persons and transactions contemplated in the above clause.

“Ordinary transactions of merchants, bankers, financiers and traders”

Referring to the facts of the case, the Court observed that the statements in the plaint make it evident that the Directors of the plaintiff and the and the defendant were known to each other which served as a reason for the plaintiff to part with Rs.50 lakhs by way of a short-term loan which also referred to as a ‘hand loan’ and cannot be termed as a commercial loan. Reliance was also placed on the Bombay High Court judgment in Manesh Rajkumar Kanhed v. Ramesh Bhagwansa Walale wherein it was held that taking of a “hand-loan” for starting a business of agency cannot come within the four-corners of the definition of a commercial transaction.

“Commercial action”

In order to elucidate upon the definition of the term ‘commercial action’, the Court placed reliance on the Supreme Court judgment in Punjab University v. Unit Trust of India wherein it was held that commercial action would include ‘any cause arising out of the ordinary transactions of merchants and traders and without prejudice to the generality of the foregoing words, any cause relating to the construction of a mercantile document, the export or import of merchandise, affreightment, insurance, banking, mercantile agency and mercantile usage.

The decision also held that ‘commercial purpose’ would cover within its ambit an undertaking the object of which is to make a profit out of the undertaking.

“Mercantile documents”

After referring to a host of judgments of various High Courts, the Hon’ble Calcutta High Court opined that “Only a dispute arising out of a transaction between the named classes of persons which has been formalised by way of a mercantile document will be a “commercial dispute” under Section 2(1)(c)(i) of the 2015 Act.

Furthermore, referring to the facts of the instant case, the Court observed that the statements in the plaint indicate clearly that the petitioner had lent money to the defendant only by way of an oral understanding without formalising any written agreement and hence, no mercantile document was executed.

The Court also rejected the contention of the defendant that the petitioner is in the business of extending loans or lending money by Referring to Clause 14 of the Objects clause of the petitioner’s company, the Court noted that the provision merely permits the petitioner to invest money out of the surplus funds of the company in a manner as the petitioner may deems fit.

The Bench further held that a commercial purpose would generally mean a transaction by which a person’s commercial or economic interests may be advanced and would result in an economic benefit to that person. It would not include an agreement where profit-making is an incidental outcome of the transaction or may happen by accident. Thus, the Court ruled that the ‘commercial flavour’ of a ‘hand loan’ is lost when the money is loaned under informal terms resulting in uncertainty with regards to recovery of the amount loaned as in the instant case.

Accordingly, the Court directed the de-listing of the instant petition from the Commercial Division of the High Court.