What Constitutes A 'Commercial Dispute' Under Commercial Courts Act, 2015? Calcutta High Court Explains

The Calcutta High Court recently had the opportunity to extensively define what constitutes a "commercial dispute" as contemplated under Section 2(1)(c) of the Commercial Courts Act, 2015 (2015 Act). 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.

The petitioner had moved the instant plea seeking recovery of amount to the tune of Rs.64,50,000 along with accured 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.

Opining on the importance of undertaking such an analysis on what constitutes a 'commercial dispute', Justice Moushumi Bhattacharya observed,

"Discussion as to what would constitute a "commercial dispute" under the options contemplated in Section 2(1)(c) of the Act is important since courts generally tend to accept the listing of matters before the Commercial Division or the Commercial Appellate Division of a High Court, as correct. The categorizations of matters before these Benches are usually done by the concerned Department or by the occasional assessment by the concerned court where a party takes objection to such classification"

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'.

"In order to ascertain whether the present dispute qualifies as a "commercial dispute" within the purview of the Act, it is necessary to break down the classes of persons and transactions contemplated in the above clause", the Court noted.

"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 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.

"The loan given by the plaintiff to the defendant was based on a familiarity between the Directors of the parties and can hence be assumed that the loan was in the nature of what is occasionally referred to as a "hand-loan" and was not given in the regular course of business or as a commercial loan", the Court opined.

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, Justice Bhattacharya opined,

"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.

"The plaint does not plead the existence of any agreement, much less a written agreement involving a mercantile document", the Court further noted.

The Court also rejected the contention of the defendant that the petitioner is in the business of extending loans or lending money and thus the present suit must be deemed to be characterised as a 'commercial dispute'. 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.

"This clause cannot be construed to mean that the plaintiff is in the business of giving loans or lending money for the simple reason that a loan cannot be equated to an investment. It can even be said that a loan and an investment are antithetical and are mutually destructive in concept in the light of the expected end-result", the Court emphasised.

The Court also clarified that Section 2(1)(c)(i) of the Act is 'group neutral' i.e. the provision makes no distinction between transactions between individuals and companies or those between individuals and juristic entities.

"The 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", the Court added further. 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.

"The gradation of disputes in Section 2(1)(c) taking into account all possible forms of agreements from which a "commercial dispute" may arise, makes it clear that the framers of the statute gave emphasis on the commercial flavour of the transaction as opposed to agreements entered into between parties without a commercial purpose", the Court added further.

Accordingly, the Court directed the de-listing of the instant petition from the Commercial Division of the High Court and instead ordered the petition to be 'transferred to the appropriate list governing the hearing of ordinary suits.'

Case Title: Ladymoon Towers Private Limited v. Mahendra Investment Advisors Private Limited

Click Here To Read/Download Order