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If 'Value of Commercial Dispute' Is More Than Rs. One Crore, Section 9 Application Under A&C Act Would Lie Only Before The Commercial Court: Telangana High Court

Parina Katyal
17 Jun 2022 4:12 AM GMT
If Value of Commercial Dispute Is More Than Rs. One Crore, Section 9 Application Under A&C Act Would Lie Only Before The Commercial Court: Telangana High Court
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Image: Boddu Mahender

The Telangana High Court has ruled that if a dispute constitutes a 'commercial dispute' under Section 2 (1) (c) (vii) of the Commercial Courts Act, 2015, and the dispute is the subject matter of a domestic arbitration whose 'Specified Value' is more than Rs. One Crore, then an application under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) would lie only before the Commercial Court and not before the Civil Court.

The Bench, consisting of Justices P. Naveen Rao and Sambasivarao Naidu, held that to treat an immovable property as 'used' for commercial purposes, so as to fall within the ambit of Section 2 (1) (c) (vii) of the Commercial Courts Act, it is not necessary that the present lessee should commence commercial operations in the said property. The Court added that it was sufficient if the immovable property was already put to use for commercial purposes by someone else.

The respondent/lessee M/s. A.A. Avocations Pvt. Ltd. and the appellant/lessor Telangana State Tourism Development Corporation Limited entered into a lease agreement. Under the lease agreement, the respondent was granted permission to develop, operate and maintain a tourism and party area on the leased property. After certain disputes arose between the parties, the respondent invoked the arbitration agreement.

The respondent filed an application under Section 9 of the A&C Act before the Civil Court seeking interim measures of protection till the arbitral proceedings were commenced. The respondent sought interim relief from the Civil Court restraining the appellant from forcefully and illegally dispossessing the respondent from the premises of the leased property. The said application was allowed by the Civil Court, who granted an interim injunction in favour of the respondent. Against this order, the appellant filed an appeal before the Telangana High Court.

The appellant Telangana State Tourism Development submitted before the High Court that since the dispute between the parties was a commercial dispute which arose out of a commercial transaction, the application under Section 9 of the A&C Act should have been filed by the respondent before a Commercial Court and not a Civil Court. The appellant averred that the Civil Court had no jurisdiction to pass an order on the said application filed by the respondent.

The appellant contended that it had raised an issue disputing the maintainability of the application under Section 9 of the A&C Act before the Civil Court, however, the Civil Court did not consider the said preliminary issue.

The respondent/lessee A. A. Avocations averred that the respondent had not commenced any commercial activity on the leased property and that the leased property was not put to use by it, therefore, the dispute between the parties was not a commercial dispute. Thus, the respondent submitted that the application filed by it under Section 9 of the A&C Act was maintainable before the Civil Court.

The Court noted that the appellant, in its written arguments filed before the Civil Court, had contended that since the transaction between the parties was commercial in nature and the value of the dispute was above Rs. One Crore, the Civil Court had no jurisdiction. The Court observed that the appellant had raised the said preliminary objection and had averred before the Civil Court that the respondent must avail the remedy provided under the Commercial Courts Act, 2015.

The Court observed that the Civil Court did not record the said preliminary objections raised by the appellant and that it did not hold any discussion on the validity of the preliminary objections. The Court noted that the Civil Court merely held that the objections raised by the appellant were not maintainable, without elaborating on the reasons.

The Court held that the objections raised by the appellant regarding the maintainability of the application under Section 9 of the A&C Act before the Civil Court went into the root of the litigation. The Court ruled that the Civil Court ought to have decided on the validity of the said objections before going into the merits of the application.

Thus, the Court ruled that the order passed by the Civil Court was vitiated and was liable to be set aside.

The Court observed that Section 2 (1) (c) (vii) of the Commercial Courts Act, 2015 defines 'commercial dispute' as a dispute that arises out of agreements relating to immovable property that is used exclusively in trade or commerce.

The Court noted that Section 10 (3) of the Commercial Courts Act, 2015 provides that where the subject matter of an arbitration is a commercial dispute of a Specified Value, and the arbitration is other than an international commercial arbitration, then all applications or appeals filed under the A&C Act, which would ordinarily lie before the principal Civil Court of original jurisdiction, shall be filed in and be heard by the Commercial Court, where such Commercial Court has been constituted.

The Court further observed that Section 12 of the Commercial Courts Act prescribes the mechanism to determine the 'Specified Value'.

Thus, the Court held that on a cumulative reading of the provisions of Section 2 (1) (c) (vii), Section 10 and Section 12 of the Commercial Courts Act, it is clear that if a dispute arises out of an agreement concerning an immovable property, which is used exclusively in trade or commerce, and if the 'Specified Value' of the dispute is more than Rs. One Crore, then the said dispute would constitute a 'commercial dispute'. The Court held that in that case only the Commercial Court would have the jurisdiction to deal with the application filed under Section 9 of the A&C Act.

The Court noted that as per the provisions of the lease deed between the parties, it was evident that the lessor/appellant had earlier granted a lease of the same land to another party, who had built certain structures on the said land. After the lease deed with the previous lessee was terminated, the appellant entered into a fresh lease deed with the respondent.

Thus, the Court held that commercial operations were already carried out in the leased property by the previous lessee, who had developed the leased land for commercial purposes.

The Court noted that the present lessee/respondent had taken the place of the previous lessee to use the said leased property for commercial purposes. Thus, the Court held that the said leased land was already put to use exclusively for commercial purposes by the previous lessee.

Therefore, the Court ruled that Section 2 (1) (c) (vii) of the Commercial Courts Act was attracted and thus, the dispute between the appellant and the respondent was a commercial dispute.

The Court held that to treat an immovable property as 'used' for commercial purposes, as provided under Section 2 (1) (c) (vii) of the Commercial Courts Act, it is not necessary that the present lessee should commence commercial operations. The Court added that it was sufficient if the immovable property was already put to use for commercial purposes by someone else.

Thus, the Court ruled that the said leased property was a commercial property.

The Court held that since the arrears of rent with respect to the leased property was more than Rs. 2 Crores, thus the 'Specified Value' of the dispute was more than Rs. One Crore. Therefore, the Court ruled that in view of the provisions of Section 10 read with Section 12 of the Commercial Courts Act, 2015, the respondent ought to have filed an application under Section 9 of the A&C Act before the Commercial Court only and not before the Civil Court.

Thus, the Court ruled that the Civil Court had no jurisdiction to deal with the application filed by the respondent under Section 9 of the A&C Act. Hence, the Court allowed the appeal filed by the appellant and set aside the order passed by the Civil Court.

Case Title: Telangana State Tourism Development Corporation Limited versus M/s. A.A. Avocations Pvt. Ltd.

Citation : 2022 LiveLaw (Tel) 49

Dated: 09.06.2022 (Telangana High Court)

Counsel for the Appellant: Mr. M. Surender Rao, senior counsel for Mr. Zeeshan Adnan Mahmood

Counsel for the Respondents: Mr. P. Mohith Reddy

Click Here To Read/Download Order

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