Everstrong Sales Pvt. Ltd. v. Binod Kumar Mahipal

immovable property executed by the defendant nos. 1 to 32 to the extent of the said defendants’ undivided/unpartitioned 78.05% share in the suit property. The defendant nos. 33 to 41 are the other co- owners and co-sharers in respect of the suit property together with the defendant nos. 1 to 32. e. The said loan that was advanced by the plaintiff to the defendant nos. 1 to 32 was a commercial loan for business purposes and the property that was mortgaged to secure repayment of the said loan was also used exclusively in trade and commerce. The borrowers being the defendant nos. 1 to 32 failed to repay the borrowed sum wherefore the appellant/plaintiff instituted the aforesaid suit for recovery of a sum of Rs.13,20,46,829/- with interest against the defendant nos. 1 to 32.

#3. Based on the above-noted case run in the plaint, the plaintiff has claimed the following reliefs in the suit: “a. A preliminary decree in Form 5A of Appendix „D‟ of the Code of Civil Procedure declaring the amount due the plaintiff on the mortgage to be Rs.13,20,46,829/- as on 31st August 2021 and directing the defendant nos. 1 to 32 to make payment of the aforesaid sum together with pendent lite interest and interest on judgment at the contractual rate of 13.5 percent per annum; b. In default of the defendant nos. 1 to 32 making such payment, decree for sale of the undivided 78.05% share of the defendants in the property more fully described in the Fisrt Schedule hereof and handing over of such sale proceeds to the plaintiff in pro tanto satisfaction of its claim c. In case the proceeds of the sale are found to be insufficient to satisfy the amount due under the decree to be passed, leave be given to the plaintiff to apply for personal decree against the defendant nos. 1 to 32 for the balance…..”

#4. The defendants contested the suit by filing their written statements in two sets. The first set being the written statement filed jointly by the defendant nos. 1 to 32 and the second set being the written statement filed by the defendant nos. 33 to 41.

#5. The defendant no. 41 also took out an application under Order VII Rule 11 of the Code contending that as the dispute raised in the suit was/is not “commercial dispute” in terms of Section 2(1)(c) of the Commercial Courts Act, 2015 (hereafter “the said Act”), therefore the subject suit was not a commercial suit, that the same would not maintainable before the Commercial Court at Rajarhat and that the said Court had no jurisdiction to try and entertain the said suit.

#6. The plaintiff contested the said application filed by the defendant no. 41 by filing its affidavit-in-opposition.

#7. After considering the material on record and upon a contested hearing, the learned Commercial Court allowed the defendant no.41’s application under Order VII Rule 11 of the Code and rejected the plaint by observing as follows: “Critically analyzing the factual matrix it transpires that the suit property is an undivided one and the plaintiff has extended loan facilities to some co-owners in respect of the suit property and when the defendant no. 1 to 32 failed and neglected the repayment, the plaintiff has been compelled to file the present suit. The principal question before this Court as under what capacity the plaintiff extended the loan whether in the capacity of money lender or non- banking financial institution. On both counts the license as well as the certificate from the RBI has not been disclosed in the plaint nor annexed with the list of documents and further did not file memorandum of association whereby it could also be ascertained the nature of business and lastly failed to present the suit qualification of a “Commercial dispute” in the averments within the purview of the Commercial Courts Act, it is necessary to break down the classes of persons and transactions contemplated in the clause (ii) to (xxii) which do not apply in the instant suit. The absence of MOU of the plaintiff company together with money-lending license and RBI certificate makes me hold the suit has not arisen out of commercial dispute and has no locus to institute before the Commercial Court. Therefore, in view of the aforesaid discussion, I am of the view plaint does not contains sufficient pleading to the effect that the statements in the plaint are not supported by relevant and important material documents which ultimately demolishes the suit of the plaintiff following omission of material facts/documents which leads to an incomplete cause of action which is bad in law, accordingly the defendant no. 41 succeeds.”

#8. Feeling aggrieved by the said order dated August 11, 2023 the plaintiff has come up in appeal before us. It may be mentioned that the plaintiff- appellant has also filed an application under Order 47 Rule 11 of the Code seeking to bring on record inter alia its Memorandum of Association and a document evincing that subsequent to the rejection of plaint, the plaintiff- appellant had put in the requisite fees with penalty to obtain a money lending license under the Bengal Money Lenders Act, 1940.

#9. Mr. Abhrajit Mitra, learned Senior Advocate appearing on behalf of the appellant/plaintiff invited the attention of this Court to the provisions of Section 2(1)(c)(vii) of the said Act to submit that a dispute arising out of any agreement relating to immovable property which was used in trade and commerce would be treated as a commercial dispute in terms of the aforesaid provisions. He thereafter took us through paragraph 19 of the plaint to show that the sum lent and advanced by the plaintiff to the defendant nos. 1 to 32 was a commercial loan for business purpose and repayment of such loan was secured by mortgage of the suit property and that the suit property was used exclusively in trade and commerce. It was submitted that since the said loan is secured by mortgage of immovable property (created by way of registered Deed of Mortgage) and the said immovable property is used exclusively in trade and commerce, therefore the present suit which is based on a dispute arising from an agreement relating to immovable property used in trade and commerce the same has rightly been filed as a commercial suit.

#10. Paragraph 3 of the plaint was also placed by Mr. Mitra to contend that as the plaintiff and the defendant nos. 1 to 32 had agreed that the loans to be advanced by the plaintiff would be utilized only for business purposes the loan transaction clearly fell within the scope of 2(1)(c)(i) of the said Act.

#11. It was further submitted that for the purpose of deciding an application under Order VII Rule 11 of the Code, the Court is required to see the averments made in the plaint and that the statements made in the plaint are to be treated as true and correct. Paragraph 13 of a Single Bench judgment of this Court rendered in the case of Lord Grih Nirman Private Limited vs. Merlin Projects Limited1 was relied upon in support of the aforesaid proposition.

#12. The Court was then taken through the deed of mortgage dated September 7, 2016 which forms an annexure to the plaint and it was submitted that the said deed clearly recorded that the plaintiff had lent and advanced a 1 2024 SCC OnLine Cal 9922 sum of Rs.7,00,00,000/- (Rupees Seven Crore) to the defendant nos.1 to 32 for commercial purpose and that the property mentioned in the said deed had been mortgaged for securing repayment of the said sum by the borrowing defendants to the lender-plaintiff. Paragraphs 4, 14 and 37 of a judgment of the Hon’ble Supreme Court in the case of Ambalal Sarabhai Enterprises Limited vs. K.S. Infraspace LLP and Another2 were relied on for the proposition that in a mortgage suit the determining factor as to whether or not the Commercial Courts Act, 2015 would apply, is the usage of the property on the date of the agreement.

#13. It was submitted on behalf of the appellant that on a cumulative reading of the case run in the plaint and the documents annexed thereto, it will be absolutely clear that the plaintiff had lent and advanced the said sum of Rs.7,00,00,000/- (Rupees Seven crore) for commercial purpose and that there was an agreement in the form of a deed of mortgage which satisfied the requirement of Section 2(1)(c)(vii) of the said Act of 2015 and that being so the suit instituted by the appellant was clearly a commercial suit and was maintainable before the Commercial Court.

#14. It was further submitted that the observation of the learned Commercial Court that the plaintiff’s suit could not be maintained as a commercial suit since the plaintiff did not have money lending license and the requisite certificate from the Reserve Bank of India (hereafter “RBI”) is not correct inasmuch as money lending license is not a requirement prescribed under any of the provisions of Section 2(1)(c) of the said Act. It was then submitted by the appellant that the appellant had already deposited the maximum fine 2 (2020) 15 SCC 585 of Rs.1,000/- required to be paid/deposited in terms of the provisions of Section 32 of the Bengal Money Lenders Act, 1940 and had thus cured the defect, if any, in the institution of the suit. In support of such proposition the plaintiff relied on another Single Bench judgment of this Court in the case of Ashvin & Co. vs. Bajaj Tea House3.

#15. It was submitted behalf plaintiff even it is assumed that the plaintiff’s suit is not maintainable as a commercial suit before the Commercial Court the correct approach would have been to transfer the suit from the Commercial Division to the non- Commercial Division and that the plaint should not have been rejected under Order VII Rule 11 of the Code. In support of the aforesaid proposition the appellant relied on the following judgments: i). Ladymoon Towers Private Limited vs. Mahendra Investment Advisors Private Limited4 (paragraphs 1 and 2), ii). Jai Balaji Industries Limited vs. Calderys India Refractories Ltd. (Order dated 13th May, 2022 passed in C.S. No.19 of 2019), iii). Sherawali Developers LLP vs. M/s. Majesty Homes & Ors.5 (Paragraph 12), iv). Satyavama Commotrade Private Limited & Ors. vs. Global Motocorp LLP & Anr. (Order dated 11th November, 2019 passed in FMA No. 1522 of 2019) v). Suraj Prakash vs. Neeraj Kumar & Ors.6 (Paragraphs 7, 8 and 11). 3 2010 SCC OnLine Cal 44 4 2021 SCC OnLine Cal 4240 5 MANU/DE/3640/2024 6 2023 SCC OnLine Del 4563

#16. It was further submitted that a Chartered High Court has no power to return a plaint under Order VII Rule 11 of the Code and as such this Court had in the case of Macneill and Magor Ltd. & Anr. vs. Mouhsen Ali & Anr.7 (Paragraphs 19 to 21) transferred the case from this Court to a Court having jurisdiction by exercising its power under Section 24(1)(a) of the Code. It was further submitted that such power of transfer can be exercised either under Section 151 of the Code in exercise of inherent power of the Court or under Section 24 thereof.

#17. Mr. Mainak Bose, learned Senior Advocate appearing for the respondent no.41 (defendant no.41) supported the impugned order and submitted that neither of the two sub clauses of Section 2(1)(c) of the said Act that have been relied on by the plaintiff come to the aid of the plaintiff. It was further submitted that the loan that had been sought to be recovered by the plaintiff by way of the suit did not satisfy the requirements of a loan or advance in ordinary transaction of merchants/bankers, financer and trader inasmuch as the plaintiff is neither a bank nor a financial institution nor a merchant nor a trader. It was also submitted that the plaintiff had made no averment in the plaint in such regard. Placing reliance on the judgment of this Court in the case of Venkatesh Vincom Private Limited vs. Spice of Joy, Multicuisine Restaurant cum Bar and Others8 (Paragraphs 7, 9 and 11), it was submitted that for a transaction to be called a commercial transaction in terms of Section 2(1)(c)(i) of the said Act, the same should have arisen in the ordinary course of business of the litigant. 7 AIR 1985 Cal 460 8 2022 SCC OnLine Cal 3010

#18. The Memorandum of Association of the company that has been annexed by the Plaintiff to its application under Order 41 Rule 27 of the Code was relied on to show that the same did not permit the business of lending and advancing money by the plaintiff. It was submitted that the loan transaction done by the plaintiff in the suit cannot be said to be one in the ordinary course of business of the plaintiff. Placing reliance on a judgment of this Court in the case of Ladymoon Towers Private Limited4 (supra) (paragraphs 5, 15, 19 and 20), it was submitted that unless the plaintiff could show that the loan transaction which forms the subject matter of the suit was a transaction in the ordinary course of business of the plaintiff, the plaintiff’s suit could not be termed as a commercial suit. It was further submitted that the suit property was a vacant land and not one which was being used in the trade and commerce and that being so the plaintiff could not have invoked the jurisdiction of the Commercial Court.

#19. The defendant no. 41 has also relied on paragraphs 36 and 37 of the judgment in the case of Ambalal Sarabhai Enterprises Limited2 (supra) to assert that a suit relating to an immovable property being used exclusively in trade and commerce can be instituted only if the suit property is used exclusively in trade and commerce on the date of the filing of the suit.

#20. It was submitted that the learned Commercial Court rightly rejected the plaint and did not return the same as contended by the plaintiff because the Commercial Court lacked subject matter jurisdiction to entertain the suit. A Full Bench judgment of the Allahabad High Court in the case of Ananti vs. Chhannu and Others9 was pressed into service to assert that in a case of lack of subject matter jurisdiction a Court ought to reject a plaint and not return it. It was submitted that the plaintiff had drafted the plaint in a manner so as to bring the suit within the jurisdiction of the Commercial Court but once it was evident that the Commercial Court lacked subject matter jurisdiction the only option left for the Commercial Court was to reject the plaint. Paragraph 6 of a judgment of the Bombay High Court in the case of Lt. Col. Anil Bhat and Others vs. CITI Bank, Mumbai10 was relied on for the said proposition.

#21. It was then submitted that as no specific averment has been made in the plaint as to how is the suit property exclusively used in trade and commerce and no supporting document has been annexed thereto showing that the property is in fact being used for trade and commerce, the learned Commercial Court has rightly rejected the plaint.

#22. It was finally submitted that since the plaintiff has run a case of having lent and advanced a sum of money to the defendant it was incumbent on the part of the plaintiff to show that the plaintiff had a license permitting money lending or a certificate of registration from RBI at least as on the date of institution of the suit. Reliance in such regard was placed on the judgment in the case of Nedumpilli Finance Company Limited vs State of Kerala11. It was also submitted that the defect of conducting a business of money lending under the Bengal Money Lenders Act, 1940 without having a 9 AIR 1930 All 193 10 AIR 2009 Bom 99 11 (2022)7 SCC 394 money lending license could not have been cured by depositing license fee and penalty after rejection of the plaint and by bringing the same on record by way of an application under Order 41 Rule 27 of the Code.

#23. We have heard the submissions made by the respective parties and have considered the material on record.

#24. At the outset the definition of “commercial dispute” as provided in Section 2(1)(c) of the said Act needs to be noticed: (c) "commercial dispute" means a dispute arising out of-- (i) ordinary transactions of merchants, bankers, financiers and traders such as including enforcement and to mercantile documents, those relating interpretation of such documents; (ii) export or import of merchandise or services: (iii) issues relating to admiralty and maritime law; (iv) transactions relating to aircraft, aircraft engines, aircraft equipment and helicopters, including sales, leasing and financing of the same; (v) carriage of goods; (vi) construction and infrastructure contracts, including tenders; (vii) agreements relating to immovable property used exclusively in trade or commerce; (viii) franchising agreements; (ix) distribution and licensing agreements; (x) management and consultancy agreements; (xi) joint venture agreements; (xii) shareholders agreements; (xiii) subscription and investment agreements pertaining to the services industry including outsourcing services and financial services; (xiv) mercantile agency and mercantile usage; (xv) partnership agreements; (xvi) technology development agreements; (xvii) intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits; (xviii) agreements for sale of goods or provision of services; (xix) exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum; (xx) insurance and re-insurance; (xxi) contracts of agency relating to any of the above; and (xxii) such other commercial disputes as may be notified by the Central Government Explanation.-- 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 realisation of monies out of immovable property given as security or involves any other relief pertaining to immovable property; (b) one of the contracting parties is the State or any of its agencies or instrumentalities, or a private body carrying out public functions;

#25. A reading of the provisions of Section 2(1)(c) of the said Act reveals that for a dispute to be called a “commercial dispute” under the said Act, the same must fall within one of the several sub-clauses of clause (c) of Section 2(1) of the said Act. The expression “means” used in Section 2(1)(c) of the said Act to define “commercial dispute” clearly indicates that the definition is exhaustive and therefore a dispute not falling within the scope of any the several sub-clauses of clause (c) of Section 2(1) of the said Act would not qualify to be called a “commercial dispute”

#26. Of all the disputes that have been enumerated under Section 2(1)(c) of the said Act, the ones mentioned in sub-clauses (i) and (vii) of Section 2(1)(c) (which have been underlined) are relevant for the case at hand.

#27. It is, therefore, required to be seen as to whether the case run in the plaint is such that the same can withstand a challenge thrown to it under Order VII Rule 11 of the Code on the strength of any of the aforesaid clauses of Section 2(1)(c) of the said Act.

#28. It is now well settled that when the Court assesses the worth of a plaint which is faced with the peril of rejection under Order VII Rule 11 of the Code, the only question that needs to be answered is “if the averments made in the plaint are taken in entirety, in conjunction with the documents relied upon, would the same result in a decree being passed”. (See: Dahiben vs. Arvindbhai Kalyanji Bhanusali12 paragraph 23.11)

#29. It is equally settled that while examining a plaint at the stage of Order VII Rule 11 of the Code the plaint should be read meaningfully (not formally) and in its entirety i.e. as a whole.(See Ram Prakash Gupta vs. Rajiv Kumar Gupta & Ors.13)

#30. We have gone through the plaint and the reliefs claimed therein. Simply put the suit is one for recovery of money upon enforcement of mortgage. It would qualify for a commercial suit if the dispute qua the parties satisfies the definition of “commercial dispute” in terms of Section 2(1)(c) of the Act.

#31. The following paragraphs of the plaint have been relied on by the plaintiff in order to justify the institution of the suit as one arising from a commercial cause: “3. It was specifically agreed by and between the plaintiff and the defendant nos. 1 to 32 that the loans to be advanced by the plaintiff to the defendant nos. 1 to 32 would be utilized only for business purposes and that the said defendants would not use/part/transfer the loan amount to any of their legal heirs or any representatives.

#19. The loan advanced by the plaintiff to the defendant nos. 1 to 32 was a commercial loan for business purposes secured by mortgage of the property described in the First Schedule hereto. The said property is also is used exclusively in trade and commerce and is situated at Surya Sen Road (formerly Hasti Road) within Circle Nos. 3 and 7 of the Baranagar Municipality in the District of North 24 Parganas within the territorial jurisdiction of this Learned Court.”

#32. In the case at hand the plaint has been attacked on the ground that the Court whereat it has been filed lacks jurisdiction to entertain a commercial