2021 (12) TMI 1536 - HC - Indian Laws

Friendly hand loan not a commercial dispute u/s 2(1)(c), must proceed as ordinary civil suit

HC held that a solitary 'hand loan' advanced on friendly terms, without characteristics of commercial lending or a regular financing activity, does not ... Scope of commercial dispute - singular transaction by way of ‘hand loan’ would fall within the meaning of ‘commercial dispute’, as the Act of 2015 intend to cover only ‘commercial dispute’ or not - basis of disagreement between the parties has a non-commercial cause - HELD THAT:- In Ambala Sarabhai Enterprises Ltd Vs. K.S. Infraspace LLP and ors [2019 (10) TMI 1601 - SUPREME COURT], the Hon’ble Apex Court has expatiated about which dispute would fall within the ambit of Section 2(1)(c) in the backdrop of the statements of objects and reasons of the Act of 2015 along with various amendments in the Code of Civil Procedure, specifically made applicable to the Suits of commercial dispute. In the wake of the insight thrown on the nature of commercial dispute, it has become necessary to adopt a careful approach in scrutinizing, whether a dispute would fall within the purview of ‘commercial dispute’, as if not, it would unnecessarily consume the time of the Commercial Court, which is meant for speedy disposal of high commercial disputes and the ordinary civil disputes which cannot be classified as ‘commercial disputes’ must be permitted to be tried in normal suit, which are to be tried by a well defined procedure prescribed in the Code of Civil Procedure, by following the pursuit provided in the Code, for such types of Suit. The impugned order which take a view that the transaction of advancing the amount as a friendly loan is commercial in nature, is an erroneous finding as a solitary transaction of advancing loan, on friendly terms, unlike a commercial lending with the prevailing market rate, would fall short or ordinary transaction of a financer, banker. it so. The impugned order is set aside - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a suit for recovery of a single 'friendly loan'/'hand loan' constitutes a 'commercial dispute' within the meaning of Section 2(1)(c) of the Commercial Courts Act, 2015. 1.2 Whether the Court below erred in rejecting the application under Order VII Rule 10 of the Code of Civil Procedure seeking return of the plaint for presentation before the ordinary civil court on the ground that the dispute is not a commercial dispute. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Nature of dispute - Whether a 'friendly loan/hand loan' is a commercial dispute under Section 2(1)(c) of the Commercial Courts Act, 2015 Legal framework 2.1 The Court considered the scheme and object of the Commercial Courts Act, 2015, noting that it is a modern legislation providing a distinct mechanism for speedy disposal of high value commercial disputes involving complex questions of fact and law, with the aim of promoting ease of doing business and improving investor confidence. 2.2 The Court examined Section 2(1)(c) of the Act defining 'commercial dispute', with particular reference to clause (i), which covers 'ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents'. 2.3 The Court referred to dictionary meanings of 'commercial', 'commerce', 'merchant', 'trader' and 'financer', and noted that 'commercial' relates to activities engaged in commerce or trade, typically involving exchange of goods or services or something of value between business entities, and that 'commercial disputes' are those which arise out of the ordinary transactions of merchants, bankers, financiers and traders. 2.4 Relying on the decision of the Supreme Court in Ambala Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP, the Court emphasized that: (i) the object of the Act is early and speedy disposal of high value commercial disputes; (ii) the provisions of the Act and the definition of 'commercial dispute' must be strictly and narrowly construed; and (iii) non-commercial disputes should not be brought into the Commercial Court merely because of high claim value, as that would clog the system and defeat the object of fast-tracking genuine commercial disputes. 2.5 The Court referred to a line of authorities (including decisions of High Courts at Delhi, Bombay, Madras and Calcutta, as summarized in a Calcutta High Court judgment) holding that: (i) not all money recovery suits fall within Section 2(1)(c)(i); (ii) suits based on friendly loans, or transactions between individuals not acting in the capacity of merchants/financiers, are not commercial disputes; and (iii) only ordinary transactions of the specified classes of persons arising out of mercantile documents fall within the definition. 2.6 The Court also relied on a prior decision of the same High Court regarding a 'hand loan', which held that taking of a hand loan, even for starting a business, does not fall within the definition of 'commercial transaction'. Interpretation and reasoning 2.7 The Court framed the core question as whether a singular transaction by way of a 'hand loan' or 'friendly loan' can be treated as a 'commercial dispute', given that the Act is intended to cover only disputes having a commercial cause and commercial purpose. 2.8 The Court held that, to fall within Section 2(1)(c)(i), the dispute must arise out of the ordinary or normal transactions of merchants, bankers, financiers and traders, i.e., transactions that carry a commercial flavour and are entered into in the course of business for profit, and not merely because they involve money or a loan. 2.9 The Court observed that a solitary loan advanced on friendly terms, even if interest at 18% per annum is agreed, does not by itself convert the transaction into an ordinary commercial transaction of a banker or financer; it remains a private 'hand loan' unless the lender is shown to be acting in the capacity of a merchant/banker/financier engaged in such transactions as part of business. 2.10 The Court noted that the respondent herself had, in her affidavit, clarified and admitted that the suit was a 'summary suit' under Order XXXVII of the Code of Civil Procedure and not a 'commercial suit' under the Commercial Courts Act, and that the use of the handwritten word 'commercial' before 'summary suit' in the plaint was a mistake. 2.11 The Court rejected the reasoning of the Court below, which had treated the transaction as commercial merely because finance had allegedly been provided for business purposes and interest at 18% per annum was agreed, holding that use of the expression 'friendly loan' could not be brushed aside and that such a singular friendly loan did not attain the character of a commercial financing transaction. 2.12 The Court reiterated, in light of the Supreme Court guidance, that a careful and strict approach must be adopted in classifying disputes as 'commercial disputes' to avoid burdening the Commercial Court with ordinary civil disputes. Conclusions 2.13 A solitary 'friendly loan'/'hand loan' transaction, even if interest is stipulated, does not constitute an 'ordinary transaction' of a merchant, banker, financier or trader under Section 2(1)(c)(i) of the Commercial Courts Act, 2015. 2.14 The dispute in question is not a 'commercial dispute' within the meaning of Section 2(1)(c) and thus does not fall within the jurisdictional purview of the Commercial Court/Commercial Division as a commercial suit. Issue 2: Propriety of rejecting the application under Order VII Rule 10 CPC for return of plaint Interpretation and reasoning 2.15 The application under Order VII Rule 10 CPC was based on the plea that the suit, being founded on a friendly loan and not a commercial transaction, fell outside the definition of 'commercial dispute' and hence outside the proper jurisdiction of the Commercial Court/Commercial Division. 2.16 The Court found that once the transaction is held not to be a commercial dispute, the suit could not be treated as a commercial summary suit and could not be tried by the Commercial Court; instead, it should be tried as an ordinary civil summary suit under the Code of Civil Procedure in the appropriate civil court. 2.17 The Court held that the Court below erred in law in treating the transaction as commercial and in rejecting the application for return of plaint, as this was founded on an incorrect understanding of 'commercial dispute' under the Act. Conclusions 2.18 The finding of the Court below that the friendly loan transaction is commercial in nature is erroneous and unsustainable. 2.19 The impugned order dismissing the application under Order VII Rule 10 CPC is set aside. 2.20 The application for return of plaint is allowed, and the plaint is to be returned for presentation to the appropriate ordinary civil court, the suit not being a 'commercial dispute' within the meaning of the Commercial Courts Act, 2015.