2025 (3) TMI 1560 - HC - Indian Laws

Friendly one-off personal loan not a commercial dispute u/s 2(1)(c) Commercial Courts Act, suit renumbered

HC held that the dispute arising from a one-off personal/friendly loan, advanced in a non-business, personal capacity and unsupported by mercantile ... Seeking rejection of the plaint on the ground inter alia of it being not maintainable as a commercial suit as per Section 2(1)(c) of the Commercial Courts Act, 2015 - Order VII Rule 11 of the Code of Civil Procedure, 1908 - HELD THAT:- It is evident that mercantile documents, including 'commercial paper', play a pivotal role in determining the nature of a 'commercial dispute' under the Act of 2015. The classification of a dispute as commercial hinges upon the presence of such documents, which serve as concrete evidence of trade and financial transactions. However, it is equally important to note that the term 'mercantile documents' could not be constrained within the strict confines of judicial interpretation. The word 'document' is defined in the Bharatiya Sakshya Adhinyam, 2023 - The real test to determine whether a particular document qualifies as a 'mercantile document' is whether merchants, bankers, financiers or traders would ordinarily execute such a document to record a commercial/mercantile transaction, having regard to the prevailing practices and extant law. The presence of the word 'mercantile' narrows down the scope of the word 'documents' and thus, the mere presence of a document evidencing the transaction is not enough unless the document qualifies as a mercantile document. After undertaking a brief sojourn through the settled position of law surrounding Order VII Rule 11 of the CPC and analyzing the object and scope of the Act of 2015, this Court shall now proceed to examine the arguments advanced on behalf of the parties herein and apply the relevant legal principles to the facts of the instant case. A reference be made to the decision of the High Court at Bombay in Bharat Muddanna Shetty v. Ahuja Properties & Developers and Ors. [2021 (7) TMI 1481 - BOMBAY HIGH COURT], wherein, the Court found that a friendly loan given to a needy friend, not being part of a business or an ordinary business transaction, can at best be treated as money lending per se. The Court emphasized that the Act of 2015 deals with a special category of cases, whereas Order XXXVII of CPC pertains to ordinary recovery suits. In Glasswood Realty Pvt. Ltd. [2021 (12) TMI 1536 - BOMBAY HIGH COURT], the High Court at Bombay held that for a transaction to qualify as a 'commercial dispute', it must have a commercial flavour, and its genesis must lie in the fact that the parties entered into the transaction with a commercial purpose. Advancing pure and simple friendly loans on friendly terms has been held to fall outside the definition of a commercial dispute. Reference can also be made to Order XXXVII CPC, which applies to the Courts as specified in Rule 1 of Order XXXVII CPC. This provision covers a class of suits, including those based on bills of exchange, hundies, and promissory notes, where the plaintiff seeks to recover a debt or liquidated demand in money payable by the defendant, with or without interest. It also applies to claims arising from a written contract or an enactment where the sum sought to be recovered is a fixed amount or a debt (other than a penalty) and to suits based on guarantees where the claim against the principal is in respect of a debt or liquidated demand. Additionally, it includes suits for the recovery of receivables instituted by an assignee of a receivable. Considering the case in hand, the present suit is not based on any transaction involving mercantile documents, nor did the deceased act in the capacity of a financier. The transaction in question was not an ordinary transaction for the deceased as he was not commercially engaged in the activity of financing or lending. Furthermore, the terms of repayment were not determined between the parties and repayment was left to the mutual understanding of the parties, which is not indicative of a commercial transaction between merchants, financiers, traders or bankers. A one-off personal loan or a friendly loan does not fall within any of the categories enumerated under Section 2(1)(c) of the Act of 2015, merely because it carries interest. It is only the ordinary transactions involving merchants, bankers, financiers, and traders such as those relating to mercantile documents, which are covered under Section 2(1)(c)(i) of the Act of 2015. The loan was extended in a personal capacity and thus, it fell outside the purview of the specialized commercial courts' jurisdiction. This Court finds that the claim for recovery in the present suit does not qualify as a 'commercial dispute' under Section 2(1)(c) of the Act of 2015, as the transaction in question pertains to a personal loan. The lender was not a merchant, trader, banker or financier. The deceased had advanced a personal loan to defendant no. 1 on certain terms and conditions, but such a loan, even if ultimately used for business purposes, does not inherently constitute a 'commercial dispute' within the meaning of the Act of 2015 as it does not pertain to ordinary transactions involving merchants, bankers, financiers, and traders such as those relating to mercantile documents. Moreover, the loan was not advanced in the ordinary course of business and has no relation to the trade, commerce, or business of the plaintiff's deceased brother. In view of the aforesaid and considering the directions passed in Kailash Devi Khanna, the suit shall be re-numbered as an ordinary civil suit - Accordingly, subject to the order passed by the Hon'ble Judge- In-Charge (Original Side), list the matter before the concerned Roster Bench as per applicable rules and regulations on 28.07.2025. Application allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether an objection that a suit is improperly filed as a commercial suit, as it does not involve a 'commercial dispute' under Section 2(1)(c) of the Commercial Courts Act, 2015, can be examined and decided under Order VII Rule 11 of the Code of Civil Procedure, 1908. 1.2 What is the scope and meaning of 'commercial dispute' under Section 2(1)(c), particularly clause (i), including the requirement of 'ordinary transactions of merchants, bankers, financiers and traders' and the role of 'mercantile documents'. 1.3 Whether, on the averments in the plaint, the claim for recovery of a loan advanced by the plaintiff's deceased brother to the first defendant qualifies as a 'commercial dispute' under Section 2(1)(c)(i) of the Commercial Courts Act, 2015. 1.4 Consequentially, whether the suit is maintainable as a commercial suit or should be treated only as an ordinary civil suit. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Objection to classification as commercial suit under Order VII Rule 11 CPC Legal framework 2.1 The Court analysed Order VII Rule 11 CPC as an independent and special procedure empowering courts to summarily reject a plaint at the threshold on specified grounds, without trial, to prevent prolongation of fruitless litigation. Reference was made to Dahiben; Shri Mukund Bhavan Trust; Sopan Sukhdeo Sable; Hardesh Ores; Azhar Hussain; Saleem Bhai; and Patil Automation. 2.2 It was reiterated that: (i) the plaint must be read as a whole, without addition or subtraction, and without segregating sentences in isolation; (ii) no enquiry into the truth of the allegations or appreciation of evidence is permissible at this stage; (iii) the Court may exercise this power at any stage, even suo motu; and (iv) once the statutory conditions exist, the Court 'shall' reject the plaint. Interpretation and reasoning 2.3 The Court held that where the very continuation of a suit as a commercial suit is challenged on the ground that it does not involve a 'commercial dispute' within the Act of 2015, such an objection falls within the ambit of Order VII Rule 11 CPC, as it goes to the maintainability and proper forum of the suit. Conclusion 2.4 The Court was competent, under Order VII Rule 11 CPC, to examine and decide whether the suit qualifies as a 'commercial dispute' and, consequently, whether it can proceed as a commercial suit. Issue 2 - Scope and meaning of 'commercial dispute' and 'mercantile documents' under Section 2(1)(c)(i) of the Act of 2015 Legal framework 2.5 The Court traced the object and scheme of the Commercial Courts Act, 2015 with reference to the 188th and 253rd Law Commission Reports, the Statement of Objects and Reasons, and prior judicial exposition (including Ambalal Sarabhai and Levitate Mobile Technologies). It emphasised that the Act is a special legislation intended to create a distinct, time-bound mechanism for genuine commercial disputes in order to improve the business environment and judicial efficiency. 2.6 Section 2(1)(c) was set out in extenso, noting that it contains an exhaustive list of twenty-two categories of disputes constituting 'commercial dispute', thereby clearly demarcating the jurisdiction of commercial courts. Ambalal Sarabhai was relied upon to underline that not every high-value suit or money claim can be treated as a commercial dispute. 2.7 Specific focus was placed on Section 2(1)(c)(i), which refers to 'ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents'. Interpretation and reasoning 2.8 The Court held that Section 2(1)(c)(i) has two cumulative elements: (i) the transaction must be an 'ordinary transaction' of merchants, bankers, financiers and traders; and (ii) it must be based upon, and relate to, 'mercantile documents', including their enforcement or interpretation. Both elements must co-exist for the dispute to be a 'commercial dispute'. 2.9 It was clarified that the qualification in clause (i) is not that all 'ordinary transactions' are commercial, but only those ordinary transactions that concern merchants, bankers, financiers and traders and relate to mercantile documents. 2.10 Since the Act does not define 'mercantile documents', the Court resorted to the ordinary meaning and dictionary definitions of 'mercantile' and to Black's Law Dictionary and the concept of 'commercial paper'. A mercantile document was understood as a writing that records, governs, or evidences a trade, commerce, or business transaction, often in the nature of 'commercial paper' or other formal instruments used in commerce. 2.11 The Court held that, in principle, any formal document that ordinarily records a commercial transaction between merchants, bankers, financiers or traders could qualify as a 'mercantile document'. However, the mere existence of a document evidencing a transaction is not sufficient; the document must, by its nature and in context, be a mercantile document in the sense understood in trade and business practice. 2.12 The test formulated was whether, having regard to prevailing practices and law, merchants, bankers, financiers or traders would ordinarily execute such a document to record a mercantile/commercial transaction. The presence of the term 'mercantile' narrows the category of documents; hence, not all documented loans or money claims are 'commercial disputes'. 2.13 Relying on Ambalal Sarabhai, Kailash Devi Khanna, Ladymoon Towers, Rolta, Glasswood Realty, Bharat Muddanna Shetty, AKK Entertainment, and Padma Logistics, the Court distilled the principle that: - not all money recovery suits are commercial disputes; - personal or friendly loans, even if advanced for business purposes or carrying interest, do not per se become 'commercial disputes'; - the dispute must have a commercial flavour and arise from transactions in the ordinary course of business of merchants, bankers, financiers or traders, typically supported by mercantile documents. 2.14 The Court contrasted this with Order XXXVII CPC, which continues to govern ordinary suits on negotiable instruments and written contracts, and is not overridden by the Act of 2015; only that subset of such cases which meet Section 2(1)(c) fall within commercial jurisdiction. Conclusion 2.15 A dispute falls under Section 2(1)(c)(i) only if: (i) the parties are engaged, in the ordinary course, as merchants, bankers, financiers or traders in respect of the transaction in question; and (ii) the transaction is evidenced by or rooted in mercantile documents whose enforcement or interpretation is in issue. 2.16 A one-off personal or friendly loan, even with an interest component and even if used for business purposes, will not, without this commercial and mercantile-document character, qualify as a 'commercial dispute' under the Act of 2015. Issue 3 - Whether the present loan transaction is a 'commercial dispute' under Section 2(1)(c)(i) Legal framework 2.17 The Court applied the aforesaid interpretation of Section 2(1)(c)(i), and examined the Delhi High Court decision in Amanpreet Kohli, as relied upon by the plaintiff, in light of the factual matrix of this case. Interpretation and reasoning 2.18 As per the plaint, on 19.12.1997 the plaintiff's deceased brother advanced a loan of Rs. 16,50,000/- out of his own funds to the first defendant at an agreed interest of 12% per annum, for statutory payment to secure a 'No Objection Certificate' from L&DO. No fixed repayment timeline was stipulated; repayment was left to the earliest convenience of the borrower and to mutual understanding, with assurances tied to future profits from leasing or running a hotel. The deceased executed a General Power of Attorney in favour of the plaintiff later, and was a shareholder of the defendant companies, but the loan was asserted to be out of his own personal funds. 2.19 The plaintiff argued that the presence of an agreed rate of interest and certain documentation made the dispute a commercial dispute and relied on Amanpreet Kohli, as well as on Padma Logistics to contend that it is within the parties' commercial wisdom how to structure and document such loans. 2.20 The Court distinguished Amanpreet Kohli on facts and law. In that case: - both parties were engaged in real estate development and construction, i.e., merchants in the relevant sense; - the loan transaction was supported by a suite of formal mercantile documents: a loan agreement, promissory note, receipt, and post-dated cheques; and - the dispute directly involved enforcement of such documents executed in the course of ordinary transactions of merchants in real estate. 2.21 The ratio in Amanpreet Kohli was read as: where two merchants execute proper mercantile documents in the course of ordinary business, even a 'friendly' loan with interest may be a commercial dispute. The Court held that this decision cannot be construed to mean that every friendly or personal loan with interest between any parties, absent such mercantile context and documentation, is automatically a commercial dispute. 2.22 Applying its own test, the Court found: - the deceased lender was not commercially engaged in financing or lending; the loan was not an 'ordinary transaction' of a merchant, banker, financier or trader on his part; - the transaction appeared as a one-off personal/friendly loan, based on personal relationship and shareholding, not as part of a regular business of financing; - the terms of repayment were indeterminate and based on mutual understanding, which is not typical of structured commercial financing transactions; - the transaction was not shown to be rooted in standard mercantile documents or commercial paper executed between merchants in their ordinary business. 2.23 The mere presence of an interest clause and the borrower's intended use of the funds for statutory or business-related payments was held insufficient to impart the required commercial flavour when the lender was acting in a purely personal capacity. 2.24 The Court endorsed the line of authority (Ladymoon Towers, Rolta, Bharat Muddanna Shetty, Glasswood Realty, AKK Entertainment) holding that personal or friendly loans, even if tied to business needs or bearing interest, do not, by themselves, fall under Section 2(1)(c) in the absence of a qualifying commercial context and mercantile documentation. 2.25 The Court further noted that permitting such personal loan disputes to be dressed up as commercial suits would undermine the object of the Act of 2015, clog commercial courts with non-commercial matters, and delay genuine high-value commercial disputes for which the special forum and procedure were created. Conclusion 2.26 On the averments in the plaint, the loan was advanced by the deceased in his personal capacity, not as part of any ordinary business as a merchant, banker, financier or trader; the transaction was a one-off personal/friendly loan with indeterminate repayment terms; and it was not shown to be embedded in mercantile documents in the sense contemplated by Section 2(1)(c)(i). 2.27 Consequently, the dispute does not qualify as a 'commercial dispute' under Section 2(1)(c) of the Act of 2015. It falls outside the specialized jurisdiction of commercial courts and is in the nature of an ordinary civil money recovery claim. Issue 4 - Effect on maintainability as a commercial suit and consequential directions Interpretation and reasoning 2.28 Having held that the underlying dispute is not a 'commercial dispute', the Court observed that continuing the suit as a commercial suit would amount to misuse of the specialised jurisdiction under the Act, contrary to its object. Reference was made to Kailash Devi Khanna and to recent observations in Louis Dreyfus Company India Pvt. Ltd. regarding the need to preserve commercial courts for genuine commercial disputes and to weed out inappropriate cases. 2.29 The plaintiff's alternative submission that, if held non-commercial, the suit be treated as an ordinary civil suit, was accepted in principle, consistent with Kailash Devi Khanna. Conclusions 2.30 The application under Order VII Rule 11 CPC, limited to the objection that the suit cannot proceed as a commercial suit, was allowed to the extent of holding that the suit does not qualify as a commercial suit under the Commercial Courts Act, 2015. 2.31 The suit was directed to be re-numbered and treated as an ordinary civil suit and listed before the appropriate roster bench, subject to administrative orders. All other rights and contentions, including objections to the maintainability of the suit even as an ordinary civil suit, were expressly kept open, and the Court clarified that it had not adjudicated upon the merits of the plaintiff's substantive claim.