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Althaf Ismail Sait v/s Golden Choice Hospitality Private Limited, Represented By Its Director, Mohammed Afzal Zacharia, Alapuzha

    OP(C). No. 1501 of 2022
    Decided On, 14 October 2022
    At, High Court of Kerala
    By, THE HONOURABLE MR. JUSTICE C.S. DIAS
    For the Petitioner: Amrin Fathima, J. Ramkumar, S. Vishnu Das, Sithara Hamza Kizhakoot, Aleena K. Binu, Advocates. For the Respondents: Basil Mathew, Ninan John (K/346/1997), Sanjana Sara Varghese Annie (K/000582/2018), S. Ajay Krishnan, (K/1630/2020), S. Murugan (K/264/1993), A.R. Arya (K/1666/2018), C.H. Abeena (K/673/2015), Advocates.


Judgment Text
1. Does a suit filed for recovery of the security deposit in a commercial lease fall within the sweep of the Commercial Courts Act, 2015?

2. The bare facts are; the respondent has filed O.S No.33/2019 before the Court of the Subordinate Judge, Alappuzha, for recovery of the security deposit paid by him to the petitioner at the time of entering into Ext.P1 lease agreement. The respondent is in the tourism industry. He had taken the petitioner’s property on lease to run a resort. The respondent paid Rs. 20,00,000/- as security deposit. The lease arrangement was extended by Ext.P2 agreement. On the expiry of the lease period, the respondent handed over the vacant possession of the property and demanded for the refund of the security deposit. As the petitioner failed to repay the amount, the respondent filed the suit to recover an amount of Rs. 18,87,000/-. While so, the respondent preferred I.A No.2/2021 to transfer the suit to the Commercial Court, Alappuzha. Even though the petitioner objected to the application, the court below, by the impugned Ext.P7 order, ordered the transfer of the suit to the Commercial Court. Ext.P7 is erroneous and unsustainable in law. Hence, the original petition.

3. Heard; Smt.Amrin Fathima, the learned counsel appearing for the petitioner and Sri.Basil Mathew, the learned counsel appearing for the respondent.

4. Smt.Amrin Fathima vehemently argued that the court below has gone wrong in passing Ext.P7 order because there is no commercial transaction between the petitioner and the respondent falling within the purview of the Commercial Courts Act, 2015 (in short, ‘Act’). The petitioner had only leased his property to the respondent and had not carried out any commercial activity. The dispute between the parties falls within the realm of the Kerala Buildings (Lease and Rent Control) Act, 1965, and not under the Commercial Courts Act, 2015. She placed reliance on the decision of the Telangana High Court in Blue Sea Industries Pvt.Ltd v. M/s.Polytech Engineering and Consultants [2021 KHC 3483] to fortify her contentions. She urged that the original petition be allowed.

5. Sri. Basil Mathew countered the above submission by contending that the admissions in paragraph 2 of the original petition, that the property was given to the respondent for tourism purposes and the petitioner had received a security deposit of Rs.20,00,000/-, is sufficient to hold that the dispute is a commercial transaction. He placed reliance on the decision of the Delhi High Court in Jagmohan Behl v. State Bank of Indore [2017 SCC Online Del 10706], which has been confirmed by the Hon’ble Supreme Court in Ambalal Sarabhai Enterprises Ltd v. K.S Infraspace LLP and another [2019 KHC 7012]. He defended Ext.P7 order and prayed the original petition to be dismissed.

6. The respondent has filed the suit for recovery of the security amount from the petitioner, paid at the time of execution of Ext.P1 lease agreement. Exts.P1 and P2 lease agreements are admitted by both parties. The recitals in Exts.P1 and P2 lease agreements unambiguously establish that the property was leased to the respondent to start a resort on a monthly rent of Rs.1,00,000/- for the initial three months and, thereafter, at Rs.1,20,000/-, and after receiving a security deposit of Rs.20,00,000/-. Irrefutably, the respondent conducted a resort in the property during the validity of Exts.P1 and P2 agreements. After the expiry of the lease period, the respondent sought the refund of the security deposit.

7. It is appropriate to extract Sec.2 (1) (c) (vii) and Explanation (a) of the Commercial Courts Act, 2015, which reads as follows:

2. Definitions:- (1) In this Act, unless the context otherwise requires,-

[(a) "Commercial Appellate Courts" means the Commercial Appellate Courts designated under section 3A;]

[(aa)] "Commercial Appellate Division" means the Commercial Appellate Division in a High Court constituted under sub-section (1) of section 5;

(b) "Commercial Court" means the Commercial Court constituted under sub-section (1) of section 3;

(c) "commercial dispute" means a dispute arising out of—

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(vii) agreements relating to immovable property used exclusively in trade or commerce;

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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;

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8. Interpreting Sec.2 (1) (c) (vii) and Explanation (a) of the Commercial Courts Act, 2015, the Delhi High Court in Jagmohan Behl (supra), a case of parallels, held thus:

“11. Clause (c) defines the "commercial dispute" in the Act to mean a dispute arising out of different sub-clauses. The expression "arising out of" in the context of clause (vii) refers to an agreement in relation to an immovable property. The expressions "arising out of" and "in relation to immovable property" have to be given their natural and general contours. These are wide and expansive expressions and are not to be given a narrow and restricted meaning. The expressions would include all matters relating to all agreements in connection with immovable properties. The immovable property should form the dominant purpose of the agreement out of which the dispute arises. There is another significant stipulation in clause (vii) relating to immovable property, i.e., the property should be used exclusively in trade or commerce. The natural and grammatical meaning of clause (vii) is that all disputes arising out of agreements relating to immovable property when the immovable property is exclusively used for trade and commerce would qualify as a commercial dispute. The immovable property must be used exclusively for trade or business and it is not material whether renting of immovable property was the trade or business activity carried on by the landlord. Use of the property as for trade and business is determinative. Properties which are not exclusively used for trade or commerce would be excluded.

12. The explanation stipulates that a commercial dispute shall not cease to be a commercial dispute merely because it involves recovery of immoveable property, or is for realisation of money out of immoveable property given as security or involves any other relief pertaining to immovable property, and would be a commercial dispute as defined in sub-clause (vii) to clause (c). The expression "shall not cease", it could be asserted, has been used so as to not unnecessarily expand the ambit and scope of sub-clause (vii) to clause (c), albeit it is a clarificatory in nature. The expression seeks to clarify that the immovable property should be exclusively used in trade or commerce, and when the said condition is satisfied, disputes arising out of agreements relating to immovable property involving action for recovery of immovable property, realization of money out of immovable property given as security or any other relief pertaining to immovable property would be a commercial dispute. The expression "any other relief pertaining to immovable property" is significant and wide. The contours are broad and should not be made otiose while reading the explanation and sub-clause (vii) to clause (c) which defines the expression "commercial dispute". Any other interpretation would make the expression "any other relief pertaining to immovable property" exclusively used in trade or commerce as nugatory and redundant.

13. Harmonious reading of the explanation with sub-clause (vii) to clause (c) would include all disputes arising out of agreements relating to immovable property when used exclusively for trade and commerce, be it an action for recovery of immovable property or realization of money given in the form of security or any other relief pertaining to immovable property.

14. In the context of the present case, it is not disputed that the immovable property was being used exclusively in trade and commerce. The said issue does not arise for consideration.

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18. Lease of immovable property is dealt with under the Transfer of Property Act in Chapter V thereof. The said enactment vide section 105 defines what is lease, lessor, lessee and rent and vide section 107 stipulates how leases are made and can be terminated. Leases can be both oral or in writing. Noticeably, sub-clause (vii) to clause (c) in Section 2 of the Act does not qualify the word "agreements" as referring to only written agreements. It would include oral agreements as well. The provisions of the Transfer of Property Act deal with the effect of non-payment of rent, effect of holding over and most importantly the determination of the leases or their termination. It cannot be disputed that action for recovery of immovable property would be covered under sub-clause (vii) to clause (c) when the immovable property is exclusively used in trade or commerce. Read in this manner, we do not think that claim for recovery of rent or mesne profit, security deposit etc., relating to immoveable property which was used exclusively in trade or commerce should not be treated as a commercial dispute in view of the language, ambit and scope of sub-clause (vii) to clause (c) to Section 2 of the Act. These would qualify and have to be regarded as commercial disputes. The use of expression "any other relief pertaining to immoveable property" would mean disputes relating to breach of agreement and damages payable on account of breach of agreement would be covered under sub-clause (vii) to clause (c) to Section 2 of the Act when it is arising out of agreement relating to immoveable property exclusively used in trade and commerce.”

9. In paragraph 10 of Ambalal Sarabhai Enterprises Ltd (supra), the Hon’ble Supreme Court has affirmed the view in Jagmoham Behl, thus:

“10. Be that as it may, the learned senior advocates on both sides have sought to rely on the legal position decided by the various High Courts in the absence of the pronouncement of this Court. The learned senior advocate in that regard have referred to the various decisions on the same point. However, we do not find it appropriate to refer to each of them and overburden this order since we notice that the High Court in fact has referred to various decisions while deciding the instant case and has thereafter arrived at its conclusion. The discussion as made by the High Court with reference to the various decisions is also justified. In that view, we would refer to the decision of a Division Bench in the case of Jagmohan Behl vs. State Bank of Indore, 2017 SCC OnLine Del 10706 relied on by the learned senior advocate for the appellant. In that regard, it is noticed that in the said case on taking note of the provision contained in Clause 2(1)(c)(vii) of the CC Act, 2015 it is held that the dispute involved therein would constitute a commercial dispute and the expression “arising out of” and “in relation to immovable property” should not be given the narrow and restricted meaning and the expression would include all matters relating agreements in connection with the immovable properties. The said conclusion reached was in a circumstance where the immovable property in qu

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estion was undoubtedly being used for a trade or commerce and it was held so when the claim in the suit is for recovery of rent or mesne profit, security deposit etc. for the use of such immovable property. 10. The law is thus succinctly settled, if the dispute arises out of an agreement relating to immovable property used exclusively for trade or commerce and involves any other relief pertaining to the immovable property, it falls within the fold of Sec.2(1) (c) (vii) and Explanation (a) of the Commercial Courts Act, 2015. 11. The recitals in Exts.P1 and P2 agreements undoubtedly establish that the property was leased to the respondent for a commercial purpose, i.e., to run a resort. The rate of rent and the security deposit paid reinforces that it is a commercial transaction. As the suit is for recovery of the security deposit paid pursuant to the lease agreements, which are commercial in nature, I agree with the court below that the dispute is a commercial dispute falling within the four corners of the Commercial Courts Act 2015. Hence, I confirm Ext.P7 order and hold that there is no error in the order warranting interference by this Court under Article 227 of the Constitution of India. The original petition is meritless and is hence dismissed.
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