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South City Projects (Kolkata) Ltd., v/s Ideal Real Estates Pvt. Ltd.

    I.A. No. G A No. 1 of 2020; Old No. G A No. 2693 of 2019; Civil Suit No. 255 of 2019
    Decided On, 07 April 2021
    At, High Court of Judicature at Calcutta
    By, THE HONOURABLE MR. JUSTICE DEBANGSU BASAK
    For the Appearing Parties: Abhrajit Mitra, Satadeep Bhattacharjya, S. Das, T. Joarder, Samrat Sen, Shaunak Mitral, Paritosh Sinha, Saubhik Chowdhury, Dripto Majumdar, Ayusmita Sinha, Advocates.


Judgment Text
1. In a suit for recovery of money lent and advanced, the plaintiff has applied for judgment on admission.

2. Learned senior advocate appearing for the plaintiff has submitted that, the plaintiff had lent and advanced a sum of Rs. 5 crores to the defendant. The defendant has admitted receipt of the sum of Rs. 5 crores from the plaintiff. The defendant has admitted that the agreed rate of interest payable is 15% per annum. The defendant has stated that it repaid the sum of Rs. 3 crores inclusive of interest up to the date of filing of the suit. The defendant has also stated that it repaid a sum of Rs. 30 lakhs on December 21, 2020 post filing of the suit.

3. Learned senior advocate appearing for the plaintiff has submitted that, although the defendant did not raise the issue of Bengal Money Lenders Act, 1940 in the affidavit, the plaintiff in order to avoid any controversy paid the licence fee along with penalty in terms of section 10 read with section 13 (2) of the Act of 1940 on February 18, 2020. According to him, even without payment of the license fee, the Court could have proceeded to pass a summary decree. In support of such contention, he has relied upon ( Arpit Impex Private Limited v. Arunodaya Plantations Ltd.,2002 2 CalLJ 169) and (Swaika Vanaspati Products Ltd. v. Canbank Financial Services Ltd., (2000) 2 CalLJ 185).

4. Learned senior advocate appearing for the plaintiff has submitted that, the defendant in its affidavit did not dispute the claim in the suit to be a 'commercial dispute' as defined in Section 2 (1) (c) of the Commercial Courts Act, 2015. He has contended that, the defendant in the supplementary affidavit dated January 18, 2021 has stated that the plaintiff sought to have exhausted the remedy of pre-institution mediation under section 12A of the Act of 2015 before instituting the suit. He has submitted that, leave under Section 12A of the Act of 2015 was obtained at the time of presentation of the plaint. He has submitted that, the defendant is not disputing the fact that the loan in question is by one company to another company, both carrying on commercial activities, and is a commercial loan. The plaintiff has deposited penalty under Section 13(2) of the Act of 1940 at the behest of the defendant. According to him, the defendant thereafter cannot contend that the disputes are not commercial disputes within the meaning of the Act of 2015.

5. Learned senior advocate appearing for the plaintiff has submitted that, in any event, Section 2(1)(c)(xvii) of the Act of 2015 covers the present dispute since the money lent and advanced is a type of 'service' rendered by the plaintiff to the defendant. He has relied upon the Finance Act, 1994 particularly on Section 65(12)(a)(ix) and Section 65(105)(zm) thereof. He has submitted that, by the subsequent amendment to the Act of 1994 such type of service has been placed in the negative/non-taxable list of services under section 66B (34) read with section 66D (m).

6. Learned senior advocate appearing for the plaintiff has submitted that, Section 2(u) of the Competition Act, 2002, Section 2(1)(z) of the Trademark Act 1999 and Section 2(1)(o) of the Consumer Protection Act, 1986 has considered service of lending money even by a non-banker/financer to be a service. He has contended that, Section 2(1)(c)(vii) of the Act of 2015 also covers agreement for sale of goods without any restriction on the type of goods sold and delivered. According to him, there can be no justification for excluding some type of services from the scope of the expression 'provision of services' and yet include all types of goods sold and delivered. It would amount to digressing into legislative function if the Court defines what type of service would be covered by the expression 'provision of services' even though the statute has remained silent.

7. Learned senior advocate appearing for the defendant has contended that, no decree can be passed in the suit, as framed, by reason of the subject matter of the suit not qualifying as a 'commercial dispute' as defined in Section 2 (1) (c) of the Act of 2015. He has cited the provisions of the Act of 1940 and the bar envisaged thereunder to contend that, the present suit is barred by law. According to him, the plaintiff has failed to demonstrate compliance with the restrictive conditions stipulated in Section 186 of the Companies Act, 2013 regarding grant of loan, thereby rendering the transaction unlawful.

8. Learned senior advocate appearing for the defendant has submitted that, all suits of commercial nature cannot be brought within the ambit of a 'commercial dispute' under the Act of 2015. In support of such contentions he has relied upon (Qatar Airways Q.C.S.C v. Airports Authority of India & Anr.,2017 SCCOnlineDel 8088) and (Swadha Builders Private Limited v. Nabaru Bhattacharya & Ors.,2021 SCConlineCal 35). According to him, a restrictive interpretation ought to be given. He has submitted that, the opening words of section 2(1)(c) of the Act of 2015 makes it clear that the definition is exhaustive and not inclusive. Moreover, the 22nd category in section 2(1)(c) of the Act of 2015 has stated that other commercial disputes will be notified by the central government. According to him, this amplifies and emphasizes the fact that, the legislature had intended to set out an exhaustive enumeration of limited cases of commercial disputes. In support of such contention, he has relied upon (Bharat Cooperative Bank (Mumbai) Ltd. v. Cooperative Bank Employees Union, (2007) 4 SCC 685).

9. Learned senior advocate appearing for the defendant has submitted that, the legislature has consciously identified and earmarked only 21 categories and subcategories of commercial disputes. The Court should not enhance the scope of the commercial dispute as has been defined under the Act of 2015 by reading into it for adding to the definition. The Court should lean against a construction which has the effect of reducing the statute to futility. In support of such contention, he has relied upon (M. Pentiah Veeramallappa Muddala, (1961) AIR SC 1107) and (CIT v. SardarTeja Singh, (1959) AIR SC 352).

10. Relying upon ( Ambalal Sarabhai Enterprises Ltd. v. K. S. Infraspace Llp & Anr.,2019 SCCOnlineSC 1311) learned senior advocate appearing for the defendant has contended that, the rationale for limiting the scope of commercial disputes is also judicially recognised. He has contended that, the Court should apply the purposive construction as recognised in (Bengal Immunity Company v. State of Bihar, (1955) AIR SC 661).

11. Learned senior advocate appearing for the defendant has relied upon ( Kailash Devi Khanna & Ors. v. DD Global Capital Ltd.,2019 SCCOnlineDel 9954) and the order dated February 13, 2020 passed in GA No. 2235 of 2019 CS no. 117 of 2019 (Surendra Kumar Banthia (HUF) and others v. Usha Agarwal) to contend that, the plaintiff cannot rely upon section 2 (1) (c) (i) of the Act of 2015 as the plaintiff is not a merchant or a banker or a financer or a trader whose ordinary transaction is to grant loans. He has relied upon (Anuj Jain Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Ltd., (2020) 8 SCC 401) and (Hardeep Singh v. State of Punjab & Ors., (2014) 3 SCC 92) to contend that, a company engaged in real estate cannot have money lending as ordinary transactions.

12. Learned senior advocate appearing for the defendant has relied upon ( Gwalior Silk Rayons Silk Manufacturing (Weaving) Co. Ltd. v. Custodian of vested forests, Palghat & Anr.,1990 Supp SCC 785), ( Commissioner of income tax v. Venkateswara Hatcheries Pvt. Ltd.,1993 3 SCC 632) (Harshad S. Mehta & Ors. v. State of Maharashtra, (2001) 8 SCC 257), (MSCO. Pvt. Ltd. v. Union of India & Ors., (1985) 1 SCC 51) to contend that, it is hazardous to interpret a word in accordance with the definition in another statute more so when the subject matter is not dealing with the cognate subject.

13. Relying upon (Lucknow Development Authority v. M.K. Gupta, (1994) 1 SCC 243) learned senior advocate appearing for the defendant has contended that, the expression 'service' in other statute should not be imported to understand or define 'service' within the meaning of the Act of 2015.

14. Learned senior advocate appearing for the defendant has submitted that, the object and purpose of the Consumer Protection Act, 1986 and the Goods and Services Tax Act are different to those of the Act of 2015. Services under the Consumer Protection Act, 1986 includes any services which may not be commercial in nature. The definition of services under the Goods and Services Tax Act is wide and all encompassing. He has relied upon (Customs and Excise Commissioners v. Redrow Group Plc, (1999) 1 WLR 408) and ( Coca-Cola India Private Limited v. Commissioner of Central Excise,2009 SCConlineBom 2254) and contended that the purpose of the enactment of the Goods and Services Tax Act was to include within its scope and ambit, collection of taxes by way of indirect taxes from as many sources as possible so as to get rid of the then prevalent patchwork of diverse indirect taxes. According to him, the purpose and object behind the enactment of Chapter V of the Finance Act, 1994 and the Consumer Protection Act, 1986 are completely different from the object and purpose of the Act of 2015.

15. Learned senior advocate appearing for the defendant has relied upon (Union of India & Ors. v. Martin Lottery Agencies Ltd, (2009) 12 SCC 209), (Lucknow Development Authority v. MK Gupta, (1994) 1 SCC 243), (Workman of Dimakuchi Tea Estate v. Management of Dimakuchi Tea Estate, (1958) AIR SC 353), (New India Sugar Mills Ltd v. Commissioner of Sales Tax, (1963) AIR SC 1207), (State of Bombay and others v. Hospital Mazdoor Sabha & Ors., (1960) AIR SC 610) for his contentions with regard to the definition of various words used in the statute.

16. Learned senior advocate appearing for the defendant has contrasted the use of words in the Insolvency and Bankruptcy Code, 2016 and the Act of 2015. He has relied upon (Swiss Ribbons Private Limited v. Union of India, (2019) 4 SCC 17) in this regard.

17. In support of the contention that, the suit is barred under the provisions of the Bengal Money lenders Act, 1940, learned senior advocate appearing for the defendant has relied upon ( Indian Chain Private Limited v. Ajit Nain & Anr.,2016 SCCOnlineCal 5511), ( Shib Kumar Todi v. Amal Kumar Champalal,1994 1 CalHN 49), (Swaika Vanaspati Products Ltd. v. Canbank Financial Services Ltd., (2000) 2 CalLJ 185). According to him, the plaintiff is not entitled to interest at the agreed rate in view of the statutory provisions of the Act of 1940.

18. Referring to (Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors., (1977) 2 SCC 424) learned senior advocate appearing for the defendant has submitted that, the loan transaction is beyond the Memorandum of Association of the plaintiff and is therefore ultra vires the objects clause of the plaintiff.

19. The plaintiff has filed the instant suit against the defendant for recovery of money lent and advanced. The plaintiff had lent and advanced sum of Rs. 5 crores to the defendant on May 30, 2017. The defendant had agreed to pay interest at the rate of 15% per annum. The defendant had issued a balance confirmation as at March 31, 2018 acknowledging the principal amount lent and advanced as also the interest payable thereon. The balance confirmation executed by the defendant has established with the principal amount that the plaintiff had lent and advanced to the defendant as also the agreed rate of interest therein being 15% per annum. The defendant had issued a tax deducted at source certificate for the transaction. According to the plaintiff, since the defendant was not in a position to repay the amount advanced despite repeated demands by the plaintiff to do so, the parties had agreed that the defendant will pay interest at the rate of 15% per annum with quarterly rest on and from October 1, 2018. According to the plaintiff, it had raised and submitted with the defendant invoices for the interest component at the agreed rate of 15% per annum with quarterly rest with the defendant. The defendant had accepted the same without any demur. The defendant had paid a sum of Rs. 3 crores for the period from November 20, 2018 till January 10, 2019. According to the plaintiff, it had adjusted the sum of Rs. 3 crores as received from the defendant for the period from November 20, 2018 the January 10, 2019 first towards interest and then towards principal.

20. The defendant has denied that it had agreed to pay interest at the rate of 15% per annum with quarterly rest from October 1, 2018. In the affidavit filed by the defendant affirmed on December 15, 2020, the defendant had acknowledged receipt of the sum of Rs. 5 crores as financial accommodation on the agreement and understanding that the plaintiff would be entitled to receive interest at the rate of 15% per annum on such loan. The defendant has also raised the issue of such interest been contrary to the provisions of the Bengal Money Lenders Act, 1940.

21. The balance confirmation that the defendant has executed as at March 31, 2018, it acknowledged a sum of Rs. 5,62,87,671 to be due and payable by the defendant to the plaintiff. Such balance confirmation has a component of interest which is at the rate of 15% per annum. The balance confirmation executed by the defendant has established that the defendant agreed to pay interest at the rate of 15% per annum. The defendant had paid a sum of Rs. 3 crores subsequent to April 1, 2018 till the filing of the suit and a sum of Rs. 30 lakhs subsequent to the filing of the suit. Therefore, after deducting a sum of Rs. 3.3 crores from the sum of Rs. 5,62,87,671 a sum of Rs. 2,32,87,671 remains due and payable by the defendant to the plaintiff. The last payment that the defendant had made was on January 10, 2019. On merits, the defendant has not disclosed any defence to the claim of Rs. 2,32,87,671 along with interest at the rate of 15% per annum. Therefore, it would be appropriate to pass a decree in favour of the plaintiff for a sum of Rs. 2,32,87,671 along with interest at the rate of 15% per annum on and from January 11, 2019 until realisation. The balance claim of the plaintiff on account of interest as also principal are left open to be decided at the trial of the suit.

22. The defence of the defendant has followed the classical adage of trying to be strong on law when the facts are dismal. This has been accentuated by the fact that, while the affidavit in opposition in which the defendant had unconditionally acknowledged the transaction, has 11 pages the notes on argument that has been filed is in excess of 32 pages. The defendant has relied upon 28 authorities in the notes of argument.

23. The plaintiff has obtained registration under the Bengal Money Lenders Act, 1940. The objection of the defendant that, no decree or an order can be passed in favour of the plaintiff in absence of registration under the Act of 1940 therefore, has no substance. So far as interest is concerned, the Act of 1940 has allowed interest at the rate of 20% per annum for an unsecured loan under section 30A(i). In any event, the Court has allowed interest at the rate of 15% per annum which is lower than the maximum interest allowed under the Act of 1940. The authorities cited at the bar on the Act of 1940 therefore need not be discussed at length

24. So far as the Act of 2015 is concerned, the plaintiff is a legal entity incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of real estate development. The defendant is also such entity and engaged in similar nature of business as that of the plaintiff. The plaintiff has disclosed its memorandum of association which in its objects clause permits the plaintiff to lend and advance money. The transaction that the plaintiff has entered into therefore cannot be said to be ultra vires the objects clause of the memorandum of the plaintiff.

25. In the facts of the present case, the disputes in the suit can be held to fall within Section 2(1)(c)(i) of the Act of 2015. A real estate developer will have developed flats as stock in tr

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ade. While such developer is selling the flats in its stock it is a trader or a merchant of such flats. A real estate developer has lent and advanced money to another real estate developer in its ordinary course of business. Both do not suffer from any legal impediment preventing either of them to enter into the transaction. Whether the dispute involved in the suit is a 'commercial dispute' or not within the meaning of the Act of 2015 depends upon the facts and circumstances of each case. In Swadha Builders Private Limited (supra) in the facts of that case, the Court had transferred the suit under Section 15 of the Act of 2015 to the Commercial Division. Following the ratio of Ambalal Sarabhai (supra) of giving a restrictive construction to the words used in Section 2 (1)(c)(i) of the Act of 2015 it cannot be said that the suit does not involve a commercial dispute. 26. Neither the word 'merchant' nor the word 'trader' has been defined in the Act of 2015. The ordinary meaning of such words as understood in the commercial world have to be applied more so since, the provisions of the Act of 2015 deals with commercial dispute. The authorities that the parties have cited on this subject therefore need not be discussed at length. Since the Court has held that, the disputes between the parties are commercial disputes within the meaning of section 2(1)(c)(i) of the Act of 2015, the question whether, the definition of service as envisaged under the Consumer Protection Act, 1986 for the Goods and Services Tax Act as introduced by the Finance Act, 1994 need not be discussed. The authorities cited at the bar by the parties on such score also need not be discussed as being irrelevant, in the facts and circumstances of the present case. 27. Ia No. GA 1 of 2020 in CS 255 of 2019 is disposed of accordingly.
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