Calcutta High Court
South City Projects (Kolkata) Ltd vs Ideal Real Estates Pvt. Ltd on 7 April, 2021
1
IA NO. GA 1 of 2020
OLD NO. GA 2693 OF 2019
In
CS 255 of 2019
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
COMMERCIAL DIVISION
SOUTH CITY PROJECTS (KOLKATA) Ltd.
V.
IDEAL REAL ESTATES Pvt. Ltd.
For the Plaintiffs : Mr. Abhrajit Mitra, Sr. Adv.
Mr. Satadeep Bhattacharjya, Adv.
Miss. S. Das, Adv.
Miss. T. Joarder. Adv.
For the Respondents : Mr. Samrat Sen, Sr. Adv
Mr. Shaunak Mitral, Adv.
Mr. Paritosh Sinha, Adv.
Mr. Saubhik Chowdhury, Adv.
Mr. Dripto Majumdar, Adv.
Mr. Ayusmita Sinha, Adv.
Hearing concluded on : March 15, 2021
Judgment on : April 07, 2021
DEBANGSU BASAK, J. :-
1. In a suit for recovery of money lent and advanced, the plaintiff
has applied for judgement 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 2002 (2) Calcutta Law Journal 169 (Arpit Impex Private
Limited v. Arunodaya Plantations Ltd.) and 2000 (2) Calcutta
Law Journal 185 (Swaika Vanaspati Products Ltd. v. Canbank
Financial Services Ltd.).
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 2017 SCC Online
Del 8088 (Qatar Airways Q.C.S.C v. Airports Authority of India
& Anr.) and 2021 SCC online Cal 35 (Swadha Builders Private
Limited v. Nabaru Bhattacharya & Ors.). 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 2007 (4) Supreme Court
Cases 685 (Bharat Cooperative Bank (Mumbai) Ltd. v.
Cooperative Bank Employees Union).
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 All
India Reporter 1961 Supreme Court 1107 (M. Pentiah
Veeramallappa Muddala) and All India Reporter 1959 Supreme
Court 352 (CIT v. SardarTeja Singh).
10. Relying upon 2019 SCC Online SC 1311 (Ambalal Sarabhai
Enterprises Ltd. v. K. S. Infraspace Llp & Anr.) 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 All India
Reporter 1955 Supreme Court 661 (Bengal Immunity Company
v. State of Bihar).
11. Learned senior advocate appearing for the defendant has
relied upon 2019 SCC Online Del 9954 (Kailash Devi Khanna &
Ors. v. DD Global Capital Ltd.) 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 2020 Volume 8 Supreme Court Cases 401
(Anuj Jain Interim Resolution Professional for Jaypee
Infratech Ltd. v. Axis Bank Ltd.) and 2014 Volume 3 Supreme
Court Cases 92 (Hardeep Singh v. State of Punjab & Ors.) 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 1990 Supplement Supreme Court Cases 785
(Gwalior Silk Rayons Silk Manufacturing (Weaving) Co. Ltd. v.
Custodian of vested forests, Palghat & Anr.), 1993 volume 3
Supreme Court Cases 632 (Commissioner of income tax v.
Venkateswara Hatcheries Pvt. Ltd.) 2001 Volume 8 Supreme
Court Cases 257 (Harshad S. Mehta & Ors. v. State of
Maharashtra), 1985 volume 1 Supreme Court Cases 51 (MSCO.
Pvt. Ltd. v. Union of India & Ors.) 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 1994 Volume 1 Supreme Court Cases 243
(Lucknow Development Authority v. M.K. Gupta) 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 1999 volume 1
WLR 408 (Customs and Excise Commissioners v. Redrow Group
Plc) and 2009 SCC online Bom to 2254 (Coca-Cola India Private
Limited v. Commissioner of Central Excise) 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 2009 volume 12 Supreme Court Cases 209 (Union of
India & Ors. v. Martin Lottery Agencies Ltd), 1994 volume 1
Supreme Court Cases 243 (Lucknow Development Authority v.
MK Gupta), All India Reporter 1958 Supreme Court 353
(Workman of Dimakuchi Tea Estate v. Management of
Dimakuchi Tea Estate), All India Reporter 1963 Supreme
Court 1207 (New India Sugar Mills Ltd v. Commissioner of
Sales Tax), all India Reporter 1960 Supreme Court 610 (State
of Bombay and others v. Hospital Mazdoor Sabha & Ors.) 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 2019 volume
4 Supreme Court Cases 17 (Swiss Ribbons Private Limited v.
Union of India) 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 2016 SCC
Online Cal 5511 (Indian Chain Private Limited v. Ajit Nain &
Anr.), 1994 volume 1 Calcutta High Court Notes 49 (Shib
Kumar Todi v. Amal Kumar Champalal), 2000 volume 2
Calcutta Law Journal 185 (Swaika Vanaspati Products Ltd. v.
Canbank Financial Services Ltd.). 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 1977 volume 2 Supreme Court cases 424
(Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors.) 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 trade. 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 Sectin 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.
[DEBANGSU BASAK, J.]
