The Delhi High Court while reviewing a petition to transfer a case from a regular Civil Court to a Commercial Court held that there are three factors that must be considered and all three must be fulfilled for the case to get transferred. The Court opined that the embezzlement and fraud committed by an employee of a company in a conspiracy with employees of Banks are not in the nature of business transactions and the same cannot qualify as a commercial dispute.
Brief Facts:
The Plaintiff filed a suit for recovery, declaration, and permanent injunction. It was contended that one Late Shri Manoj Kumar was employed by the Plaintiff company, and he was authorized to operate various bank accounts on each such occasion a resolution was duly filed with the concerned Defendant bank. In one such authorization, Late Shri Manoj Kumar was singly authorized to operate up to a limit of Rs. 25,000 and jointly up to Rs. 5,00,000/- and one such joint authorization was without any limits.
It was in 2010 that the fraud committed by Late Shri Manoj Kumar was discovered by the plaintiff's company owing to which a complaint was filed. It came to the knowledge of the Plaintiff company that a large amount had been siphoned off from the bank accounts and many records were falsified and fabricated. It was a conspiracy hatched by Late Shri Manoj Kumar and employees of the Bank together to defraud the Plaintiff company. It was contended that the Defendants caused a huge loss to the Plaintiff company by draining all the accounts for which a suit for recovery of money was filed.
The present review petition is filed with respect to an order seeking the conversion of the present civil suit to a commercial suit. The application seeking this conversion was disposed of vide an order and the parties were directed to cooperate and the Local Commissioner to conclude the evidence expeditiously.
The question that this Court needs to decide is if the suit of recovery of money sought on account of embezzlement from the bank accounts of Plaintiff can be categorized as a suit of commercial nature.
Observations of the Court:
The Court observed that for the suit to be commercial in nature, it has to be examined whether the dispute qualifies as commercial or not. It was expounded that the mere fact that the suit involves immovable property does not ipso facto bring the dispute under the class of commercial disputes. The Court propounded the factors that are to be considered while transferring the suit to the Commercial Court. There are 3 factors:
- Suit/application under Arbitration and Conciliation Act, 1996 pending on the date of institution of the Commercial Court.
- The Court has to determine whether the dispute is commercial or not
- Value of the suit
It is only on the fulfillment of all three tests that the suit may be transferred from a regular Civil Court to a Commercial Court. In the present case, it is the second test which has to be determined as the first and the last one is fulfilled.
The Court looked at a plethora of judgments passed by various High Courts and remarked that as per the language of Section 2(1)(c)(i) of the Commercial Courts Act 2015 it is not that every transaction between the specified class of persons will be a commercial dispute when the transaction is not related to mercantile documents. A dispute will only be commercial if it has arisen out of a transaction between the specified class of persons and the same has been formalized by way of a mercantile document.
The Court observed that the entire case of the Plaintiff was banked on embezzlement by an employee and commission of forgery. The Court noted that the permission to withdraw given by the Defendant banks was not commercial in nature, instead, they were fraudulent withdrawals.
The Decision of the Court:
The nature of the transactions and the recovery sought on the contentions of embezzled amount cannot qualify as “business transactions” or transactions arising during business. Therefore, the suit does not qualify as a commercial suit, and accordingly, the review petition was dismissed.
Cause Title: IHHR Hospitality (ANDHRA) Pvt. Ltd. V. Seema Swami & Ors.
Bench: Hon’ble Ms. Justice Neena Bansal Krishna
Decided on: November 04th, 2022
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