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2022 Supreme(Ker) 727
IN THE HIGH COURT OF KERALA AT ERNAKULAM
C.S. Dias, J.
Althaf Ismail Sait S/o. Late Ismail Adam Sait – Petitioner
Versus
Golden Choice Hospitality Private Limited, Represented By Its Director, Mohammed Afzal Zacharia – Respondent
O.P.(C.) No. 1501 Of 2022
Decided On : 14-10-2022
For the Petitioner: Amrin Fathima, J.Ramkumar, S.Vishnu Das, Sithara Hamza Kizhakoot, Aleena K. Binu.
For the Respondent: Basil Mathew, Ninan John, Sanjana Sara Varghese, Annie, Ajay Krishnan S., S.Murugan, Arya A.R., C.H.Abeena.
Point of Law: Lease of immovable property is dealt with under Transfer of Property Act in Chapter V.
Headnote:
Constitution of India,1950 - Article 227 - Commercial Courts Act, 2015 - Sec.2 (1) (c) (vii) - Kerala Buildings (Lease and Rent Control) Act, 1965 - Commercial dispute – Power off superintendence over all courts by the High Court - Whether renting of immovable property was trade or business activity carried on by landlord - Lease of immovable property is dealt with under Transfer of Property Act in Chapter V - Section 105 defines what is lease, lessor, lessee and rent and vide section 107 stipulates how leases are made and can be terminated (Para 18).
Findings of the Court :
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) - Expression "shall not cease", it could be asserted, has been used so as to not unnecessarily expand ambit and scope of sub-clause (vii) to clause (c), albeit it is a clarificatory in nature - Expression seeks to clarify that immovable property should be exclusively used in trade or commerce, and when 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 - Expression "any other relief pertaining to immovable property" is significant and wide - Contours are broad and should not be made otiose while reading explanation and sub-clause (vii) to clause (c) which defines the expression "commercial dispute". Any other interpretation would make expression "any other relief pertaining to immovable property" exclusively used in trade or commerce as nugatory and redundant.
Result: Petition dismissed
Key Points: - The property was leased exclusively for running a resort, which constitutes a commercial activity (!) . - A dispute involving recovery of a security deposit from a commercial lease falls within the definition of a commercial dispute under the Act (!) . - The immovable property must be used exclusively in trade or commerce for the dispute to qualify; renting for such use is determinative (!) . - Section 2(1)(c)(vii) and its explanation confirm that disputes involving recovery from immovable property used in commerce are commercial disputes (!) . - Acts expressly stated that recovery of money or property under a commercial lease remains within the scope of commercial disputes (!) . - The High Court has the power of superintendence over courts and can transfer cases to Commercial Courts when they fall within the Act (!) . - The settled principle confirms that security deposit claims for commercial leases are covered by the Commercial Courts Act (!) . - The order transferring the suit to the Commercial Court was correct, and the original petition is dismissed (!) .
What is the scope of "commercial dispute" under the Commercial Courts Act when the dispute involves recovery of a security deposit from a lease agreement?
Does renting of immovable property exclusively used for trade or commerce qualify as a commercial dispute under the Act?
Can a suit for recovery of a security deposit pursuant to a commercial lease agreement be transferred to a Commercial Court under the Act?
JUDGMENT :
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
