Neither Merchant nor Trader as words has been defined in the act, thus their ordinary meaning in commercial world should be referred. : Calcutta High Court
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 the commercial dispute said Justice Debangsu Basak of the Calcutta High Court in the matter South City Projects (Kolkata) Ltd vs Ideal Real Estates Pvt. Ltd [ CS 255 of 2019] This order was given for the facts where the plaintiff has filed this action against the defendant in order to recover money lent and advanced. On May 30, 2017, the plaintiff lent and advanced Rs. 5 crores to the defendant. The defendant agreed to pay interest at the rate of 15% per year. As of March 31, 2018, the defendant issued a balance confirmation acknowledging the principal amount lent and advanced as well as the interest payable thereon. The defendant’s balance confirmation established the principal amount that the plaintiff had lent and advanced to the defendant, as well as the agreed rate of interest, which was 15% per annum. For the transaction, the defendant issued a tax deducted at the source certificate. According to the plaintiff, because the defendant was unable to repay the amount advanced despite repeated demands from the plaintiff, the parties agreed that the defendant would pay interest at a rate of 15% per annum with quarterly rests beginning October 1, 2018. According to the plaintiff, it raised and submitted invoices to the defendant for the interest component at the agreed-upon rate of 15% per annum, with quarterly rest with the defendant. The defendant has denied that it agreed to pay interest at a rate of 15% per year with quarterly rests beginning October 1, 2018. The defendant acknowledged receipt of the sum of Rs. 5 crores as financial accommodation on the agreement and understanding that the plaintiff would be entitled to interest at the rate of 15% per annum on such loan in the affidavit filed by the defendant affirmed on December 15, 2020. The defendant has also claimed that such interest violated the provisions of the Bengal Money Lenders Act of 1940. The defendant’s balance confirmation, dated March 31, 2018, acknowledged a sum of Rs. 5,62,87,671 to be due and payable by the defendant to the plaintiff. Such balance confirmation includes an interest component at a rate of 15% per year. According to the balance confirmation signed by the defendant, the defendant agreed to pay interest at the rate of 15% per year. The defendant had paid a total of Rs. 3 crores from April 1, 2018, until the filing of the suit, as well as Rs. 30 lakhs after the filing of the suit. As a result, after deducting Rs. 3.3 crores from the total amount of Rs. 5,62,87,671, the defendant owes the plaintiff Rs. 2,32,87,671. The defendant’s most recent payment was made on January 10, 2019. On the merits, the defendant has not revealed any defence to the claim for Rs. 2,32,87,671 plus interest at the rate of 15% per annum. As a result, it would be appropriate to enter a decree in favour of the plaintiff for Rs. 2,32,87,671 plus interest at the rate of 15% per annum from January 11, 2019, until realisation. “The plaintiff’s balance claim for interest and principal is left open to be decided at the trial of the suit. As the compared  wording in the Insolvency and Bankruptcy Code, 2016, and the Act of 2015.” In this regard, he cited 2019 volume 4 Supreme Court Cases 17 (Swiss Ribbons Private Limited v. Union of India).  Referring to 1977 volume 2 Supreme Court cases 424 Mannalal Khetan &amp; Ors. v. Kedar Nath Khetan &amp; Ors. learned senior advocate has also “submitted that the loan transaction is beyond the plaintiff’s Memorandum of Association and thus ultra vires the plaintiff’s objects clause.”
South City ProjectsLtd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 Calcutta High Court South City ProjectsLtd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 1 IA NO. GA 20 OLD NO. GA 2693 OF 2019 In CS 2519 IN THE HIGH COURT AT CALCUTTA Ordinary Original Civil Jurisdiction COMMERCIAL DIVISION SOUTH CITY PROJECTSLtd 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 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 Indian Kanoon South City ProjectsLtd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 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 13of 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 2002Calcutta Law Journal 169and 2000Calcutta Law Journal 185of 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 66Bread with section 66Dof the Competition Act 2002 Section 2(1)(z) of the Trademark Act 1999 and Section 2(1)(o) of the C o n s u m e r P r o t e c t i o n A c t 1 9 8 6 h a s c o n s i d e r e d s e r v i c e o f l e n d i n g m o n e y e v e n b y 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 Indian Kanoon South City ProjectsLtd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 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(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 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 8088and 2021 SCC online Cal 35of 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 2007Supreme Court Cases 685Ltd. 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 1107learned 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 661and the order dated February 13 2020 passed in GA No. 22319 CS no. 1119and others v Usha Agarwal) to contend that the plaintiff cannot rely upon section 2(c)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 401and 2014 Volume 3 Supreme Court Cases 92to contend that a company engaged in real estate cannot have money lending as ordinary transactions Indian Kanoon South City ProjectsLtd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 12. Learned senior advocate appearing for the defendant has relied upon 1990 Supplement Supreme Court Cases 785Co. Ltd. v. Custodian of vested forests Palghat & Anr.) 1993 volume 3 Supreme Court Cases 6322001 Volume 8 Supreme Court Cases 2571985 volume 1 Supreme Court Cases 51to 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 243learned 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 408and 2009 SCC online Bom to 2254and 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 2091994 volume 1 Supreme Court Cases 243All India Reporter 1958 Supreme Court 353All India Reporter 1963 Supreme Court 1207all India Reporter 1960 Supreme Court 610for 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 17in 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 55111994 volume 1 Calcutta High Court Notes 492000 volume 2 Calcutta Law Journal 185Ltd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 18. Referring to 1977 volume 2 Supreme Court cases 424learned 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 Indian Kanoon South City ProjectsLtd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 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 Limitedin 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 2of 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 Indian Kanoon South City ProjectsLtd vs Ideal Real Estates Pvt. Ltd on 7 April 2021 27. IA No. GA 20 in CS 2519 is disposed of accordingly DEBANGSU BASAK J Indian Kanoon 