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2025 DIGILAW 717 (KER)

Teliz Realtors v. JTL Projects Private Limited

2025-03-24

K.BABU

body2025
JUDGMENT : K. BABU, J. The petitioners, plaintiffs in a suit for recovery of money, challenge Ext.P4 judgment of the trial Court transferring the suit to the Commercial Court under Section 15 of the Commercial Courts Act . Respondents are the defendants. The plaintiffs instituted O.S.No.380 of 2010 before the Subordinate Judge’s Court, Ernakulam, seeking recovery of Rs.3,61,73,477/-. Plaintiff No.1 is M/s Teliz Realtors, a partnership firm, having its office at Thiruvananthapuram represented by its Managing Partner. Defendant No.1 is M/s JTL Projects Pvt. Ltd. Ernakulam, represented by its Managing Director. 2. The plaintiffs pleaded that defendant Nos. 2 and 3 formed a sham company and defrauded the plaintiffs by giving false promises and obtained hefty amounts. Defendant Nos. 2 and 3 declared through published materials that the intention behind the company was to make a housing project. According to the plaintiffs, the defendants, with fraudulent and dishonest intention to deceive them, made the plaintiffs to transfer large sums of money to their accounts. The plaintiffs pleaded that the defendants, while receiving the amount, fully knew that the same were being received without the intention to make or commence any project. According to the plaintiffs, while receiving money and promising to transfer landed properties, the defendants even furnished false survey numbers and offered to transfer properties over which they had no right. In those transactions, the plaintiffs and the defendants entered into an agreement, which, according to the plaintiffs, was caused by undue influence, fraud, and misrepresentation. The plaintiffs pleaded that though the defendants represented that they intended to engage in construction and infrastructure activities, they had not even obtained any licence to do so and falsely induced the plaintiffs to transfer amounts, making them believe that the construction project would be established. Though both the plaintiffs and defendants entered into an agreement, it cannot be termed as a joint venture agreement in the sense that the defendants never intended to honour the terms in the agreement. 3. The defendants resisted the pleadings in the plaint, inter alia, contending that the transaction alleged is a commercial dispute. The question of maintainability of the suit before the Civil Court was sought to be decided as a preliminary issue. The trial Court held that the transactions pleaded in the plaint fall under Sections 2(c)(vi) and 2(c)(xi) of the Commercial Courts Act . 4. The question of maintainability of the suit before the Civil Court was sought to be decided as a preliminary issue. The trial Court held that the transactions pleaded in the plaint fall under Sections 2(c)(vi) and 2(c)(xi) of the Commercial Courts Act . 4. I have heard the learned counsel for the petitioners and the learned counsel for the respondents. 5. The learned counsel for the petitioners submitted that the defendants fraudulently induced the plaintiffs to transfer money, highlighting properties over which they have no right or ownership. The learned counsel submitted that a fraudulent document resembling the ingredients of a ‘joint venture’ was created at the instance of the defendants, which never came into effect. The learned counsel submitted that no construction was ever done. Therefore, the transaction would not come within the ambit of ‘a construction and infrastructure contract’ as defined in Section 2(c)(vi) of the Commercial Courts Act . The learned counsel submitted that this is a case in which the defendants embezzled large sums of money from the plaintiffs by playing fraud. The learned counsel relied on IHHR Hospitality (Andhra) Pvt Ltd. v. Mrs. Seema Swami & Ors. [2022 SCC OnLine Del 3635]. 6. The learned counsel for the respondents submitted that the pleadings in the plaint revealed that the transactionS alleged come under ‘Construction and Infrastructure Contracts’ based on a joint venture agreement. Therefore, the Commercial Court alone has the jurisdiction to consider the matter. 7. The object of the Commercial Courts Act is to provide means and ways for expeditious disposal of commercial disputes. If commercial disputes take a long time to resolve, the foreign investors will also be detracted and will avoid investments in India. So also, within our country, the usual delay in the disposal of commercial disputes in the Courts of law has adversely affected the economy. 8. The Statement of Objects and Reasons to the Commercial Courts Act , 2015, provides for the speedy disposal of high-value commercial disputes so as to create a positive image in the minds of the investor world about the independent and responsive Indian Legal System. Section 2(1)(c) of the Commercial Courts Act defines ‘commercial dispute’ and provides a special procedure for the classes of litigations coming under it. 9. The word ‘commercial dispute’ is of wide import. Section 2(1)(c) of the Commercial Courts Act defines ‘commercial dispute’ and provides a special procedure for the classes of litigations coming under it. 9. The word ‘commercial dispute’ is of wide import. However, every commercial dispute cannot be considered as a commercial dispute necessitating invocation of Section 15 of the Act unless such disputes come within the purview of the definition of ‘commercial dispute as provided in Section 2(1)(c) of the Act. In Lady Moon Towers Pvt. Ltd v. Mahindra Investment Advisors Pvt. Ltd [2021 SCC Online Cal 4240 : MANUI/WB/0547/2021], the Calcutta High Court observed that the definition in Section 2(1)(c) of the Act contemplates a “commercial dispute” and not any other form of dispute where the basis of disagreement between the parties has a non-commercial cause. The Calcutta High Court held that the framers of the Statute emphasised the commercial flavour of the transaction as opposed to agreements between the parties without a commercial purpose. A commercial purpose would generally mean a transaction by which a person’s commercial or economic interests may be advanced and would result in an economic benefit to that person. It would not include an agreement where profit-making is an incidental outcome of the transaction or may happen by accident. The Calcutta High Court further observed that in terms of Section 2(1)(c) ordinary transactions of merchants, bankers, financiers and traders such as those relating to “mercantile documents”, imply ordinary transactions of the named persons and the “mercantile documents” and which indicates that all transactions between the specified classes of persons will not result in a commercial dispute where the transaction does not relate to mercantile documents. 10. In Kailash Devi Khanna vs. DD Global Capital Ltd. [2019 SCC OnLine Del 9954] the Delhi High Court held that all suits for recovery of monies cannot be brought under Section 2 of the Act where the suit is not based on any transaction relating to mercantile documents. In Bharat Huddanna Shetty vs. Ahuja Properties & Developers [2021 SCC OnLine Bom 13984] the Bombay High Court held that the dispute in a suit cannot be treated as a commercial dispute simply on the mandate that the transaction had occurred between merchants, bankers, financiers and traders. In Bharat Huddanna Shetty vs. Ahuja Properties & Developers [2021 SCC OnLine Bom 13984] the Bombay High Court held that the dispute in a suit cannot be treated as a commercial dispute simply on the mandate that the transaction had occurred between merchants, bankers, financiers and traders. In R. Kumar vs. T.A.S Jawahar Ayya [2020 SCC Onlinr Madras 28051 : MANU/TN/4159/2020] the Madras High Court held that where the plaintiffs did not transact in the capacity of financiers, the dispute was not a "commercial dispute". 11. In Ambalal Sarabhai Enterprises Ltd. vs. K.S. Infraspace LLP and another [ (2020) 15 SCC 585 ] , the Supreme Court observed thus:- “13.…….Having taken note of the submission we feel that the very purpose for which the CC Act of 2015 has been enacted would be defeated if every other suit merely because it is filed before the Commercial Court is entertained. This is for the reason that the suits which are not actually relating to commercial dispute but being filed merely because of the high value and with the intention of seeking early disposal would only clog the system and block the way for the genuine commercial disputes which may have to be entertained by the Commercial Courts as intended by the lawmakers. In commercial disputes as defined a special procedure is provided for a class of litigation and a strict procedure will have to be followed to entertain only that class of litigation in that jurisdiction. If the same is strictly interpreted it is not as if those excluded will be non-suited without any remedy. The excluded class of litigation will in any event be entertained in the ordinary civil courts wherein the remedy has always existed.“ {Emphasis supplied] 12. The relevant findings in the impugned order reads thus:- “9.In this case, the basic document to which the dispute arose is the joint venture agreement between the plaintiffs 1 to 3 and the defendants. The above referred provisions under the commercial Court Acts clearly shows that, the dispute arise out of a joint venture agreement is a commercial dispute u/s. 2(c) (xi). The said joint venture agreement was for the purchase of land and construction connected to a villa project, hence it is also a commercial dispute under section 2(c)(vi) of the Commercial Court Act. The plaintiff had invested money based on the above joint venture agreement dated 15.6.2007. The said joint venture agreement was for the purchase of land and construction connected to a villa project, hence it is also a commercial dispute under section 2(c)(vi) of the Commercial Court Act. The plaintiff had invested money based on the above joint venture agreement dated 15.6.2007. Though the plaintiffs have alleged fraud against the defendants, he filed the suit for recovery of money which was invested by them to fulfill the joint venture agreement. The joint venture agreement was for the purpose of the purchase of immovable properties and the construction and development of JTL Villa project. So, it is crystal clear that the dispute arose in this case is comes u/s.2(c) (vi) and 2 (c) (xi) and explanation 'a' of the Commercial Disputes Act. Hence this Court has no jurisdiction, and the case is to be transferred u/s.15 of the Commercial Disputes Act. As per Section 15 (2) of the Commercial Court Act "All suits and applications including applications under the Arbitration and Conciliation Act, 1996, relating to a commercial dispute of a Specified Value pending in any Civil Court in any District or area in respect of which a commercial court has been constituted, shall be transferred to such commercial court." Though the suit is of the year 2010, and the Act is come into effect in the year 2015, it is applicable to all the pending cases at the time when the Act came into force. Hence this case is also comes under the purview of Section 15. So, this case is transferred to commercial court (Principal Sub Court, Ernakulam). Office of the Court is directed to transmit all the records of the case with duly indexed list to that Court forthwith. Parties are directed to appear before that court on 02.11.2020.” (Sic) 13. It is advantageous to extract Section 2(c)(vi) and 2(c)(xi) of the Act. 2...Definitions xxxx (c) "commercial dispute" means a dispute arising out of- xxx (vi) construction and infrastructure contracts, including tenders; xxxx (xi) joint venture agreements; 14. The trial Court held that since the dispute arose out of a joint venture agreement and that it relates to a construction and infrastructure contract, the dispute comes under the definition of ‘commercial dispute’ under the Commercial Courts Act . The trial Court held that since the dispute arose out of a joint venture agreement and that it relates to a construction and infrastructure contract, the dispute comes under the definition of ‘commercial dispute’ under the Commercial Courts Act . The learned author in Corpus Juris Secundum Volume 48A Page 391 explains the ‘joint venture’ as follows:- “A joint venture refers to an association of persons with intent by way of contract to engage in and carry out a business venture for joint profit for which they combine their property, money, effects, skill, knowledge etc." 15. A joint venture highlights the intention of the participating persons to join together without any vitiating elements to participate in the joint business. The question is when one person induces another with malafide intention by way of undue influence and fraud making him believe that he has an intention to commence a joint business will take in the colour of joint venture. The intention of the parties to genuinely participate in the business joint activity is a necessary ingredient to form it a joint venture. When one of the parties plays fraud on another without any intention to commence any business to embezzle money from another and make the other join in an agreement which is sham in nature, it cannot have the colour of a joint venture. In the present case, the defendants never intended to commence any joint venture business. As per the pleadings in the plaint, their only intention was to embezzle money from the plaintiffs. 16. Therefore, at any rate, based on the pleadings, it cannot be concluded that there was a joint venture agreement between the plaintiffs and defendants to bring it within the meaning of joint venture agreement in Section 2(c)(xi). The trial Court further held that the contract entered into between the parties relates to construction and infrastructure contracts. The specific case of the plaintiffs is that the defendants never intended to engage in any construction activity. They even showed the properties over which they have no right as their properties so as to induce the plaintiffs to deliver money on the belief that the defendants intended to start a construction project. Therefore, going by the pleadings, it cannot be said that the agreement between the parties is a construction and infrastructure contract. 17. They even showed the properties over which they have no right as their properties so as to induce the plaintiffs to deliver money on the belief that the defendants intended to start a construction project. Therefore, going by the pleadings, it cannot be said that the agreement between the parties is a construction and infrastructure contract. 17. In IHHR Hospitality (Andhra) Pvt Ltd. (Supra), the Delhi High Court considered a similar question and held that if the plaintiff seeks recovery of money which the defendant allegedly embezzled cannot be termed as a “business transaction” or a “transaction arising in the course of business”. 18. In Curtis v. Oldfied Ltd. [(1925) 9 Tax Case 319], the question came before the Court was whether a loss on account of embezzlement can be considered as a loss during the trade. In that case, the Court held that when a defalcation or embezzlement happens, it can be treated as a trade loss when such diversion of money is done unauthorisedly by an employee and he takes it out of the ambit of the trade income. The Court held that if, owing to the negligence or dishonesty of any subordinate, some of the receipts of the business do not find their way or some of the bills are not collected or some such similar acts are performed, which may be an expense connected with or arising out of the trade, it would be a “trade income” in its true sense. However, where the earnings of a company are duly credited to the accounts of the company and thereafter, the assets/money of the company are taken out by somebody dehors the trade by its position, it cannot be said that any loss which so occurs can be termed as “a trade loss” or arising “in the course of business”. 19. In Ramaswami Chettiar and others v. Commissioner of Income Tax [1930 SCC Online Mad 225], the Madras High Court considered the question of whether theft of money can be termed as money lost in the course of business. The Court held that to establish a loss, two conditions must be satisfied: (1) it must be a loss on the part of the stock and trade in the business, and (2) it must be a loss on such a kind as is incidental to the business. The Court held that to establish a loss, two conditions must be satisfied: (1) it must be a loss on the part of the stock and trade in the business, and (2) it must be a loss on such a kind as is incidental to the business. In that case, the company was in the business of lending money but money had been lost through theft. The Court held that theft of money cannot be termed as money lost in the course of business and as incidental to it; therefore, any such loss on account of theft cannot be considered to be in the ordinary course of business transaction. 20. Applying the principles referred to above, the acts of the defendants were not in the nature of commercial transaction but in the nature of fraudulent transactions. The pleadings in the plaint go to show that the suit is for recovery of the amounts which were allegedly embezzled by the defendants, which cannot be termed as a business transaction or a transaction arising out of a commercial dispute as defined in Section 2(1)(c) of the Commercial Courts Act . Therefore, the Civil Court has jurisdiction to deal with the matter. The judgment transferring the suit under Section 15(2) of the Commercial Courts Act is liable to be set aside. 21. In the result, the Original Petition is allowed. Ext.P4 judgment dated 07.10.2020 passed by the Subordinate Judge’s Court, Ernakulam, stands set aside. It is submitted that the evidence in the case is over and the case is posted for arguments. The transfer was effected at the time when the case was posted for arguments. Therefore, there will be a direction to the Trial Court to consider and dispose of the matter within a period of one month from the date of production of a certified copy of the judgment.