Analysis of the Supreme Court’s judgment in S.P. Velayutham & Anr. v. Emaar MGF Land Limited.^[1]

Brief facts

Mr. S.P. Velayutham and Mr. Amar (“Defendants”) entered into an agreement with Emaar MGF Land Limited (“Emaar”), wherein it was inter alia agreed that the Defendants would find a large tract of land for Emaar for the purpose of development of a business/commercial centre in Chennai. Pursuant thereto, the Defendants identified a parcel of land admeasuring 8.24 acres (“Land”). The Defendants had undertaken to clear the encumbrances from the Land, including eviction/removal of encroachers and getting the Land conveyed in favour of Emaar. Emaar paid certain amounts to the Defendants pursuant to the said agreement; however, the Defendants failed to remove encumbrances and failed get the conveyance of the Land in favour of Emaar. Emaar filed a civil suit against the Defendants for breach of the agreement and sought recovery of money before the Madras High Court (“HC”).

Though the suit filed by Emaar was filed as an ordinary Civil Suit, the same was placed before the Commercial Division of the HC. To substantiate its case, Emaar made a submission that the Suit in the present nature is maintainable as the same relates to a ‘Commercial Dispute’ within the meaning of Section 2(1)(c)(vii) read with Section 2(1)(i) of the Commercial Courts Act, 2015 (“Act”) which provides for suits of a ‘Specified Value’.

Section 2: Definitions—(1) In this Act, unless the context otherwise requires,–

(c) “commercial dispute” means a dispute arising out of-….

(vii) agreements relating to immovable property used exclusively in trade or commerce; ….

Explanation.––A commercial dispute shall not cease to be a commercial dispute merely because—

• it also involves action for recovery of immovable property or for realisation of monies out of immovable property given as security or involves any other relief pertaining to immovable property….”

The HC dealt with the suit filed by Emaar and passed an order dated December 14, 2018 (“Impugned Order“), inter alia, holding that the civil Suit filed by Emaar is a ‘Commercial Suit’, within the meaning of Section 2(1)(c) of the Act. The HC also held that a literal and strict interpretation of the term ‘used’ as set out in Section 2(1)(c)(vii) of the Act necessarily refers to ‘past’, ‘present’ and ‘future’ use.

The HC, in relation to its decision, relied on the judgments in the matter of Jagmohan Behl v. State of Indore^[2], Monika Arora v. Neeraj Kohli & Anr.^[3] and Soni Dave v. Trans Asian Industries Exposition Pvt. Ltd^[4].

Emaar submitted before the HC that the term ‘used’ definitely includes the land in question/ suit property, as it is proposed to be used exclusively for trade or commercial purposes. On the contrary, Defendants submitted that the term ‘used’ is necessarily to be construed as used in the present and not in the future.

Aggrieved by the Impugned Order passed by the HC, the Defendants approached the Supreme Court by filing a Special Leave Petition.

Observation and order by the Supreme Court

At the outset, the Supreme Court observed that the Impugned Order was pronounced by the HC on December 14, 2018, which was prior to the Supreme Court’s judgment in the matter of Ambalal Sarabhai Enterprises Limited v. K.S. Infraspace LLP & Anr.^[5] (“Ambalal Judgment”) on October 4, 2019, which provides clarity on interpretation of the term ‘used’ as occurring in Section 2(1)(c)(vii) of the Act.

The Supreme Court, relying on the Ambalal Judgment, reiterated the settled position of law that any dispute relating to an immovable property per se may not be a ‘Commercial Dispute’, but it becomes a Commercial Dispute, if it falls under Section 2(1)(c)(vii) of the Act. The Supreme Court also observed that the word ‘used’ denotes ‘actually used’ and it cannot be used in relation to future use of the immovable property, such as ‘ready for use’ or ‘likely to be used’ or ‘to be used’.

The Supreme Court followed the decision in the Ambalal Judgment, set aside the Impugned Order passed by the HC and remitted the matter back to the HC to decide the matter afresh on whether the Suit for recovery of money would fall within the category of cases covered under Section 2(1)(c)(vii) of the Act.

Conclusion and analysis

The Supreme Court while relying on Ambalal Judgment has applied a narrow and restrictive interpretation of the term ‘used’ in Section 2(1)(c)(vii) of the Act, holding that the expression ‘used’ must be construed in praesenti, signifying present and actual utilization within commercial endeavours. This interpretation stands in stark contrast to any notion of future likelihood or connections with the remote past with trade or commerce, and this may impede the expeditious proceedings under the Act, in situations where the immovable property such as an identified premises was used in the past or is yet to be put to use for trade or commercial purposes. The Explanation (a) to Section 2(1)(c), which, inter alia, provides that a commercial dispute shall not cease to be a commercial dispute merely because it involves any other relief pertaining to immovable property, could be used to give a wider, expansive ambit to the provisions of the Commercial Courts Act, 2015.

While the Supreme Court’s decision has affirmed the earlier position that a potential dispute arising from an immovable property does not inherently become a Commercial Dispute within the four corners of the Act, merely due to high amounts being involved in such a dispute, it does impose challenges where the parties have entered into an agreement for bonafide commercial purposes in relation to a property which is under development or is yet to be put to use. However, pursuant on the Supreme Court’s decision the scope of the expression ‘used’ in relation to immovable property under Section 2(1)(c)(vii) of the Act, has to be limited to present use, that is where the property is already being used for commercial purposes.

Footnotes:

[1] Special Leave Petition (Civil) Diary No (s). 2986/2024.

[2] Jagmohan Behl v. State of Indore, 2017 SCC OnLine Del 10706.

[3] Monika Arora v. Neeraj Kohli & Anr., 2016 SCC OnLine Del 5259.

[4] Soni Dave v. Trans Asian Industries Exposition Pvt. Ltd., 2016 SCC OnLine Del 4282.

[5] Ambalal Sarabhai Enterprises Limited v. K.S. Infraspace LLP & Anr., 2019 SCC OnLine SC 1311.