Commercial court has no jurisdiction on loan dispute: HC

NT Correspondent

Bengaluru: Dismissing an appeal, a division bench of the High Court of Karnataka has said that unless an immovable property is the basic purpose of an agreement, it cannot be brought under the jurisdiction of a commercial court and has to be dwelt with under the Civil Procedure Code (CPC).

“In the instant case the agreement is a loan agreement between the parties. The property referred in the agreement is not used exclusively in a trade or commerce and it is purely a simple loan transaction between the parties. The transaction referred in the plaint and the documents referred supra are not the transaction of trade and commerce but it is lending and repayment of the money under the loan agreements and the mortgage deed,” the Bench of Justice G Narendar and Justice Vijaykumar Patil said.

The Bench was hearing a commercial appeal filed by one Geeta Peter Khubani, a resident of New Jersey, USA against Ms Maxworth Realty.

The 67-year-old had advanced a loan of Rs.2,58,59,527 to the company. In the loan agreement, an immovable property was pledged as security for the loan.

When the loan was not repaid, Khubani demanded that the property be transferred to her name. She approached a Commercial Court with a suit which was dismissed by the court saying it was not maintainable.

She then approached the High Court. The Division Bench of the High Court said that the agreement was about the loan and not the property.

“The mortgage deed reflects that it was executed as a security for repayment of advance principal amount received by the respondent to a sum mentioned in the mortgage deed. The money referred in these instruments is advanced not on the property but the property referred is only as a security,” the HC said.

Therefore, the HC held that the suit cannot be filed in the Commercial Court.

“The covenants of the instruments do not reflect that the agreements in question relate to immovable property used exclusively in trade or commerce. This Court is of the considered view that unless the dispute falls within the 22 enumerated classifications of Section 2(1)(c) of the (Commercial Courts) Act, the dispute cannot be termed as commercial dispute for the purpose of jurisdiction of the Commercial Court,” it said.