Interest-bearing loan to ex-employee for land purchase is not a commercial dispute, Himachal Pradesh HC holds
Justice Sushil Kukreja refused to reject a Rs 6.36 crore mortgage suit by a real estate company, holding that a one-off loan with no mercantile document, made by a company that is not a banker, trader or financier, falls outside Section 2(1)(c)(i) of the Commercial Courts Act even if it carries interest and funded a housing project.
A money suit does not become a commercial dispute because the loan carried interest or because the borrower used it to set up a housing project, the Himachal Pradesh High Court held on 28 October 2026. Justice Sushil Kukreja dismissed two applications under Order 7 Rule 11 of the Code of Civil Procedure by which the defendants in a Rs 6,36,71,580 recovery suit sought rejection of the plaint on the ground that the claim fell within Section 2(1)(c)(i) of the Commercial Courts Act, 2015, and could not be tried as an ordinary civil suit. Both ingredients of that clause, the judge held, must co-exist: an ordinary transaction of merchants, bankers, financiers or traders, and a mercantile document relating to it. This case had neither.
A loan from a developer to its own associate, and the lien that never got marked
Premium Acres Infratech Pvt. Ltd., a real estate company, sued Devi Lal Banga and Sanjay Jain in Civil Suit No. 8 of 2025 for recovery of Rs 6,36,71,580 with interest at 12 per cent per annum from the date of filing, by sale or foreclosure under Order 34 Rules 1 to 6 CPC of 2,454 undivided shares, measuring 61 bighas and 7 biswas, held by Banga in land in Khasra No. 328/29 at Village Sainj, Tehsil Kandaghat, District Solan, with any shortfall to be recovered from the defendants under Order 34 Rule 6. According to the plaint, Banga had been a trusted associate and employee of the company. In January 2011 he said he needed funds to buy land in Himachal Pradesh for a housing project, which he could do as an agriculturist, promised reasonable market interest, undertook to have a lien marked in the company's favour and said he would repay after three years once the project took off. Jain, then a director, took responsibility for securing the loan by an equitable mortgage through deposit of title deeds and by having the charge entered in the revenue records once the sale deed was registered in Banga's name.
By a board resolution of 18 January 2011, Jain was authorised to complete the purchase. He paid Rs 48,80,125 by cheques drawn on the company directly to the sellers and their representatives, and took Rs 1,95,82,875 in cash from the company's cash in hand, which was handed over to Banga. The land was bought in Banga's name by two sale deeds, Nos. 134/2012 and 140/2012, dated 24 and 29 May 2012. The plaint alleges that Jain, in connivance with Banga, never had the company's lien recorded. In August 2014 the company found Jain had been defrauding it; by a resolution of 7 August 2014 it authorised Parminder Singh Sehgal to take legal action, and an FIR, No. 54 of 23 February 2015, was registered against Jain for taking away the original sale deeds. The company applied to the Tehsildar, Kandaghat, who, after Banga declared that the money had come from the company, entered the lien in the revenue record by rapat No. 178 on 29 January 2015. Banga told the income tax authorities the same thing, and in proceedings under the Prohibition of Benami Property Transactions Act the Adjudicating Authority, Delhi, held on 5 September 2022 that the Act did not apply because the transaction predated 2016. Banga and Jain then applied on 30 June 2023 to have the encumbrance deleted; the Tehsildar refused on 16 December 2024. The plaint further alleges that the defendants formed a company called Co-Living Apartments Pvt. Ltd. and that Banga signed a memorandum of understanding with the Himachal Government on 8 November 2019 for a housing project on the very land.
The defendants' case: a commercial dispute filed in the wrong forum
Banga, represented by Arun Kumar Verma and Trigun Singh Negi, and Jain, represented by Bimal Gupta, Senior Advocate, with Sant Ram Sharma, filed near-identical applications, OMPs No. 1521 and 1522 of 2025, under Order 7 Rule 11 read with Section 2(1)(c), Explanation (a) and Section 6 of the Commercial Courts Act and Section 151 CPC. Their case was that Jain had been authorised to buy lands at Kandaghat and Dera Bassi and a house at Chandigarh for the business interests of the company, so the transaction was a commercial dispute; that Section 12A barred the court from entertaining it; that once a Commercial Division had been constituted by the Chief Justice, it alone could try commercial disputes of the specified value; and that the suit, filed as an ordinary suit, was barred by law and liable to rejection under Order 7 Rule 11(d). They added a limitation plea: the suit was filed on 6 January 2025, but on the plaint's own showing the cause of action arose in May 2015, so it should have been filed by 31 May 2018.
The company, through Ajay Kumar, Senior Advocate, with Atul Jhingan, replied that a suit for recovery of money by sale of mortgaged or charged property under Order 34 carries a twelve-year limitation under Article 62 of the Limitation Act; that only the averments in the plaint can be looked at under Order 7 Rule 11; and that this was a purely civil claim on a charge over immovable property which no stretch of imagination could call a commercial dispute. The character of a suit, counsel argued, is fixed by the substance of the plaint read as a whole, not by the status of the parties or the commercial setting of the controversy.
Two ingredients, and both were missing
Justice Kukreja began with the settled limits of Order 7 Rule 11. The power to reject a plaint at the threshold is extraordinary and must be exercised with care; only the plaint and its documents can be read, and the written statement is irrelevant. He cited Liverpool and London S.P. and I Association v. M.V. Sea Success I, (2004) 9 SCC 512, Saleem Bhai v. State of Maharashtra, AIR 2003 SC 759, Popat and Kotecha Property v. State Bank of India Staff Association, (2005) 7 SCC 510, Sopan Sukhdeo Sable v. Assistant Charity Commissioner, (2004) 3 SCC 137, and Azhar Hussain v. Rajiv Gandhi, AIR 1986 SC 1253, for the proposition that the rule exists to keep out irresponsible litigation, not to shut out genuine plaintiffs on technicalities.
Turning to the Commercial Courts Act, the judge held that not every commercial dealing is a commercial dispute; only those within Section 2(1)(c) go to a Commercial Court, and filing an ordinary suit as a commercial one misuses a forum meant for swift disposal of genuine commercial cases. Clause (i) covers ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including their enforcement and interpretation. Reading the clause with Levitate Mobile Technologies v. Standard Chartered Bank, 2025 SCC OnLine Del 818, Kailash Devi Khanna v. D D Global Capital, 2019 SCC OnLine Del 9954, Ladymoon Towers v. Mahendra Investments Advisors, 2021 SCC OnLine Cal 4240, and Rolta v. Varanium Cloud, 2024 SCC OnLine Bom 3518, he held that the transaction must be an ordinary transaction of such persons and there must be a mercantile document relating to it; the two elements must exist together. The Act does not define “mercantile”, so the judge took its plain meaning and the definition in Black's Law Dictionary, which ties it to merchants, trading and commerce, and read it with the definition of “document” in Section 2(d) of the Bharatiya Sakshya Adhiniyam, 2023. The adjective narrows the noun: a document evidencing the transaction is not enough unless it is a mercantile document. Ambalal Sarabhai Enterprises v. K.S. Infraspace LLP, (2020) 15 SCC 585, required the question to be decided on the plaint and the Act to be strictly construed.
On the plaint, the picture was of a company lending to a man it knew well, on the assurance of its own director, so that he could buy land for a housing project and repay with interest after three years. The judge found that the transaction, as pleaded, was made without any document at all, let alone a mercantile one. The company is neither a banker nor a trader nor a merchant, had no business dealings with the defendants, and had not acted as a financier; the defendants had not shown that it was commercially engaged in lending. In his words, “A one-off personal loan does not fall within any of the categories” in Section 2(1)(c) merely because it carries interest, and the loan was not advanced in the ordinary course of the company's business or in connection with its trade. It was simply a suit under Order 34 Rules 1 to 6 for recovery by sale of mortgaged property.
Order
Both applications, OMPs No. 1521 and 1522 of 2025, were dismissed as devoid of merit. The order records that its observations are confined to the disposal of the applications and will have no bearing on the merits of Civil Suit No. 8 of 2025. The applications were reserved on 12 October 2026 and decided on 28 October 2026.