Kiran Raj

The Calcutta High Court has returned a suit filed by a private company and its guarantors against a nationalized bank, holding that the dispute does not fall within the definition of a commercial dispute under the Commercial Courts Act, 2015. The plaintiffs had challenged the bank’s withdrawal of a One-Time Settlement (OTS) and the subsequent sale of mortgaged properties at a price lower than an alternative offer. The court found that the claim did not arise from a mercantile document and directed the return of the plaint, granting the plaintiffs liberty to approach an appropriate forum.

The dispute originated from credit facilities granted by the bank to Durgapur Ispat Udyog Private Limited on June 10, 2011. The plaintiffs in the suit included the company, its promoters who had provided personal guarantees, and a corporate guarantor that had offered collateral security for the credit facilities.

On December 22, 2015, the bank classified the company’s account as a Non-Performing Asset (NPA) and initiated recovery proceedings under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, seeking recovery of Rs. 32,45,92,142. The matter was filed before the Debts Recovery Tribunal (DRT) under Original Application No. 448 of 2017.

While the recovery proceedings were pending, the parties entered into a One-Time Settlement (OTS) agreement on September 15, 2018. The settlement required the plaintiff company to pay Rs. 12 crores in four installments within 12 months, out of a total outstanding liability of Rs. 23,97,08,828. The OTS agreement stated that "in case of default in payment as per the terms of sanction, the same would automatically be treated as cancelled."

On March 1, 2019, a joint compromise petition was filed before the DRT, and the tribunal directed the issuance of a recovery certificate in favor of the bank for Rs. 12 crores. By March 12, 2019, the plaintiff had paid Rs. 4.10 crores in six tranches.

A dispute arose when the plaintiffs claimed that they had identified a prospective purchaser—Onkar Parivahan Finance Private Limited—that had expressed interest in purchasing the mortgaged properties at a price higher than the eventual sale price. The plaintiffs submitted that they had requested the bank’s permission to sell the properties and deposit the proceeds into the OTS account or to assign the properties to Phoenix ARC Private Limited as part of the OTS arrangement. The plaintiffs stated that despite these requests, the bank proceeded with its own sale process.

On July 22, 2020, the bank issued a letter withdrawing the OTS and demanded Rs. 46.39 crores as of June 30, 2020. The plaintiffs objected to the withdrawal, arguing that the bank did not allow them to arrange for a higher sale price before proceeding with the sale of the mortgaged properties.

The bank sold the properties in two separate transactions:

• On September 19, 2023, 299 decimals of land, along with buildings, sheds, plants, and machinery, were sold for Rs. 2,94,15,000.

• On January 12, 2024, 997.88 decimals of land were sold for Rs. 5,00,56,000.

The plaintiffs claimed that these properties were sold at a price lower than the offers they had obtained and sought damages amounting to Rs. 87,59,06,120, including compensation for the price difference and interest at 18% per annum.

The bank contested the maintainability of the suit, arguing that it did not fall under the definition of a commercial dispute under Section 2(1)(c) of the Commercial Courts Act, 2015. The bank submitted that the plaintiffs' claim for damages was not based on a mercantile document and that the withdrawal of the OTS was a communication rather than a legally enforceable document.

The court examined whether the dispute met the criteria of a commercial dispute as defined under Section 2(1)(c)(i) of the Act, which refers to disputes arising out of "ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents."

The judgment stated: "The claim of the plaintiffs is not with regard to any commercial transaction. The plaintiffs have claimed damages by comparing the price of sale which the bank realized and the sale price of the proposed purchaser of the plaintiffs."

The court observed that the OTS withdrawal letter was not a mercantile document but a communication from the bank. The judgment stated: "The termination of OTS is not a mercantile document; it is only a communication by the defendant bank to the plaintiffs informing about the withdrawal of the OTS and the said withdrawal is not the subject matter of the suit."

The court considered whether the plaintiffs’ claim related to the enforcement or interpretation of a mercantile document, as required under the Commercial Courts Act. It found that the plaintiffs' demand for damages did not stem from such a document.

The judgment noted: "Damages claimed in Clause 1 is difference between the price offered by the proposed seller of the plaintiffs and the amount realized by the defendant bank on sale of the mortgaged properties. The said claim is no way connected with any mercantile documents or any business transaction between the plaintiffs and the defendant."

The court referred to legal precedents and noted that the definition of "commercial dispute" under the Act was not met in this case. It stated: "In the case in hand, the claim of the plaintiffs is not with regard to any commercial transaction."

After examining the submissions, the court directed that the plaint be returned to the plaintiffs with the liberty to file before an appropriate forum. The judgment stated: "The department is directed to return the plaint along with all documents by keeping the copy of the same on record to the plaintiffs. The plaintiffs are at liberty to file the suit before the appropriate Court of law."

The court allowed the bank’s application for rejection of the plaint and dismissed the suit. The judgment concluded: "G.A. (Com) 3 of 2024 is allowed. C.S. (Com) No. 767 of 2024 is dismissed."

Case Title: Durgapur Ispat Udyog Private Limited & Ors. v. Central Bank of India
Case Number: GA (COM) No. 3 of 2024 in CS (COM) No. 767 of 2024
Bench: Justice Krishna Rao

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