Sanchayita Lahkar

The High Court of Karnataka Single Bench of Justice M. Nagaprasanna allowed a writ petition filed under Article 227 of the Constitution, declaring that a dispute involving alleged misappropriation of funds from a current account maintained by a partnership firm constitutes a "commercial dispute" under Section 2(1)(c) of the Commercial Courts Act, 2015. The Court quashed an order passed by the Commercial Court that had held otherwise and directed that the suit be tried as a Commercial Original Suit. The directive restores jurisdiction to the Commercial Court and mandates that the proceedings continue accordingly.

The petitioner is a partnership firm engaged in the business of garment processing and manufacturing, operating under the name M/s. Viswas Textile Processors. It maintains a current account with ICICI Bank Ltd., the first respondent. The firm appointed the third respondent as its Accountant from 01.07.2017. Other respondents in the case are associates of the said Accountant, who is alleged to have committed fraudulent activities.

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In December 2019, the petitioner detected irregularities in its current account maintained at the Kumbalagodu Branch of ICICI Bank. Investigations revealed that large sums of money had been withdrawn in cash using cheques allegedly forged by the third respondent, purporting to bear the signatures of the firm’s partners. These cheques were processed and passed by the first respondent bank through the second respondent, allegedly without adequate verification.

Further inquiries by the petitioner disclosed that the third respondent had also altered the registered mobile number linked to the banking account, redirecting OTP communications to his personal number. Based on these discoveries, the petitioner lodged a criminal complaint. A police investigation ensued, resulting in the filing of a charge sheet, currently pending in C.C. No. 2281/2020.

Subsequently, the petitioner issued a legal notice to the respondents, demanding payment of Rs. 4,58,75,000/- with 18% interest per annum. Upon denial by the first respondent, the petitioner instituted a civil suit before the V Additional Senior Civil Judge, Bengaluru Rural District.

After the constitution of Commercial Courts, the petitioner filed an application under Section 15 of the Commercial Courts Act seeking transfer of the suit, asserting that the matter constituted a "commercial dispute". The trial court initially transferred the case, registering it as Commercial O.S. No. 95/2022. However, during proceedings, the Commercial Court framed a preliminary issue to determine the maintainability of the suit as a commercial dispute.

Despite no objection from the respondents to the classification of the suit as a commercial dispute, the Commercial Court suo motu held that the dispute did not qualify as such. The petitioner challenged this finding in the present writ petition.

The Court recorded that the narrow issue was whether a dispute concerning misappropriation or loss of funds from a current account maintained by a banking institution qualifies as a commercial dispute.

Referring to Section 2(1)(c) of the Commercial Courts Act, the Court stated: "A commercial dispute in terms of 2(1)(c) of the Act would mean in relationship to an immovable property."

It then noted, "The petitioner-plaintiff for misappropriation of funds, or loss of funds from the current account maintained by the banking institution, based on the withdrawals of money by defendant No.3 by encashing forged cheques would become the subject matter of a commercial dispute."

Quoting from Pradeep Kumar vs. Postmaster General, (2022) 6 SCC 351, the Court observed: "Till an account is opened, banker and customer relationship is not created, but once the account is opened, contractual relationship is generated." It cited that failure to adhere to banking mandates and suspicious cheque transactions could expose the bank to liabilities outside the protection under Section 131 of the Negotiable Instruments Act.

Citing Jagmohan Behl vs. State Bank of Indore, 2017 SCC OnLine Del 10706, the Court recorded: "The expressions 'arising out of' and 'in relation to' have to be given their natural and general contours. These are wide and expansive expressions and are not to be given a narrow and restricted meaning."

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The judgment further incorporated views from Ladymoon Towers (P) Ltd. vs. Mahendra Investment Advisors (P) Ltd., 2021 SCC OnLine Cal 4240, and Venkatesh Vincom (P) Ltd. vs. Spice of Joy, 2022 SCC OnLine Cal 3010. From these precedents, the Court noted: "The word 'mercantile' means a document relating to a merchant or trading or a document which is commercial in nature" and added: "Commercial paper includes negotiable instruments like cheques too."

The Court synthesized these precedents to conclude that the dispute clearly fell within the ambit of commercial disputes as defined under Section 2(1)(c)(i) of the Act. It reiterated that the transactions in question arose from the ordinary banking relationship between the petitioner and the first respondent.

The Court concluded its order by stating: "With the aforesaid reasons, the following ORDER is passed:" "The writ petition is allowed."

It further stated: "The order dated 30.08.2022 passed by the concerned Court impugned stands quashed."

Clarifying the implications, the Court directed: "It is declared that the Commercial Court has jurisdiction to try the suit and shall try it as a commercial OS."

In its closing direction, the Court stated: "The Court shall regulate its procedure in accordance with law."

Advocates Representing the Parties:

For the Petitioners: Sri Hemanth R. Rao, Advocate and Sri Rukkoji Rao H.S., Advocate

For the Respondents: Sri Jai M. Patil, Advocate for Respondent No.1

Case Title: M/s. Viswas Textile Processors v. ICICI Bank Ltd. & Others

Neutral Citation: 2025: KHC:21666

Case Number: WP No. 17588 of 2022

Bench: Justice M. Nagaprasanna