Pending Criminal Proceedings Won't Change Nature Of Commercial Dispute: Bombay High Court Declines SBI's Plea To Reject Rs 36 Crore Recovery Suit

The Bombay High Court recently dismissed an interim application filed by the State Bank of India (SBI) seeking rejection of a Commercial Summary Suit filed by the Bombay Iron and Steel Labour Board for recovery of deposits worth Rs. 36 crores with interest.

Justice Abhay Ahuja held that the dispute between the parties qualifies as a commercial dispute and is eligible to be tried under the Commercial Courts Act, 2015, as it is a banking transaction.

“the Defendant – bank which is a banking company / banker, has in the ordinary course of its business, accepted the deposits of money from the Plaintiff – Board which is repayable on demand or maturity and issued fixed deposit receipts which are mercantile documents and the suit has been filed for enforcement of the fixed deposit receipts, as the Defendant – bank had failed to repay the amounts payable to the Plaintiff – Board, despite demand / legal notice for recovery, therefore, in my view, the dispute is a commercial dispute, squarely falling within the definition of commercial dispute as defined under Section 2(1)(c)(i) of the Commercial Courts Act.”

The court held that the allegation of fraud, in the plaint would not change the cause of action of the suit, which is a failure of SBI to pay the amount with interest accrued as per the fixed deposit receipts, despite legal notice as well as the pre-institution mediation. The plaintiff claimed that mediation failed as SBI refused to participate.

“That, there are criminal proceedings pending against the Manager of the Defendant – Bank or other co-conspirators for fraud committed on the Defendant – bank or that, there has been a purported siphoning off / embezzlement of funds, would not, in my view, change the character or nature of the dispute, to not being a commercial one. Mention of fraud, forgery, embezzlement in the plaint would not change the cause of action of the suit”, the court observed.

The Plaintiff had placed fixed deposits with the bank but alleged that an employee of SBI, Nikhil Roy, had committed fraud and misappropriated funds. The Plaintiff further claimed that an amount of Rs. 36,00,00,000/- had been withdrawn without their consent. SBI sought rejection of the suit under Order VII Rule 11 of the CPC on the ground that the plaint contained pleadings of fraud, and is not a commercial case.

Advocate Saurish Shetye for SBI argued that the suit should not be considered a commercial dispute as it involved allegations of fraud and misappropriation. He contended that the subject matter of the suit did not fall under the definition of commercial disputes as per the Commercial Courts Act.

Advocate Shailesh Naidu for the plaintiff argued that the transaction of placing fixed deposits with SBI constituted a commercial transaction. He emphasized that the relationship between the Plaintiff and the Defendant was that of creditor and debtor, and the dispute arose from the enforcement of fixed deposit receipts, which are mercantile documents.

The question before the court was whether the dispute qualified as a commercial dispute under Section 2(1)(c)(i) of the Commercial Courts Act, which defines such disputes broadly to include those arising from mercantile transactions and the enforcement of mercantile documents. The Act specifies that disputes involving banking transactions fall under its purview.

The Plaintiff - Board had deposited Rs. 45 crore with the Defendant - bank, out of which Rs. 9 crore had been repaid, leaving Rs. 36 crore outstanding. The Plaintiff alleged that this remaining amount had been fraudulently withdrawn and diverted, with a portion traced to another cooperative bank in Gujarat. Criminal proceedings related to the fraud were also pending.

The court emphasized that the essential nature of the dispute arose from banking operations and the enforcement of fixed deposit receipts. Despite the criminal backdrop involving embezzlement by a bank employee, the court affirmed that the core issue remained the recovery of funds under commercial banking arrangements.

The court referenced the definitions under both the Commercial Courts Act and the Banking Regulation Act, of 1949. It noted that banking, as defined under Section 5(b) of the latter, encompasses activities such as accepting deposits repayable on demand or otherwise.

The court concluded that the dispute indeed constituted a commercial dispute under Section 2(1)(c)(i) of the Commercial Courts. Consequently, the court dismissed SBI's application, ruling that the suit was not barred by the Commercial Courts Act.

Case no. – Commercial Summary Suit No. 91 of 2022

Case Title – Bombay Iron And Steel Labour Board v. State Bank of India

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