Promissory Note Is a Mercantile Document When Executed for Business Purposes - Suits Maintainable Before Commercial Courts: Madras High Court

“Disputes Based on Commercial Borrowing Through Negotiable Instruments Fall Within Section 2(1)(c) of Commercial Courts Act” –  In a judgment Madras High Court held that money recovery suits based on promissory notes executed for commercial purposes are maintainable before Commercial Courts, and such promissory notes qualify as “mercantile documents” within the meaning of Section 2(1)(c)(i) of the Commercial Courts Act, 2015.

Justice P.B. Balaji, dismissing two civil revision petitions filed under Article 227 of the Constitution, upheld the Commercial Court's order refusing to reject the plaint in two suits for money recovery based on promissory notes. The petitioners had challenged the jurisdiction of the Commercial Court, contending that the suits did not involve commercial disputes and that Section 12-A (pre-institution mediation) had not been complied with.

“Promissory Notes Executed for Business Expansion Amount to Commercial Transactions” – Negotiable Instruments Are Mercantile Documents in Law

The Court rejected the argument that promissory notes are not mercantile documents, noting that:

“On going through the promissory notes which are the basis of the suits, I find that there is a clear reference even in the promissory notes that the borrowing is for family expenses and business expansion.”

The Court emphasized that negotiable instruments, when executed for business purposes, are commercial instruments. Relying on the Supreme Court’s decision in Bharat Barrel & Drum Manufacturing Co. v. Amin Chand Payrelal, (1999) 3 SCC 35, the High Court held:

“Negotiable instruments were instruments of credit… privileges were conferred on mercantile instruments and a special procedure was provided in the case of obligations arising under such instruments.”

Refuting the petitioners’ reliance on Section 137 of the Transfer of Property Act, the Court clarified:

“The reference to Section 137 is wholly misplaced. That provision deals with ‘mercantile documents of title’ and not mercantile documents generally. Its explanation cannot be imported to restrict the scope of Section 2(1)(c) of the Commercial Courts Act.”

Accordingly, the Court concluded that:

“There is no reason why the claim for recovery of money based on the said promissory note should not be made before the Commercial Court.”

“Parallel Civil and Criminal Proceedings Do Not Bar Each Other” – No Double Jeopardy in Simultaneous NI Act and Civil Claims

Rejecting another objection raised by the petitioners that simultaneous prosecution under Section 138 of the Negotiable Instruments Act and the civil recovery suit amounts to impermissible parallel proceedings, the Court ruled:

“There is no question of punishing the defendant twice… The concept of double jeopardy does not apply here. The complaint under the NI Act is for criminal liability due to dishonour of cheque; the suit is for civil recovery.”

The Court reaffirmed that civil and criminal proceedings operate in separate spheres and there is no legal bar to pursuing both simultaneously

“Section 12-A of the Commercial Courts Act Mandatory Only After 20.08.2022” – One Suit Validly Dispensed with, Other Referred to Mediation

On the issue of non-compliance with Section 12-A of the Commercial Courts Act — which mandates pre-institution mediation — the Court drew a distinction based on timing and urgency.

For C.O.S. No. 10 of 2023, the Commercial Court had already recorded the need for urgent interim relief:

“The Trial Court has in fact found that urgent relief had to be necessarily passed… Thus, compliance with Section 12-A of the Act, in true letter and spirit, has been made.”

For C.O.S. No. 9 of 2022, which was filed prior to 20.08.2022, the Court relied on the latest ruling of the Supreme Court in Dhanbad Fuels Pvt. Ltd. v. Union of India, 2025 INSC 696, which clarified:

“Suits instituted without complying with Section 12-A prior to 20.08.2022 cannot be rejected under Order VII Rule 11 CPC.”

Following the apex court’s directive, the High Court directed:

“The Commercial Court shall refer the parties to a time-bound mediation to enable amicable settlement. Failing which, the suit shall proceed in accordance with law.”

The ruling confirms that the prospective application of the Patil Automation decision remains intact and does not invalidate pre-2022 suits lacking pre-institution mediation.

“Suit Not Barred by Tamil Nadu Money Lenders Act; Plaintiff Is a Registered Financier” – Objection Rejected Based on Evidence

The petitioners also contended that the plaintiff was not a registered money lender, invoking the Tamil Nadu Money Lenders Act, 1957, to question maintainability.

The Court noted that the plaintiff had already filed proof of registration as a licensed money lender and that these documents had been admitted without objection in prior proceedings between the same parties:

“It is no longer open to the revision petitioner to contend that the petitioner is not a registered money lender.”

“Transaction-Centric Test Satisfied” – Court Reaffirms That Nature of Dispute, Not Merely Status of Party, Determines Jurisdiction

One of the key arguments was that jurisdiction under the Commercial Courts Act is transaction-specific, not party-specific. Addressing this, the Court held:

“Even the said argument does not improve the case of the revision petitioners, because the plaintiffs have shown that they are registered money lenders and the borrowing… is for commercial purposes, with the conscious inclusion of the words in the promissory note that it is for improvement of business.”

Thus, the commercial character of the transaction, not merely the status of the lender, was held to be determinative of jurisdiction.

No Interference Under Article 227 Warranted – Commercial Court Orders Upheld

Having addressed all legal objections, the Court refused to exercise its supervisory jurisdiction under Article 227, finding the Commercial Court’s orders to be legally sound and well-reasoned:

“I do not find any merit in both these revisions… The orders of the Trial Court refusing to reject the plaint by well-considered orders do not require any interference under Article 227 of the Constitution of India.”

Accordingly, the Civil Revision Petitions were dismissed. The connected Miscellaneous Petitions were also dismissed.