Promissory Notes Executed for Business Are Commercial Disputes: Madras High Court Affirms Jurisdiction of Commercial Court in Recovery Suits

“Where the plaintiff is a registered money lender and the promissory note records borrowing for business expansion, the transaction squarely falls within the scope of commercial dispute under Section 2(1)(c) of the Act” — Madras High Court

In a significant verdict interpreting the contours of the Commercial Courts Act, 2015, the Madras High Court dismissed two civil revision petitions challenging the maintainability of money recovery suits filed on the basis of promissory notes, holding that negotiable instruments arising out of business loans qualify as commercial disputes under the Act. The Court ruled that such suits, when grounded in business finance transactions, rightfully fall within the jurisdiction of Commercial Courts, thereby affirming the orders of the Commercial District Court, Salem.

Justice P.B. Balaji, exercising jurisdiction under Article 227 of the Constitution, refused to interfere with the Commercial Court’s dismissal of applications seeking rejection of the plaint under Order VII Rule 11 CPC, and also addressed the applicability of Section 12-A of the Act concerning pre-institution mediation.

“A promissory note is a mercantile document if the loan is commercial and the lender is a financier” – Court lays down transaction-specific test under Section 2(1)(c)

The principal issue before the Court was whether suits for recovery based on executed promissory notes could qualify as commercial disputes under Section 2(1)(c) of the Act. The petitioners argued that such suits were mere private loan claims and did not fall within any of the 22 categories specified in the definition of commercial dispute.

Rejecting the contention, the Court held:
“From the definition of commercial dispute under Section 2(1)(c) of the Act, it is clear that Section 2(1)(c)(i) includes disputes arising out of ordinary transactions of merchants, bankers, financiers and traders, such as those relating to mercantile documents.”
It further observed that the plaintiff was a registered money lender and the promissory notes clearly recorded the purpose of the loan as business expansion, thus satisfying the commercial nature of the transaction.

Addressing the petitioner’s argument that promissory notes are not mercantile documents, Justice Balaji clarified,
“The reference to Section 137 of the Transfer of Property Act is wholly misplaced. That section speaks of ‘mercantile document of title to goods’ and not of mercantile instruments like promissory notes.”
Citing the Supreme Court’s decision in Bharat Barrel & Drum Manufacturing Co. v. Amin Chand Pyarelal, (1999) 3 SCC 35, the Court observed,
“Negotiable instruments have always been treated as mercantile instruments, being instruments of credit convertible by law and custom, and recognised as such for enforcement in commercial relationships.”

The Court further added, “Having found that the plaintiff is a financier and in his ordinary course of business, he has lost monies to the revision petitioners, I see no reason why the claim for recovery of money based on the said promissory note should not be made before the Commercial Court.”

“Parallel criminal and civil proceedings are legally permissible – Double jeopardy has no application where remedies are distinct”

Another argument raised was that the plaintiff had initiated proceedings under Section 138 of the Negotiable Instruments Act for dishonour of cheques, and that filing a civil suit alongside amounted to double jeopardy.

The High Court dismissed this argument outright, holding,
“There is no question of punishing the defendant twice... The concept of double jeopardy does not apply. The complaint under NI Act is for dishonour attracting criminal liability, whereas the civil suit is for recovery of the amount. Both are distinct proceedings under different laws.”

The Court reiterated that civil and criminal remedies may co-exist and proceed in parallel, especially where the causes of action and reliefs sought are legally distinguishable.

“Section 12-A is mandatory but not retroactive – Suits filed before 20.08.2022 cannot be rejected for non-compliance”

A crucial aspect of the petitioners’ case was that the suits were filed without complying with the mandatory pre-institution mediation under Section 12-A of the Commercial Courts Act. They sought rejection of the plaints on this ground as well.

Justice Balaji carefully distinguished between the two suits. In COS No.10 of 2023, he noted,
“The Commercial Court has assigned reasons that the plaintiff required urgent interim relief and therefore, compliance of Section 12-A has been rightly dispensed with.”

In contrast, for COS No.9 of 2022, the Court acknowledged that no pre-institution mediation had taken place, but clarified that since the suit was filed before the Supreme Court’s decision in Patil Automation v. Rakheja Engineers, (2022) 10 SCC 1, the law as laid down in Dhanbad Fuels Pvt. Ltd. v. Union of India, 2025 INSC 696, would apply.

The Court quoted the latest holding:
“Suits instituted, without complying with Section 12-A of the 2015 Act, prior to 20.08.2022 cannot be rejected under Order VII Rule 11 CPC on the ground of non-compliance under Section 12-A.”

In that view, the Court directed:
“Insofar as COS No.9 of 2022, the Commercial Court shall refer the parties to a time-bound mediation to enable amicable settlement, failing which the suit shall be proceeded with in accordance with law.”

“Strict interpretation cannot defeat legislative intent – Commercial Courts are meant for speedy enforcement of financial obligations arising in business”

The petitioners had relied on decisions like Kailash Devi Khanna and Ambalal Sarabhai Enterprises, to argue for a strict construction of the Act, limiting the jurisdiction of Commercial Courts to only certain kinds of disputes.

The Court responded:
“Though strict interpretation is necessary to prevent forum shopping, where the transaction is clearly commercial, with business-oriented promissory notes and registered lenders involved, such disputes are inherently commercial.”

Justice Balaji concluded that the entire argument of non-maintainability lacked merit, especially when the plaintiffs were registered money lenders and the borrowings were specifically for business and family enterprises, which had also been admitted in the pleadings.

Dismissing both revision petitions, the High Court affirmed:
“The orders of the Trial Court refusing to reject the plaint are well-considered and do not require interference under Article 227 of the Constitution of India.”

The decision cements the principle that business finance transactions, even when grounded on negotiable instruments like promissory notes, are well within the ambit of “commercial disputes” under Section 2(1)(c) of the Commercial Courts Act, and must be adjudicated in Commercial Courts to further the object of efficient disposal of business-related litigation.

The Commercial Court was also directed to initiate time-bound mediation in COS No.9 of 2022 in compliance with the Supreme Court’s recent mediation jurisprudence under Section 12-A.

“These Civil Revision Petitions are dismissed. No costs. Connected Miscellaneous Petitions are also dismissed,” the judgment concluded.

Date of Decision: 19 September 2025