M. Walter & Co. & Ors. v. Rajashi Developers Pvt. Ltd.

What happened

M. Walter and Company sued the judgment-debtor in C.S. No. 297 of 2003 for unpaid dues on a sale of goods and obtained a decree on 12 August 2008, and enforced it by E.C. No. 57 of 2009, in which an order of 13 July 2012 restrained alienation of properties at Park Street, Kolkata without leave of the Court. The judgment-debtor arranged to sell the property, and the intending purchaser nominated Rajashi Developers Private Limited as the purchaser. By a Settlement Agreement of 1 November 2022 Rajashi agreed to pay ₹55,00,000 towards full and final settlement of the decretal dues, of which ₹5,00,000 had been paid by pay order and the balance, subject to deduction of TDS, was to be paid by a cheque held in escrow, and the plaintiff undertook to withdraw the execution proceeding, which was dismissed as withdrawn on 25 January 2023. The plaintiffs sued in C.S. No. 2 of 2026, alleging that Rajashi failed to complete the payment, and sought, with the money claim, a Receiver, an injunction, attachment before judgment and preservation of assets. The question was whether the controversy is a commercial dispute under section 2(1)(c) of the Commercial Courts Act, 2015, and in particular clause (xviii).

The plaintiffs argued that the settlement was a new contract replacing the earlier liability, citing section 62 of the Indian Contract Act, 1872, that a money claim connected with business is not thereby commercial, as in Prime Hitech Textile, and relied on Durgapur Ispat Udyog v. Central Bank of India and Sun Pharmaceutical Industries v. Emami. The defendant relied on Modern Roadways Corporation v. Simplex Infrastructures, in which a division bench held that a suit on a settlement of dues for transport services was a commercial dispute, and on Laxmi Polyfab v. Eden Realty Ventures on the consequences of instituting a commercial suit in the ordinary original jurisdiction.

Questions before the court

• Is a suit to enforce a settlement under which a third party agreed to pay the decretal dues of a decree on a sale of goods a commercial dispute within section 2(1)(c)(xviii) of the Commercial Courts Act, 2015?

Why the court ruled this way

The Court examined the decree, the execution proceeding, the circumstances in which Rajashi entered the arrangement and the purpose of the settlement, and found that the amount was expressly payable towards full and final settlement of the decretal dues and that withdrawal of the execution was the corresponding act by the plaintiff, so the settlement was directed at resolving an adjudicated liability and cannot be treated as a transaction with an independent origin (paragraphs 2–7). Novation under section 62 contemplates the substitution of an existing contract by a new one, but no executory contract between the original parties awaited substitution, the original dispute had already culminated in a decree and was in execution, and the question is whether the later undertaking has a sufficient juridical connection with the commercial dispute it expressly sought to resolve, which it has, because the obligation was new but the controversy it resolved was not (paragraphs 8–14 and 59). The plaint itself traces the sequence from the 2003 suit to the failure to pay, the date of the immediate cause of action does not alter the character of the controversy, and the withdrawal of execution was performance of the plaintiffs' side of the settlement and not a collateral event (paragraphs 14–16). Modern Roadways does not require identity with the original contracting parties and requires examination of the subject matter and the transaction from which the obligation arose, and the principle in D.M. Corporation that the real nature of the dispute counts applies, whereas Durgapur Ispat Udyog concerned damages after withdrawal of an OTS and was examined under clause (i), whose requirements differ from those of clause (xviii) (paragraphs 17–30). The proposition in Prime Hitech Textile that a claim is not commercial merely because the parties are in business or the relief is monetary was accepted, but the present claim rests on neither circumstance, and Sun Pharmaceutical, which concerned clause (xvii), only shows that the statutory source of the dispute must be identified and does not support the view that a later settlement loses the commercial character of the dispute it resolved (paragraphs 31–45). Rajashi need not be shown to have acted as an agent of the judgment-debtor, as it entered an existing controversy to resolve a liability under execution, the prayers for a Receiver, injunction and attachment protect the monetary claim and do not make the suit one for title, and the Explanation to section 2(1)(c) shows that the presence of immovable property does not take away commercial character (paragraphs 46–53). Laxmi Polyfab and Patil Automation concern procedure that arises only after the character of the dispute has been determined (paragraphs 35–40 and 59).

Controlling point

A controversy arising from a settlement that expressly seeks to resolve the decretal liability from a sale-of-goods transaction is a commercial dispute within section 2(1)(c)(xviii), its character resting on the express and direct connection with that liability and not on the business status of the parties, the monetary relief or the presence of immovable property.

Order and next steps

The Court held that the controversy pleaded in C.S. No. 2 of 2026 is a commercial dispute within section 2(1)(c)(xviii) of the Commercial Courts Act, 2015, subject to satisfaction of the other statutory requirements for a commercial suit, and rejected the objection to its commercial character. Since the suit had been assigned to this Bench by an administrative order of the then Chief Justice, it directed the Registrar, Original Side to convert the suit into a commercial suit with a definite number within a fortnight, fixed the next date for 17 November 2026, directed the advocates-on-record to obtain the details of the suit number, disposed of the application with no order as to costs, and directed that the parties act on the server copy of the judgment.

Practical implications

A party suing on a later settlement of a liability that arose from a sale of goods or provision of services should consider whether the suit is commercial because of the dispute that the settlement was made to resolve, and should comply with the procedure for commercial suits, including pre-institution mediation where it applies.

Limits of this ruling

• The Court decided only the classification of the dispute under clause (xviii), and said that the finding is subject to the other statutory requirements for a commercial suit. It did not decide the consequences under section 12A of pre-institution mediation or under Order VII Rule 10 of the Code of Civil Procedure, which arise after the classification, or the merits of the claim and the interim reliefs.