March 12, 2026 : The National Company Law Appellate Tribunal (NCLAT), New Delhi has upheld the admission of insolvency proceedings against Al-Dua Food Processing Pvt. Ltd., ruling that a corporate debtor cannot escape liability to an operational creditor by claiming that the debt was transferred to another company under an internal arrangement.
A Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) dismissed an appeal filed by Mohd. Zaheer, a suspended director of the corporate debtor, challenging the order of the National Company Law Tribunal (NCLT), New Delhi Bench, which had admitted an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) filed by operational creditor Ashu Agencies for recovery of ₹2.48 crore.
The dispute arose from the supply of kraft paper reels by Ashu Agencies to Al-Dua Food Processing during the financial years 2017–18 and 2018–19 pursuant to purchase orders issued by the company. Although part payments were made, a substantial amount remained outstanding. The operational creditor issued a demand notice on 25 July 2019 claiming dues of ₹2,48,46,299.76, following which an insolvency application was filed before the NCLT.
The corporate debtor argued that its management had changed in July 2018 and that liabilities owed to certain creditors had been transferred to M.K. Overseas Pvt. Ltd. under a share purchase arrangement. It relied on a letter dated 30 June 2018 allegedly issued by the operational creditor stating that it had no objection if the outstanding balance was transferred to the said company.
Before the appellate tribunal, the appellant contended that the operational creditor had also accepted payments from M.K. Overseas Pvt. Ltd., including ₹35 lakh through banking channels and ₹85,000 in cash, which indicated that the creditor had agreed to accept performance of the obligation from a third party under Section 41 of the Contract Act, 1872.
The appellant further argued that the original contractual arrangement had been replaced by a new one and that the liability had been novated under Section 62 of the Contract Act, thereby discharging the corporate debtor from its obligations.
Rejecting these submissions, the NCLAT held that Section 41 of the Contract Act applies only when the original obligation has actually been performed by a third party and the promisee accepts such performance in full satisfaction of the debt. In the present case, the tribunal found no evidence that the entire debt had been discharged by M.K. Overseas Pvt. Ltd.
The Bench also rejected the plea of novation under Section 62, observing that novation requires a valid and enforceable substituted contract with the consent of all parties involved. No tripartite agreement was produced to show that the operational creditor had agreed to substitute M.K. Overseas Pvt. Ltd. in place of the corporate debtor.
The tribunal further noted that even if the alleged no-objection letter dated 30 June 2018 was assumed to exist, it did not extinguish the liability of the corporate debtor. The letter did not refer to any consideration and therefore could not constitute a legally enforceable agreement under Section 25 of the Contract Act.
Reiterating established legal principles, the NCLAT observed that while a creditor may assign its debt to another entity, a borrower cannot unilaterally transfer its liability to a third party without the consent of the creditor. An internal arrangement between companies cannot defeat the rights of an operational creditor.
The tribunal also held that acceptance of partial payments from a third party does not discharge the original debtor unless the creditor expressly agrees to substitute the third party in its place.
Finding that the supply of goods and the outstanding dues were not disputed, the appellate tribunal concluded that there was clear “debt and default” and that the NCLT had rightly admitted the Section 9 application under the IBC.
While upholding the insolvency proceedings, the NCLAT deleted certain observations made by the NCLT suggesting possible criminal action against the directors of the corporate debtor and M.K. Overseas Pvt. Ltd.
Taking note of the submission that the company has a turnover exceeding ₹1,700 crore and employs over 1,200 people, the tribunal granted the appellant an opportunity to pay the outstanding amount of ₹2,48,46,299.76 to the operational creditor within 30 days. Upon such payment, the operational creditor may seek withdrawal of the corporate insolvency resolution process (CIRP) under Section 12A of the IBC in accordance with law.
Case Title: Mohd. Zaheer v. Ashu Agencies & Anr.
Case Number: Company Appeal (AT) (Insolvency) No. 1526 of 2025
