Unilateral transfer of debt liability via share purchase agreement does not constitute a pre-existing dispute or novation.

The Appellant, a suspended director of the Corporate Debtor (CD), challenged an order dated 24.09.2025 passed by the NCLT admitting a Section 9 IBC application filed by the Operational Creditor (OC).

The OC had supplied kraft paper reels to the CD during FY 2017-19, leaving an outstanding debt of ₹2,48,46,299.

The CD contended that via a Share Purchase Agreement dated 07.07.2018, its liabilities were transferred to a third party, M/s MK Overseas Pvt. Ltd.

The CD relied on a "no objection" letter dated 30.06.2018 allegedly signed by the OC's father, stating the OC would collect dues from MK Overseas and that the CD had no further liability.

The Adjudicating Authority dismissed these pleas as a "moonshine dispute" and admitted the CIRP.

Whether the liability of the Corporate Debtor stood discharged under Section 41 of the Contract Act, 1872, due to the alleged acceptance of performance from a third party.

Whether the debt was extinguished through novation of contract under Section 62 of the Contract Act, 1872.

Whether the transfer of liability through a Share Purchase Agreement to which the Operational Creditor was not a party constitutes a valid pre-existing dispute.

Section 41 of the Indian Contract Act, 1872, which discharges a promisor only upon "actual performance" of the promise by a third party.

The interpretation of Section 41 in *Citibank N.A. v. Standard Chartered Bank*.

Section 62 of the Indian Contract Act, 1872, requiring a mutual agreement between all parties to substitute a new contract for the original.

Section 25 of the Indian Contract Act, 1872, which renders agreements without consideration void.

The principle from *Chetan Sharma v. Jai Lakshmi Solvents Pvt. Ltd.*, establishing that while a creditor can assign assets, a debtor cannot unilaterally transfer liabilities to a third party without the creditor's consent.

The Appellate Tribunal rejected the Appellant’s reliance on Section 41, noting that the provision requires the "actual performance" (payment) of the original debt by a third party to discharge the promisor; a mere promise or partial payment of ₹35.85 lakhs did not satisfy the total debt of ₹2.48 crores.

Regarding novation under Section 62, the court found no valid new contract existed because the OC was not a party to the Share Purchase Agreement, and the "no objection" letter dated 30.06.2018 was void under Section 25 for lack of consideration.

The Tribunal observed that the debt and default were admitted in the CD's own books and reply to the demand notice.

Consequently, the internal arrangement between the CD and MK Overseas was held to be a "collusive arrangement" that could not bind the OC or constitute a legitimate pre-existing dispute.

However, it deleted the NCLT’s observations regarding criminal proceedings against the directors.

While affirming the insolvency, the Tribunal granted the Appellant 30 days to pay the claimed amount of ₹2,48,46,299.76 to the OC.

Upon such payment, the OC was directed to file for withdrawal of CIRP under Section 12A of the IBC, with the interim stay on the IRP's further steps continuing until the disposal of said application.