Novation requires a concluded substituted contract; unverified equity-conversion correspondence cannot defeat an admitted loan debt.

Novation under section 62 of the Indian Contract Act requires a clear, concluded substituted contract, and any contractual requirement of written variation must be satisfied; mere e-mail negotiations and an inchoate proposal do not replace a written loan agreement. The correspondence here did not show a signed equity-substitution arrangement, any company resolution, or written consent, so the loan remained operative. In winding up, repeated acknowledgments of liability, post-dated cheques, partial payments, tax deduction at source, and a memorandum of understanding supported the debt, while the equity-conversion defence lacked substance. The dispute was therefore not bona fide or substantial, and the winding up petition was maintainable.

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Issues: (i) Whether the exchange of e-mails and related correspondence resulted in novation of the written loan agreement by substituting the loan liability with an obligation to issue shares. (ii) Whether the company petition for winding up could be resisted on the basis of a bona fide and substantial dispute as to the debt.

Issue (i): Whether the exchange of e-mails and related correspondence resulted in novation of the written loan agreement by substituting the loan liability with an obligation to issue shares.

Analysis: Section 62 of the Indian Contract Act, 1872 contemplates novation only where the parties substitute a new contract for the old one so that the original contract need not be performed. The correspondence relied upon did not amount to a concluded contract of substitution. The e-mails reflected negotiations and an inchoate proposal, while the written loan agreement and memorandum of understanding remained in force. The agreement itself required any variation to be in writing and signed by both parties, and also barred assignment without written consent. No resolution of the company or signed substituted agreement was produced to show that the loan was replaced by an equity arrangement.

Conclusion: No novation was proved, and the written loan agreement continued to govern the parties.

Issue (ii): Whether the company petition for winding up could be resisted on the basis of a bona fide and substantial dispute as to the debt.

Analysis: A winding up petition is not a substitute for debt recovery, but where the debt is admitted and the defence is not substantial, the petition may be maintained. The record contained repeated acknowledgments of the loan, issuance of post-dated cheques, payment of some amounts, deduction of tax at source, and a memorandum of understanding acknowledging the outstanding liability. The alleged defence of conversion into equity was unsupported by any completed agreement or corporate approval. The refusal of injunction in the related proceedings and the adverse inference drawn from the covering letters reinforced that the cheques were issued towards repayment of the debt, not merely as collateral security. On these facts, no substantial or triable dispute was shown.

Conclusion: The dispute was not bona fide or substantial, and the winding up petition was maintainable.

Final Conclusion: The appeal failed and the order admitting the winding up petition was upheld.

Ratio Decidendi: Novation under section 62 requires a clear, concluded and duly accepted substituted contract consistent with any contractual stipulation for written variation; absent such proof, an admitted debt evidenced by acknowledgments and cheques cannot be displaced by an unsubstantiated equity-conversion plea in winding up proceedings.

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