Novation and Consideration: failure to show valid novation or third party performance sustains operational creditor admission, with limited payment remedy.

Unenforceable unilateral group arrangements, letters lacking consideration, or isolated payments by a third party do not effect novation or discharge of an operational debtor's obligation; therefore the operational creditor's claim was correctly admitted where debt and default were established. Observational language suggesting criminal proceedings was expunged because no operative direction to initiate prosecution existed. The appellant was granted a limited, time bound opportunity to make the claimed payment and, on receipt, the creditor may seek withdrawal of the insolvency process which the adjudicating authority must decide expeditiously, with interim protection preserved until that determination.

---

---

Issues: (i) Whether the adjudicating authority was justified in admitting the Section 9 application against the corporate debtor notwithstanding the plea of discharge/novation based on a letter dated 30.06.2018 and alleged transfer of liability to MK Overseas Pvt. Ltd.; (ii) Whether observations in the adjudicating authority's order suggesting initiation of criminal proceedings against the corporate debtor and MK Overseas Pvt. Ltd. should be sustained; (iii) Whether the appellant should be granted an opportunity to make payment and the procedural consequence of such payment under Section 12A and applicable CIRP regulations.

Issue (i): Whether the Section 9 admission was unsustainable because the operational creditor had accepted payment or had novated the debt to MK Overseas Pvt. Ltd., invoking principles under the Indian Contract Act, 1872.

Analysis: The admitted facts show supplies were made to and accepted by the corporate debtor and part payments were made; the corporate debtor pleaded transfer of liability based on a Share Purchase Agreement and a letter dated 30.06.2018 which was not part of any tripartite agreement and did not involve the operational creditor as a contracting party to a novation. The letter, even if treated as an agreement, contained no consideration and was susceptible to challenge under the doctrine of consideration. Section 41 requires actual performance by a third party accepted by the promisee to discharge the promisor; the record does not establish such full performance by MK Overseas Pvt. Ltd. Section 62 requires a valid substituted contract between the parties to effect novation; no enforceable substituted contract involving the operational creditor and MK Overseas Pvt. Ltd. is established. Relevant precedents were applied to confirm that unilateral or internal group arrangements and unilaterally written letters not supported by consideration do not constitute a novation or discharge that can defeat an operational creditor's claim under Section 9.

Conclusion: The plea of discharge by acceptance of performance from a third party and the plea of novation are rejected; the adjudicating authority correctly admitted the Section 9 application and there existed debt and default by the corporate debtor (conclusion adverse to appellant).

Issue (ii): Whether the adjudicating authority's observation that the directors of the corporate debtor and MK Overseas Pvt. Ltd. are liable to be proceeded against under appropriate criminal provisions should be maintained.

Analysis: The impugned order contained an observation suggesting possible criminal liability, but the operative portion of the adjudicating authority's order contained no directions to initiate criminal proceedings or to forward the record to regulatory/criminal authorities. The appellate determination assesses whether such observational language can stand as a direction; absent any specific operative direction, maintaining such a statement would be inappropriate.

Conclusion: The observational finding regarding liability to be proceeded against under criminal provisions is deleted (conclusion in favour of appellant on this limited point).

Issue (iii): Whether an opportunity should be granted to the appellant to make payment and the procedural steps following payment, including the filing and disposal of a Section 12A application under the CIRP Regulations, 2016.

Analysis: Considering the scale of the corporate debtor's business and the admitted existence of debt, equitable relief in the form of a time-bound opportunity to make the claimed payment was considered appropriate. The appellate order provides a 30-day opportunity to pay the amount claimed in Part IV; on payment, the operational creditor may file a Section 12A application for withdrawal of CIRP which the adjudicating authority must decide in accordance with law and Regulation 30A of the CIRP Regulations, 2016. Interim protection granted in the appeal is continued until disposal of the Section 12A application.

Conclusion: Appellant is granted 30 days to pay the amount claimed; on receipt, the operational creditor may file a Section 12A application which the adjudicating authority shall decide expeditiously (conclusion providing procedural relief to appellant but affirming admission).

Final Conclusion: The adjudicating authority's admission of the Section 9 application is upheld; the plea of novation or discharge by third-party performance is rejected, an improvident criminal-observational remark is expunged, and a limited, time-bound opportunity to make the claimed payment with consequent Section 12A remedy is granted.

Ratio Decidendi: A unilateral or internal transfer of liability, an unenforceable letter lacking consideration, or isolated payments by a third party do not legally novate or discharge a corporate debtor's obligation to an operational creditor; where debt and default are established, admission under Section 9 of the Insolvency and Bankruptcy Code, 2016 is appropriate, subject to lawful procedural remedies including payment followed by a Section 12A application for withdrawal of CIRP.

---