Authority: National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi

Order Date: 25 August 2026

Case Overview

This appeal was filed by Naresh Chand, a suspended director of Ashiana Ispat Pvt Ltd. (Corporate Debtor/CD), challenging the order dated 03 July 2026 from the National Company Law Tribunal (NCLT), Jaipur Bench. The NCLT had admitted an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by Mani Mahesh Ispat Pvt. Ltd. (Operational Creditor/OC), initiating the Corporate Insolvency Resolution Process (CIRP) against Ashiana Ispat and appointing Mr. Prashant Agarwal as the Interim Resolution Professional (IRP).

The core dispute originated from the supply of mild steel ingots and billets by the OC to the CD. The OC claimed an outstanding operational debt of ₹5,73,65,819 related to 27 invoices and two debit notes issued between 29 April 2023 and 12 September 2023. The CD had made a partial payment of ₹45 lakhs in September 2023 but failed to clear the remaining balance. An FIR was lodged by the OC against the CD for cheating and criminal breach of trust on 13 December 2023. Subsequently, on 21-23 October 2024, the CD issued three cheques totalling the exact debt amount (₹2,00,00,000; ₹2,00,00,000; ₹1,73,65,819), all of which were dishonoured upon presentation on 10 January 2025. A demand notice under Section 8 of the IBC was served on 10 January 2025, to which the CD did not reply, leading to the filing of the Section 9 application.

The CD's primary defence before the NCLT and NCLAT was the existence of a pre-existing dispute, arguing that the debt had been novated. The CD pointed to a Settlement Agreement and an Agreement to Sell, both executed on 14 February 2024, between Mr. Puneet Jain (CD director), his wife Mrs. Swati Jain (owner of a property), and Mr. Navnitya Prakash Goyal (OC director). These agreements stipulated that the CD's total outstanding dues of ₹7.80 Crore (which included the ₹5.73 Crore debt to Mani Mahesh Ispat) would be adjusted against the sale consideration (₹8 Crore) for Mrs. Jain's property. A clause stated that if the CD paid the ₹7.80 Crore by 30 April 2024, the property agreement would stand cancelled. The CD argued this converted the operational debt into an advance for a property transaction. Furthermore, the OC had filed a suit for specific performance of this property agreement (OS No. 320/2025) in the Delhi High Court on 14 May 2025, which the CD claimed was an admission of the debt's novation.

The NCLAT, after examining the agreements, found that the intention of the parties was not to extinguish the debt but to use the property agreement as security for its payment. The tribunal noted key inconsistencies: the CD issued cheques for the debt amount after the property agreement was signed; an addendum to the agreement dated 12 September 2024 extended the sale deed execution date and falsely claimed physical possession had been handed over; and in the Delhi High Court suit, Mrs. Swati Jain herself contended that her husband's business debt could not be set off against her personal property. The tribunal concluded the agreements did not constitute a novation under Section 62 of the Indian Contract Act, as the original debt obligation was never rescinded but was instead kept alive. The act of issuing cheques itself was seen as an affirmation of the extant debt. The NCLAT also noted that the Section 9 application (25 February 2025) was filed before the specific performance suit (14 May 2025), negating the argument of a pre-existing dispute barring insolvency proceedings.

Final Outcome

The NCLAT dismissed the appeal, upholding the NCLT's order to admit Ashiana Ispat Pvt Ltd. into CIRP. The appointment of Mr. Prashant Agarwal as IRP was confirmed. The corporate debtor remains under the insolvency process.

Topics: Corporate Insolvency, Debt Dispute, Novation of Contract