Subsidiary's Rs 1.92 crore debt, parent's cheques: NCLAT frees Flexituff Technology from CIRP

The NCLT Indore admitted a Section 9 petition against Flexituff Technology International because it had sent a letter and four post-dated cheques for a debit note raised on its subsidiary. The Principal Bench holds the letter was no novation, the business transfer agreement left such liabilities with the subsidiary, and the debt was disputed.

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has set aside the insolvency of Flexituff Technology International Ltd (FTIL), ruling that four post-dated cheques and a covering letter did not turn a debt owed by its subsidiary into an operational debt of its own.

The judgment of 4 November 2026, written by Barun Mitra, Member (Technical), allows the appeal of Lalit Narware, FTIL's suspended director. Justice Yogesh Khanna, Officiating Chairperson, sat with him.

FTIL is released from the corporate insolvency resolution process (CIRP) with immediate effect and returns to its board of directors.

A debit note raised on the wrong company

On 8 September 2022 Flexituff Ventures International Ltd (FVIL) signed a memorandum of understanding (MoU) with Marvel Industries and Services Pvt Ltd. Marvel was to act as intermediary between FVIL and its overseas customers.

On 28 August 2023 FVIL signed a business transfer agreement (BTA) with FTIL, selling it the flexible intermediate bulk container manufacturing business. Only those two companies signed the BTA, and the transfer was completed on 30 April 2024.

Marvel raised a debit note on FVIL on 29 July 2024. After reconciliation, Rs 1.92 crore was payable by FVIL.

A letter and four post-dated cheques

FTIL, not FVIL, then paid. On 7 September 2024 it remitted Rs 40 lakh to Marvel. Two days later it wrote to Marvel, citing the debit note and enclosing four post-dated cheques totalling Rs 1.52 crore.

One cheque bounced on 31 October 2024. Marvel issued a notice under Section 138 of the Negotiable Instruments Act on 16 November 2024, to FVIL and to the directors of FTIL.

The remaining cheques kept bouncing. Marvel sent a Section 8 demand notice under the Insolvency and Bankruptcy Code, 2016 (IBC) on 18 February 2025 and filed a Section 9 petition against FTIL on 27 March 2025.

The NCLT Indore Bench admitted the petition on 9 September 2026, in RCP(IB)/3(MP)2025. Narware, as suspended director, appealed under Section 61. The interim resolution professional, Apeksha Kekre, is the second respondent.

FTIL's case: no contract, no debt

Krishnendu Dutta, Senior Advocate for Narware, argued that the Section 9 petition was not maintainable. Marvel's claim arose under the MoU, to which FTIL was not a party, so no operational debt had arisen between them.

He accepted that FVIL was FTIL's wholly owned subsidiary but said holding and subsidiary companies are separate legal entities. One's debt cannot be visited on the other, he argued, citing the tribunal's ruling in Phanindhar Chivukula v. CEVA Logistics India.

On the letter, he said it was a bare, unilateral document that could not bind FTIL to a debt that was never its own. He relied on Mohd. Zaheer v. Ashu Agencies, where a letter purporting to transfer dues to a third party was held incapable of effecting novation.

There was no tripartite agreement among FVIL, FTIL and Marvel, he added, as Section 62 of the Indian Contract Act, 1872 requires. Nor had Marvel shown consideration for any novated contract, which Section 25 would demand.

Marvel's reply: debt and default

Vaibhav Gaggar, Senior Advocate for Marvel, said the NCLT had rightly seen a case of debt and default. There was no credible evidence of a pre-existing dispute, he said, so the petition was rightly admitted.

The NCLT's own reasoning rested on FTIL's letter of 9 September 2024. It had held that a debt admitted, part-paid and secured by cheques of FTIL's own hand was a duly acknowledged debt of FTIL, whatever the position between Marvel and FVIL.

It did not go into whether FTIL was FVIL's holding company, since that had no bearing on its finding that this was FTIL's own admitted debt.

The MoU never bound FTIL

The tribunal began with the contract. The MoU of 8 September 2022 was the foundational document and was between Marvel and FVIL, it said, and FTIL was not a signatory. It had no express contractual business relationship with Marvel, and it was not shown to have received the supplies behind the claim.

FTIL had also said in its reply to the Section 9 petition that Marvel failed to establish any business relationship or produce any document showing an operational debt owed by FTIL.

The bench cited the Supreme Court's decision in Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613, that a subsidiary is a separate legal persona from its parent. The liability of a subsidiary cannot be held to be the parent's unless the parent acts as its agent.

It agreed with FTIL that FVIL was a distinct company, and that liability for supplies under the MoU could not be fixed on FTIL.

What the transfer agreement said

The harder question was the letter of 9 September 2024, and whether it acknowledged the debt as the NCLT held. The bench turned to the BTA, which FTIL had placed before it by additional affidavit.

Under the BTA, FTIL assumed FVIL's liabilities only from the Closing Date of 30 April 2024, not for any earlier period. Clause 9.3.2 says that where a contract is not novated in FTIL's favour by that date, FTIL assumes no liability for it. Any such liability stays solely with FVIL.

Clause 9.3.3 says nothing in the BTA makes FTIL liable for any obligation of FVIL falling due, or any default by FVIL, on or before the Closing Date. Clause 1.1 defines Excluded Liabilities to include all liabilities arising or accruing before that date.

A letter that named someone else

Read against the BTA, the bench said, the documents all pointed to FVIL. The debit note was addressed to FVIL, not FTIL, and covered price re-evaluation charges for 2022-23 and 2023-24, both periods that ended before the Closing Date.

The letter of 9 September 2024 itself said it was issued in relation to the outstanding amount owed by FVIL to Marvel. It was therefore not an admission of liability by FTIL as its own untrammelled liability, the bench said.

Marvel had itself continued to treat FVIL, not FTIL, as liable, and the dues pertained to a period before the Closing Date. The claim that the debt was FTIL's lacked merit, the bench said.

With no contract between Marvel and FTIL and no novation between FTIL and FVIL, FTIL could not be fastened with FVIL's liability. At most, the bench said, the letter was a unilateral document and could not novate the MoU to bind FTIL to a debt that was never its own.

A disputed claim cannot found Section 9

Reading Clauses 9.3.2, 9.3.3 and 1.1 together, no liability of FVIL for any period before 30 April 2024 had been transferred to, or became payable by, FTIL. So no operational debt was due and payable by FTIL to Marvel, the bench said.

Section 9, it said, cannot be invoked and substituted for recovery or adjudication of a disputed commercial claim. FTIL had raised "a substantive dispute concerning the very existence of the debt", which went to the root of the alleged liability.

The NCLT's finding of debt and default could not be sustained, particularly when the nature and enforceability of the liability against FTIL stood disputed.

Order

NCLAT held that the Adjudicating Authority had erred in admitting the Section 9 application. It allowed the appeal and set aside the order of 9 September 2026.

FTIL was "released from the rigours of CIRP" and allowed to function independently through its board of directors with immediate effect. There was no order as to costs.