Dear Ashi, you have written your post, but you have not mentioned whether you were a regular employee of the agency. If yes, then have you been issued an appointment letter? You have mentioned your contract. Are you referring to the appointment letter as the contract?
Going further, you have written that "they did not make payments on time." What kind of payment is this? Is this your monthly salary or an assignment-based fee?
Whether it's an appointment letter or contract, you need to honor the provisions of it. Why could you not show patience in serving the notice period and have a smooth exit? You could have approached your employer, discussed your plans, and explained how a trade-off could be made between your outstanding fee (or salary) and payment in lieu of the notice period.
When you were selected, you must have been interviewed personally, and your selection was not through email. What applies to selection, the same applies to the exit as well. You could have asked for a personal meeting with the employer before the exit. You could have recorded Minutes of Meeting (MoM) and sent these by mail. That could have been a professional approach. If you had adopted this approach, then you could have acquired a Service-cum-Employment Certificate from them. However, with the abandonment of employment, I doubt the company will provide this certificate. Non-possession of this certificate will be a handicap at least until the productive years of your career.
Leaving behind unfinished business, you have also joined a new agency. We do not know whether it is regular employment or an assignment-based contractual arrangement. In either case, joining a new company was an unwise haste.
Legally speaking, you are still an employee of the old company. They might have removed you from the rolls of their company, but as stated earlier, by abandoning employment, you have weakened your case. Yes, terminating an employee without conducting a domestic enquiry is against the principles of natural justice. But proving their illegality through litigation would be an onerous task. Therefore, go back to the old employer, talk to them, and find out whether an amicable solution emerges.
Lastly, about filing a defamation suit. The dictionary meaning of defamation is (a) a false accusation of an offense or a malicious misrepresentation of someone's words or actions (b) an abusive attack on a person's character or good name. As the meaning goes, provisions of defamation do not apply in this case. This is purely an employer-employee issue. This case falls under the provisions of labor law.
Last note: This is a professional forum. Therefore, please use professional language and not SMS lingo!
Thanks,
Dinesh Divekar