We presents a novel motion planning algorithm for a formation of non holonomic mobile robots carrying a deformable payload, while avoiding static and dynamic obstacles. We assume the center of the formation to be a virtual robot who also plays the role of the leader of the formation. A new algorithm is incorporated to calculate static obstacle free trajectories for all the robots including the virtual one. A decentralized leader-follower formation control is applied for the robots to follow their respective trajectories without breaking the formation. The virtual leader moves forward or backward on the nitially generated path with variable velocity depending on the proximity of dynamic bstacles. All the other robots follow it so that the formation is able to avoid the dynamic obstacles while still remaining on the path leading towards the destination.