The National Company Law Appellate Tribunal has affirmed that mere negotiation of settlement or partial payment by a corporate debtor does not extinguish a proven financial default under Section 7 of the Insolvency and Bankruptcy Code. This judgment clarifies that the existence of debt and default must be assessed objectively, not by the parties’ subjective willingness to resolve disputes.
Background & Facts
The Dispute
These two appeals arise from orders admitting Corporate Insolvency Resolution Processes (CIRP) against two corporate entities: Parsvnath Developers Limited (principal borrower) and Noida Marketing Private Limited (corporate guarantor). The financial creditor, initially Sammaan Capital Limited and later Asset Reconstruction Company (India) Limited (ARCIL), initiated Section 7 petitions under the Insolvency and Bankruptcy Code, 2016, alleging default in repayment of loans aggregating over ₹942 crore. The appellants, suspended directors of the corporate debtors, challenged the admission of CIRP, contending that settlement negotiations rendered the default non-existent.
Key Facts
- 26.03.2018: First loan facility of ₹72 crore sanctioned by Sammaan Capital Limited to Parsvnath Developers Limited
- Subsequent to 26.03.2018: Six additional loan facilities extended, totaling ₹942,26,92,456/- in outstanding debt
- 11.04.2022: First Section 7 petition (C.P. (IB) 275/ND/2022) withdrawn by financial creditor
- 10.10.2023: Fresh Section 7 petition (C.P. (IB) 690/2023) filed by Sammaan Capital Limited
- 13.07.2024: Fresh Section 7 petition (C.P. (IB) 468/2024) filed by Sammaan Capital Limited, claiming default as of 05.03.2024
- 16.07.2024: Parsvnath Developers Limited filed petition under Section 9 of Arbitration & Conciliation Act, 1996 before Delhi High Court seeking reconciliation
- 30.09.2024: Debt assigned by Sammaan Capital Limited to ARCIL
- 30.12.2024: Email from Parsvnath Developers Limited proposing repayment schedule for ₹310 crore principal and ₹35.54 crore interest
- 17.02.2025: Financial creditor withdrew Section 7 petition after receipt of two demand drafts totaling ₹75 crore; NCLT order recorded settlement understanding
- 16.07.2025: ARCIL emailed Parsvnath Developers Limited withdrawing from repayment schedule
- 20.08.2025: NCLT allowed revival of Section 7 application (C.P. (IB) 468/2024)
- 19.02.2026: Delhi High Court dismissed Section 9 petition filed by Parsvnath Developers Limited
- 10.03.2026: Parsvnath Developers Limited deposited ₹25 crore in Delhi High Court registry (of ₹75 crore undertook)
- 06.04.2026 to 15.04.2026: Additional ₹21,49,20,750/- paid by corporate debtor to ARCIL
- 08.04.2026: Corporate debtor submitted revised repayment proposal of ₹750 crore to ARCIL
- 16.04.2026: NCLT deferred pronouncement of order for final settlement opportunity, directed deposit of ₹5 lakh to PMNRF
- 30.04.2026: NCLT admitted Section 7 petition against Parsvnath Developers Limited, appointed IRP, imposed moratorium
- 24.04.2026: NCLT admitted Section 7 petition against Noida Marketing Private Limited (corporate guarantor)
- 29.05.2026: NCLAT delivered judgment dismissing both appeals
Procedural History
- 13.07.2024: Section 7 petition filed by Sammaan Capital Limited (C.P. (IB) 468/2024)
- 16.07.2024: Corporate debtor files Section 9 petition before Delhi High Court
- 17.02.2025: NCLT allows withdrawal of Section 7 petition with liberty to revive
- 20.08.2025: NCLT allows revival of Section 7 petition
- 19.02.2026: Delhi High Court dismisses Section 9 petition
- 10.03.2026: Corporate debtor deposits ₹25 crore in Delhi High Court registry
- 08.04.2026: NCLT defers pronouncement for settlement
- 16.04.2026: NCLT defers pronouncement again, directs ₹5 lakh deposit to PMNRF
- 30.04.2026: NCLT admits CIRP against Parsvnath Developers Limited
- 24.04.2026: NCLT admits CIRP against Noida Marketing Private Limited
- 30.04.2026: Appeal filed before NCLAT (Comp. App. (AT) (Ins.) No. 900/2026)
- 24.04.2026: Appeal filed before NCLAT (Comp. App. (AT) (Ins.) No. 977/2026)
- 29.05.2026: NCLAT dismisses both appeals
The Parties' Positions
Appellants (Suspended Directors): Argued that the corporate debtors were always ready and willing to pay, had made partial payments of ₹200 crore, and were in active settlement negotiations with ARCIL. Contended that the financial creditor unilaterally withdrew from the agreed schedule and that CIRP was being misused as a recovery tool.
Respondents (ARCIL and RP): Maintained that despite repeated opportunities, no binding settlement was executed. Highlighted admissions of default in court filings, failure to deposit full ₹75 crore as undertook, and the corporate debtor’s own acknowledgment of outstanding dues of ₹489.32 crore. Asserted that debt and default were proven beyond doubt.
Relief Sought
The appellants sought quashing of the NCLT orders dated 30.04.2026 and 24.04.2026, and a direction to stay CIRP proceedings against both corporate debtors, on grounds that no default existed due to ongoing settlement.
The Legal Issue
The central question was whether Section 7 of the Insolvency and Bankruptcy Code, 2016 permits admission of a corporate insolvency application when the corporate debtor has made partial payments and engaged in settlement negotiations, but has not discharged the full financial debt and has admitted to outstanding dues.
Arguments Presented
For the Appellant
The appellants relied on the sequence of settlement communications, including the email dated 30.12.2024 and the exchange of revised repayment schedules in April 2026. They argued that the NCLT’s repeated deferment of the order indicated judicial recognition of a bona fide settlement process. They cited the payment of ₹200 crore as evidence of willingness to perform, and contended that the financial creditor’s unilateral withdrawal from the schedule constituted a breach of implied agreement, negating any default. They further argued that initiating CIRP during active settlement violated the spirit of the IBC’s objective to maximize value and avoid unnecessary liquidation.
For the Respondent
The respondents countered that settlement negotiations are not equivalent to discharge of debt. They pointed to the corporate debtor’s own admissions in the Delhi High Court and before the NCLT that ₹489.32 crore remained unpaid. They highlighted that the ₹75 crore deposit was only partially fulfilled, and that the corporate debtor’s repeated requests for adjournment were tactical delays, not genuine efforts at resolution. The respondents relied on B. Prashanth Hegde v. State Bank of India to argue that counterclaims and settlement proposals cannot override the existence of acknowledged debt and default under Section 7.
The Court's Analysis
The NCLAT undertook a rigorous examination of the factual record and statutory framework under Section 7 of the IBC. The Tribunal emphasized that the threshold for admission under Section 7 is not whether a settlement is possible, but whether a financial debt is due and has defaulted. The court noted that the corporate debtor itself had repeatedly acknowledged the existence of the debt in filings before both the NCLT and the Delhi High Court.
"The corporate debtor was praying for deferring the pronouncement in the hope of settlement to be entered with the financial creditor."
The Tribunal observed that the NCLT had granted multiple adjournments - on 08.04.2026, 16.04.2026, and 30.04.2026 - not because settlement was imminent, but because the corporate debtor was seeking time to avoid adjudication. The court found that the corporate debtor’s conduct demonstrated an attempt to delay, not resolve.
The NCLAT relied on the Supreme Court’s judgment in B. Prashanth Hegde v. State Bank of India, which held that:
"Merely raising a counterclaim in DRT proceedings does not in any way detract from the fact that debts are acknowledged, and they are in default, and therefore liable to be paid by the Corporate Debtor."
The Tribunal concluded that partial payments, even if substantial, do not extinguish the underlying default unless the entire debt is discharged. The fact that the corporate debtor had admitted to owing ₹489.32 crore in its reply to the petition was decisive. The court also noted that the financial creditor had issued a recall notice and the debt had been classified as non-performing, satisfying the statutory requirements under Section 7.
The NCLAT further held that the admission of CIRP against the corporate guarantor, Noida Marketing Private Limited, was equally valid, as the default by the principal borrower triggered the guarantee obligation, and the guarantor had received a demand notice.
The Verdict
The appeals were dismissed. The NCLAT upheld the NCLT’s orders dated 30.04.2026 and 24.04.2026 admitting CIRP against Parsvnath Developers Limited and Noida Marketing Private Limited respectively. The moratorium remains in force. The corporate debtors are directed to proceed under the IBC framework, with the Resolution Professional to take control of assets and invite claims. No monetary relief was granted to the appellants.
What This Means For Similar Cases
Settlement Talks Do Not Stay Insolvency Proceedings
- Practitioners must advise clients that ongoing negotiations, even with partial payments, do not legally negate a default under Section 7
- Courts will examine objective evidence of debt and default, not subjective assurances or correspondence
- Any attempt to use settlement as a shield against CIRP will be scrutinized for delay tactics
Partial Payments Are Not Discharge
- Payment of 20%, 50%, or even 80% of debt does not extinguish the default unless the full amount is settled
- The IBC requires complete discharge of the financial debt for a Section 7 petition to be invalid
- Debtors must secure a binding, executed settlement agreement - not merely an email or proposal - to halt proceedings
Guarantors Are Not Shielded by Borrower’s Negotiations
- Corporate guarantors cannot avoid CIRP by relying on the principal borrower’s settlement efforts
- Demand notices issued to guarantors independently satisfy the requirements of Section 7
- The financial creditor’s right to proceed against the guarantor is independent of the borrower’s conduct
Burden of Proof Remains on Debtor to Prove Non-Default
- The burden does not shift to the creditor to prove absence of settlement
- Debtors must produce binding, executed agreements to rebut the presumption of default
- Oral assurances, emails, and pending negotiations are insufficient to override statutory defaults
