Ongoing Payment Negotiations Cannot Block a Valid Section 9 CIRP Application: NCLAT Chennai

Background and Context

The Insolvency and Bankruptcy Code, 2016 (IBC 2016) was enacted with a singular legislative intent — to resolve corporate insolvency in a time-bound, structured manner. However, adjudicating authorities occasionally deviate from this statutory framework by introducing equitable considerations that the Code does not contemplate. One such deviation was examined and firmly corrected by the National Company Law Appellate Tribunal, Chennai ("NCLAT Chennai") in the matter of Shapoorji Pallonji and Company Private Limited Vs Shore Dwellings Pvt. Ltd.

This ruling carries significant implications for operational creditors seeking to invoke insolvency proceedings where the corporate debtor has acknowledged liability but continues to delay payment under the guise of ongoing negotiations or economic hardship.

The Contractual Relationship and Emergence of the Dispute

The genesis of this matter lies in a Construction Contract dated 14th January 2011, under which Shapoorji Pallonji and Company Private Limited ("the Appellant") undertook construction work for the Mantri Pinnacle High Rise Residential Project Development on behalf of Shore Dwellings Pvt. Ltd. ("the Respondent").

Upon completion of the project — as certified by the Respondent through a Virtual Completion Certificate confirming completion as on 30th December 2019 — the Appellant submitted a Final Payment Certificate (Final Bill) on 9th May 2019, reflecting:

  • Cumulative gross value of work done: Rs. 104,74,33,943
  • Net amount claimed as payable: Rs. 12,45,89,866

Contractual Payment Obligations

Under the terms of the Construction Contract:

  • Clause 14.13 required the Respondent to certify the Final Bill within 56 days of its issuance.
  • Clause 14.7(c) obligated the Respondent to disburse payment within 56 days of issuance of the Final Bill.

Neither obligation was met within the stipulated timeframe.

Settlement Meetings and Acknowledgement of Debt

Rather than invoking legal remedies immediately, the parties engaged in a series of discussions. At a meeting held on 1st October 2019, the Respondent certified a reduced net payable amount of Rs. 6,98,47,408 (inclusive of GST) and agreed to discharge this liability in three instalments:

  1. Rs. 2,00,00,000 by 31st December 2019
  2. Rs. 2,00,00,000 by 31st March 2020
  3. Rs. 2,98,47,408 by 30th June 2020

This agreed settlement was formally captured in Minutes of the Settlement Meeting and Final Summary Sheet, signed by representatives of both parties and circulated by the Respondent on 4th October 2019. Critically, a handwritten entry at Page 159 of Volume II of the Appeal Paper Book recorded: "Final amount of Rs. 6,98,47,408 agreed as per above settlement."

Despite this clear documentation, the Respondent neither signed the formal settlement agreement nor made any of the agreed payments.

Revised Payment Schedule

On 3rd January 2020, the Respondent sought a further revision of the payment schedule. The Appellant, without being under any contractual obligation to do so, accommodated this request and issued a revised agreement with the following due dates:

  1. Rs. 2,00,00,000 by 15th February 2020
  2. Rs. 2,00,00,000 by 30th April 2020
  3. Rs. 2,98,47,408 by 30th June 2020

The Respondent's letter of 3rd January 2020 explicitly requested that the Appellant send two original copies of the revised agreement for counter-signature. The Appellant complied. However, the Respondent returned neither the signed agreement nor any payment.

Issuance of Statutory Demand Notice and Filing of Section 9 Application

Having exhausted all avenues of informal resolution, the Appellant issued a Statutory Demand Notice dated 5th August 2020 under Section 8 of the IBC 2016, demanding payment of the acknowledged debt of Rs. 6,98,47,408.