Settlement talks can't stall insolvency once default is established: SC

The Supreme Court upheld the revival of insolvency proceedings against Parsvnath Developers, ruling that settlement negotiations cannot delay admission once debt and default are established

The Supreme Court on Thursday ruled that once debt and default are established, mere settlement negotiations cannot stall admission into the insolvency process.

 

In its order upholding the revival of the insolvency proceedings against real estate company Parsvnath Developers, a partial court working days Bench of Justices K V Viswanathan and Alok Aradhe declined to interfere with the order of the National Company Law Appellate Tribunal (NCLAT), which had affirmed the National Company Law Tribunal's (NCLT) decision to revive the insolvency process.

 

The appeal had been filed by the suspended directors of the company.

 

The dispute arose from loan facilities extended to Parsvnath Developers by Sammaan Capital from 2018 onwards. The outstanding debt was subsequently assigned to Asset Reconstruction Company (India) Limited (ARCIL).

   

While the total debt was stated to be about Rs 942 crore, the insolvency proceedings relate to a default of around Rs 452 crore.

 

In February 2025, the NCLT permitted withdrawal of the financial creditor's petition under Section 7 of the Insolvency and Bankruptcy Code after Parsvnath deposited Rs 75 crore.

 

The tribunal, however, made it clear that the creditor would be entitled to seek revival of the petition if the repayment schedule was not honoured.

 

ARCIL later abandoned the settlement, saying it was no longer commercially viable, and sought restoration of the insolvency proceedings.

 

The NCLT revived the petition in August 2025 and subsequently admitted Parsvnath Developers as well as its corporate guarantor into the insolvency process. The NCLAT upheld that decision, prompting the suspended directors to approach the Supreme Court.

 

Before the apex court, the appellants argued that the company's attempts to negotiate a settlement after the revival order should not be treated as an acknowledgement of default. They contended that these efforts were made only to resolve the dispute and could not justify revival of the insolvency proceedings.

 

Opposing the appeal, ARCIL submitted that both the debt and the default stood conclusively established. It also relied on proceedings before the Delhi High Court in which the company had acknowledged outstanding instalments and undertaken to deposit Rs 75 crore, of which only Rs 25 crore was ultimately deposited in the court registry.

 

The Supreme Court rejected the directors' submissions, noting that the February 2025 NCLT order had expressly reserved the creditor's right to revive the insolvency petition if the repayment terms were breached.

 

The Bench also endorsed the NCLAT's finding that the company's subsequent settlement proposals reinforced, rather than undermined, the existence of outstanding dues.

 

Finding no reason to interfere with the appellate tribunal's order, the Supreme Court dismissed the appeals.