Neighboring shop asking exorbitant Charges for damages

I recently took a shop on rent and opened a fast food franchise. During Furnishing, we had planned to have the AC units installed on the back side of the shop which is parking lot of the residential building which houses all commercial shops. We were not allowed even though around 25+ other units were already installed with the society manager, secretary and chairman telling us verbally that they have taken a decision in the AGM to ask all shops to shift their ACs on the front side. Now, since this was not mentioned to us by the society earlier, we had to to redo the AC piping through the shop walls. However, it seems that while doing so, the neighboring shop with whom our shop had a common wall, sustained cracks. As per the contractor evaluation, only 2 out of the 10 cracks on that wall seem to be a direct result of our work, however we informed the shop owner verbally that we would repair whatever damage that might occur as a direct result of our work. After that, we came to know through the owner's son that they were anyway looking to repaint their entire shop as the color had faded a lot. After this however, a day before opening the shop, we were called to the police station because the owner had filed a complaint against us stating that we had put the outdoor AC units in front of his shop. The police after listening to both our sides, dismissed the issue saying there was no merit in their complaint and told them to take the issue to the Municipality for the same. The same day, I had contacted the owner's son asking him when he wants to get the wall work done, I had left him a msg regarding the same and he had called back telling me that he will concur and let us know. This was before the owner sent his people to file a police complaint. We however, again contacted him after a week sending an sms asking the same as to when he wanted us to do the work but this time we got no response. However, 10 days after that incident, we and our shop owner, received a notice stating that our work has caused tremendous damage to their wall and the AC outdoor unit is directly facing their shop. So they are now demanding a compensation of Rs. 3 lakh and 18% interest from the date of receipt of the notice or they will initiate legal proceedings against us (We believe he is doing this to extort money now to get his whole shop re-painted). A week after that, we missed a called from their Shop Manager, but when we called him back, he didn't respond to us. Now, we have had some people telling us to ignore the notice whereas others telling us to revert to the notice. Our Shop owner has been extremely supportive in this matter but since the notice also marked him, we want this sorted out quickly. Should we revert to the notice or ignore it? It's been 2 months now and no time frame was mentioned in the notice to reply back plus we have not seen any activity from their side on this issue !