Arbitration Clause No Bar Once Debt and Default Established: NCLT Admits ₹2.9 Cr Sec. 7 Insolvency Plea [Read Order]

The National Company Law Tribunal (NCLT) Mumbai Bench has held that the presence of an arbitration clause does not preclude insolvency proceedings once debt and default are established. Also found that the corporate debtor had defaulted on repayment of an inter‑corporate deposit of ₹2.9 crore and admitted a section 7 insolvency plea.

The application, filed on 14 November 2025, sought initiation of the Corporate Insolvency Resolution Process (CIRP) after the corporate debtor failed to repay the loan by the agreed date of 20 June 2025. The default was recorded on 21 June 2025, the day following the expiry of the repayment period.

The financial debtor, Golden Medows Export, produced the Memorandum of Understanding dated 20 June 2024, bank statements evidencing seven tranches of disbursement between 26 June 2024 and 29 August 2024, and a record of default from NeSL (Form‑D) showing the debt as “deemed to be authenticated.”

The company also proposed Rajneesh Kumar Aggarwal as Interim Resolution Professional (IRP), whose authorization for assignment was verified as valid until 30 June 2027.

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The corporate debtor PS IT Infrastructure contended that the petition was a mere recovery action and pointed to arbitration clauses in the MoU.

The Tribunal rejected these arguments, holding that the existence of an arbitration clause does not bar proceedings under Section 7, citing the Supreme Court’s decision in Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain (Civil Appeal No. 3045 of 2020).

The Bench, Nilesh Sharma, and Sameer Kakar relied on the apex court’s judgment in Power Trust v. Bhuvan Madan ( 2024), reiterating that at the admission stage, the Adjudicating Authority’s role is confined to verifying the existence of debt and default, not the debtor’s financial health or viability.

Finding that the debt crossed the statutory threshold of ₹1 crore under Section 4 of the Code and that all documentary requirements were satisfied, the Tribunal admitted the petition and declared a moratorium under Section 14, paving the way for the commencement of CIRP against the corporate debtor

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