Arbitration Clause In MoU Does Not Oust Insolvency Jurisdiction Under IBC: NCLT Mumbai

Arbitration clauses in Memoranda Of Understanding (MOU) do not bar insolvency proceedings when debt and default are established, the National Company Law Tribunal's Mumbai bench has held while admitting PS IT Infrastructure & Services Ltd into insolvency.

“The presence of an arbitration clause in an MoU does not oust the jurisdiction of the Adjudicating Authority while dealing with an application under Section 7 of the Code. The existence of an arbitration clause in the MoU does not bar the admission of a Section 7 application under the IBC.”

A bench of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar admitted the insolvency plea filed by Golden Medows Export Pvt. Ltd. after finding that a financial debt of ₹3.10 crore and default were established.

Golden Medows had disbursed ₹2.90 crore to PS IT Infrastructure as an inter-corporate deposit under a Memorandum of Understanding dated June 20, 2024, carrying interest at 9% per annum. The amount was repayable within 12 months or on demand.

The financial creditor said the company failed to repay despite demand letters dated March 25 and October 16, 2025, and a legal notice issued on October 24, 2025.

PS IT Infrastructure opposed the plea, arguing that the insolvency process was being used as a recovery mechanism, that the memorandum of understanding required disputes to be resolved through arbitration, and that no proper record of default had been produced.

Rejecting the recovery argument, the tribunal said the financial creditor had placed sufficient material on record, including the memorandum of understanding, bank statements, money receipts issued by the corporate debtor, and the corporate debtor's ledger account in the financial creditor's books, to establish debt and default.

It held that initiation of the insolvency process in such circumstances was a resolution mechanism and not a recovery proceeding.

Rejecting the arbitration objection, the tribunal said insolvency proceedings under the IBC operate in a field distinct from contractual remedies such as arbitration.

“The provisions of the Code are special in nature and operate in a distinct field, independent of contractual remedies such as arbitration.”

It also rejected the company's objection on record of default, noting that the financial creditor had placed on record a NeSL Form D reflecting the default as “deemed to be authenticated.”

Relying on the Supreme Court's ruling in Tata Consultancy Services Ltd v Vishal Ghisulal Jain, the tribunal reiterated that the existence of an arbitration clause does not oust insolvency jurisdiction.

The tribunal noted that the date of default was June 21, 2025, and held that the insolvency plea filed on November 14, 2025 was within the limitation.

Holding that debt and default stood established, the tribunal admitted the company into the corporate insolvency resolution process and appointed Rajneesh Kumar Aggarwal as interim resolution professional.

A moratorium under IBC has also come into effect.