Operational debt and default under IBC can support admission despite an arbitration clause in the contract.

An operational creditor established unpaid operational debt and default through the supply agreement, invoices, part-payments and demand notice, while the corporate debtor substantially acknowledged liability and disputed only the exact amount and interest. The Tribunal held the section 9 application complete and admitted it. It further held that an arbitration clause in the underlying contract did not bar insolvency proceedings because the Insolvency and Bankruptcy Code operates with overriding effect under section 238. Accordingly, the corporate insolvency resolution process was initiated, moratorium commenced, and an interim resolution professional was appointed.

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Issues: (i) Whether the operational creditor had established an unpaid operational debt and default so as to warrant admission of the application under section 9 of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the arbitration clause in the supply agreement barred admission of the insolvency application in view of the overriding effect of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether the operational creditor had established an unpaid operational debt and default so as to warrant admission of the application under section 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The application was filed on the basis of a supply agreement, invoices, part-payments reflected in the ledger, and a demand notice under section 8. The record showed an outstanding operational claim and the corporate debtor substantially acknowledged the liability, disputing only the exact figure and interest. The Tribunal found that the application was complete and that default in payment of the operational debt stood established.

Conclusion: The issue was answered in favour of the applicant, and the section 9 application was admitted.

Issue (ii): Whether the arbitration clause in the supply agreement barred admission of the insolvency application in view of the overriding effect of the Insolvency and Bankruptcy Code, 2016.

Analysis: The agreement contained an arbitration clause, but the Tribunal held that the Insolvency and Bankruptcy Code, 2016 operates with overriding effect under section 238. On that basis, the existence of an arbitration clause did not displace the statutory remedy under section 9 once default and maintainability were otherwise made out.

Conclusion: The issue was answered against the corporate debtor, and the arbitration clause did not prevent admission of the application.

Final Conclusion: The application under the insolvency code was admitted, the corporate insolvency resolution process was initiated, the moratorium came into force, and an interim resolution professional was appointed.

Ratio Decidendi: Once operational debt and default are established and the application is otherwise complete, an arbitration clause in the underlying contract does not bar admission of proceedings under the Insolvency and Bankruptcy Code, 2016 because of its overriding effect.

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