Borrower Cannot Use Arbitration to Stall Wilful Defaulter Action
Calcutta High Court held that arbitration is not a shield against RBI-regulated wilful defaulter proceedings. A borrower’s challenge to the debt before an arbitral tribunal does not suspend the lender’s right to invoke the regulatory mechanism for declaring a wilful defaulter.
Comments on the post of Deepika B Prasad and the Judgment dated 23.9.2026 of the Calcutta High Court in W.P.A. No.24869 of 2026 of Kitply Industries imited and others Vs. Reserve Bank of India.
At the out-set, the petitioners have challenged the show cause notice to declare them as wilful defaulters.
Initially, the Respondent No.2 has initiated insolvency proceedings against the petitioner no.1.
During the pendency of IBC petition, the respondent no.2 filed section 9 arbitration petitioner no.1 for injunction on its assets and properties as per the loan agreements of 2019.
Subsequently, in section 11 petition, the High Court appointed an Arbitrator.
On 2.6.2026, the NCLT dismissed insolvency petition.
On 27.6.2026, the show cause notice was issued to the petitioners to declare as wilful defaulter during the pendency of arbitration.
This notice was challenged before the Arbitrator but it was rejected vide order dated 13.7.2026.
Thereafter, the petitioners filed instant petition.
One of the grounds opposing the writ petition was that the issuance of the show cause notice is covered by the RBI Master Directions 2024.
