In what could set a precedent for future petitions under the Insolvency and Bankruptcy Code (IBC), the Gujarat High Court has recently barred the National Company Law Tribunal (NCLT) in Ahmedabad to “pass any adverse order” in an insolvency petition against Shivam Water Treaters till November 30.“Pending issue of Rule Nisi, Notice to the respondents returnable on 30.11.2017. Till then, 3rd respondent (NCLT Ahmedabad) shall not pass any adverse order,” an order by Chief Justice R Subhash Reddy and Justice Vipul M Pancholi said.
The petition was filed by Shivam Water Treaters after Asset Reconstruction Company (ARCIL) referred the company to the Ahmedabad NCLT to recover Rs 42 crore. The Ahmedabad-based company provides solutions in the field of water treatment, water handling, waste water treatment, sewage treatment and recycling systems. Shivam had availed loans from State Bank of India (SBI) and Allahabad Bank. However, when the company defaulted on repayments, SBI issued a legal notice dated July 21, 2011 and another notice dated February 14, 2012 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. Later it sold the loans to ARCIL seeking to recover its dues.
“The matter is filed before the High Court of Gujarat challenging the provisions of the IBC, 2016 on the constitutional issues as well as in light of the earlier judgement passed by High Court of Gujarat between the parties. The matter is now sub-judice,” Vishwas K Shah, advocate for Shivam Water Treaters said in an emailed response to FE. A few other companies have sought relief from the higher judiciary regarding NCLT referrals and judgements. Innoventive Industries had filed a petition before the Bombay High Court challenging the validity of IBC under which ICICI Bank had referred the company to the Mumbai NCLT. After the High Court dismissed its petition, Innoventive had moved the Supreme Court which had dismissed its petition as well.
Interestingly, in July this year, the Gujarat High Court had dismissed a petition by Essar Steel challenging Reserve Bank of India’s (RBI) decision to include it in a list of 12 large defaulting companies for resolution under the IBC. The central bank, after receiving sweeping powers to resolve bad loans through an amendment to the Banking Regulation Act, issued the circular on the criterion that the total banking exposure of the company should be at least Rs 5,000 crore and 60% of this exposure should have turned non-performing as of March 2016. The RBI, had on June 13, asked banks to refer these dozen troubled companies —with a combined debt of close to Rs 2.4 lakh crore—to the NCLT, following several failed attempts at loan recovery.