Mumbai: Banks and 12 large borrowers, accounting for a quarter of India’s total bad loans, are set to battle it out at the nation’s insolvency courts.
Lawyers are advising banks to pay attention to small details, including completing the paper work properly, lawyers said.
Era Infra Engineering Ltd, one of the 12 identified cases by the Reserve Bank of India, is a case in point.
The company was taken to the National Company Law Tribunal (NCLT) by one of its operational creditors, Prideco Commercial Projects Pvt. Ltd, for non-payment of dues.
The case was admitted for bankruptcy by the Delhi bench of NCLT on 12 April and an interim insolvency professional was appointed.
Era Infra challenged the NCLT judgement on the grounds that Prideco Commercial had not served notice to the company under a specific section of the insolvency and bankruptcy code (IBC), according to a 4 May regulatory filing by Era Infra.
It also contended that the filed petition did not follow the format laid out under the insolvency and bankruptcy code .
Prideco accepted that it did not serve notice but argued that all other formalities were complete.
It also contended that it had served notice to Era Infra under Section 271 of Companies Act, 2013, which should be treated as a notice under the said provisions of IBC. On 3 May, the appellate authority set aside the order passed by NCLT and quashed the appointment of a resolution professional.
“Though the application was not complete and there was no other way to cure the defect, the impugned order cannot be upheld,” Justice S.J. Mukhopadhaya, said in his order.
H.S. Bharana, managing director of Era Infra, did not respond to a text message seeking comment.
Bankers and lawyers say that such cases mean banks should avoid even the smallest of mistakes in their haste to drag defaulters to NCLT.
“It is only imperative that lenders follow all the formats and processes laid out by the IBC scrupulously because the consequences of triggering the Code are significant. We have seen the NCLT applying strict standards in this regard. Besides, if we are looking at a time-bound resolution process, it is only fair that processes are also adhered to,” said Ashwin Bishnoi, a partner at law firm Khaitan and Co. He was not referring to any particular case.
On 16 June, Mint had highlighted four cases where resolution is already underway but the process is hardly smooth. Rulings of the tribunal and its appellate body have left room for clarity on provisions of the IBC such as what constitutes a dispute, principles of natural justice, and applicability of timelines.