Will Supreme Court’s Status Quo Help Rattan India Power Against Insolvency?

Can creditors initiate insolvency proceedings against power companies after the Supreme Court directed a status quo until Nov. 14? This is no longer a hypothetical question.

aXYKno Capital Services—an operational creditor—has filed an insolvency application against RattanIndia Power Ltd. The lender stated in its petition that it had provided consultancy services in 2015 for which RattanIndia Power owes it Rs 2.84 crore. BloombergQuint has reviewed a copy of the petition.

The National Company Law Tribunal has issued a notice to RattanIndia Power and will hear the case on Nov. 26.

The question of whether or not the insolvency process can be initiated against RattanIndia Power arises in the light of the Supreme Court's order in September.

The apex court had transferred to itself all pending cases that challenged the Reserve Bank of India's Feb. 12 circular. It had also barred any action by creditors until Nov. 14. The relief was granted to several power producers, Shipyards Association of India and the South Indian Sugar Mills Association. In February this year, the RBI had directed banks to file insolvency and bankruptcy proceedings against all large loan accounts above Rs 2,000 crore if a resolution plan is not agreed upon in 180 days.

The Supreme Court had barred insolvency proceedings due to the RBI's circular. But whether any action could be taken under section 7 or 8 of the Insolvency and Bankruptcy Code wasn't addressed by the apex court in its September order. Section 7 and 8 of the IBC allow financial and operational creditors respectively to initiate insolvency proceedings.

BloombergQuint had put this question to senior advocates Sajjan Poovaiya and Sidharth Luthra at that time, when both agreed the court order doesn't bar proceedings outside of the Feb. 12 circular.