By Tom Hals
(Reuters) - To many in the West, a fatwa is often associated with the 1989 religious edict against author Salman Rushdie.
But, in what may be a first, a party has cited the term in a U.S. bankruptcy court, citing a "fatwa" as a reason to prevent Goldman Sachs <GS.N> from making a loan to bankrupt Bahrain investment firm Arcapita Bank BSC.
Earlier this month, Bankruptcy Court Judge Sean Lane in New York confirmed Arcapita's reorganization in what many experts said was the first Chapter 11 that was compliant with Islamic law, or Sharia.
Under Central Bank of Bahrain rules, Arcapita must obtain a fatwa, or religious edict, from a supervisory board of Islamic experts, before undertaking new finance.
In a filing in U.S. Bankruptcy Court in New York on Monday, Hani Alsohaibi, who had invested money with by Arcapita, said only one member of Arcapita's supervisory board signed the fatwa setting the conditions for a debtor-in-possession, or DIP, loan from Goldman Sachs. Therefore, the court should reject the loan, the filing said.
Goldman Sachs did not immediately respond to a request for comment.
Attorneys for Arcapita Bank were quick to direct the judge back to the governing law.
"The principal DIP transaction documents are governed by English Law, and compliance with moral and religious principles of sharia, on which there is no universal view (at least on earth), is not pertinent to the courts' final ruling," a lawyer for Arcapita, Craig Millet of Gibson, Dunn and Crutcher, wrote in a filing on Thursday.
A search of court records in the Westlaw legal database suggests that the Goldman loan appears to be the first time a question of a fatwa has been presented to a U.S. bankruptcy judge.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Leslie Adler)