Big ticket loan defaulters who have given huge personal guarantees may line up to settle their debt after the Supreme Court ruling allowing lenders to liquidate personal assets of promoters of companies under insolvency proceedings.
The ruling enables banks to immediately recover dues by liquidating personal assets such as residential properties, shares and bonds, gold, and jewellery of these promoters. Legal experts suggest that this development will likely encourage promoters and directors to voluntarily step forward to settle pending dues, potentially bolstering the recovery from bad loans.
Among the big names, former promoters of Bhushan Steel and Power Sanjay Singhal and his wife Aarti Singhal had furnished personal guarantees worth up to Rs 24,550 crore to take loans from a consortium of banks led by State Bank of India (SBI).
The former promoter of Reliance Communications, Anil Ambani, has also given a personal guarantee against the loan taken. Erstwhile promoter Wadhawan stands guarantee to loans taken by DHFL, while Dhoot has also given a personal guarantee to a portion of Rs 22,000 crore loan to Videocon.
The verdict
Prior to the ruling, promoters would urge banks to recover dues by liquidating the company’s assets, a process known for its time-consuming nature. The recent decision upholds the constitutionality of the Insolvency and Bankruptcy Code (IBC) provisions on personal guarantors in the insolvency resolution process, offering relief to lenders. The implications of the judgment are expected to be profound, particularly in ongoing legal battles involving high-profile names like Anil Ambani, Venugopal Dhoot, Kishore Biyani, Kapil and Dheeraj Wadhwan, who are facing efforts from lenders to recover their dues.
The Insolvency and Bankruptcy Board of India reports that 2,289 cases related to personal guarantees, involving corporate debt of Rs 1.64 lakh crore, have been filed at the National Company Law Tribunal. The Supreme Court’s clarification on the issue has left personal guarantors with fewer options, prompting them to consider negotiations and settlements with creditors. The ruling reduces ambiguity in the legal framework, making it more challenging for guarantors to evade liabilities.
Experts suggest that with the legal landscape clarified by the Supreme Court, personal guarantors may be inclined towards quicker settlements, given the limited grounds for challenging the appointment of resolution professionals and the recommendations made by them for the insolvency process. The decision is seen as potentially expediting resolutions and reducing the likelihood of protracted legal battles initiated by guarantors.
SBI action
SBI was one of the respondents to the 74 petitions and challenges by promoters on the invocation of personal guarantees. It has been in the forefront of invoking guarantees of promoters of defaulting companies. It had invoked Rs 1200 crore of guarantees given by Ambani for defaulting companies Reliance Communications and Reliance Infratel.
SBI had also approached the Mumbai bench of the NCLT to initiate guarantees by the Videocon Industries Dhoot brothers totalling Rs 11,500 crore.
It had also taken Bhushan Power & Steel promoter Sanjay Singal to court to recover Rs 12,276 crore dues to the bank for which he was a guarantor. All these promoters had challenged these actions in court.
