NEW DELHI: In what may make high-profile corporate honchos such as Anil Ambani personally liable for the loans their companies have taken but not repaid, the Supreme Court on Friday upheld the constitutional validity of the Centre’s November 15, 2019 circular that brought personal guarantors of corporate loans under the ambit of the Insolvency and Bankruptcy Code.
The verdict has come as a major boost for banks, which can now seek recovery of dues from the promoter guarantors even while bankruptcy processes against the companies are pending. The order came on a plea by industrialists Anil Ambani, Kapil Wadhawan, Sanjay Singhal, and Venugopal Dhoot – whose firms are facing insolvency proceedings – challenging the 2019 notification.
According to the promoters, the Centre targeted them though the law was for individuals, corporate guarantors as well as partnership firms. The SC held that the government’s intent was to implement the provisions of the IBC in a phased manner.
SC verdict paves the way for lenders to take promoters to insolvency court
While dismissing the petitions against the application of personal insolvency on personal guarantors, the SC held that the intent of the Centre is to implement the provisions of the IBC in a phased manner and that there was sufficient legislative guidance to distinguish and classify personal guarantors separately from other individuals. Experts welcomed the judgment.
Misha, Partner at Shardul Amarchand Mangaldas & Co, said this would help settle jurisprudence on simultaneous initiation and proceeding with the insolvency resolution process against principal borrower and guarantors too. A bunch of writ petitions were filed in different high courts against the insolvency provisions against personal guarantors by the likes of Anil Ambani, ex-promoter of Reliance Telecom, Sanjay Singal, ex-promoter of Bhushan Power and Steel, Venugopal Dhoot of Videocon, and Atul Punj, ex-promoter of Punj Lloyd. All these companies are facing IBC proceedings.
These petitioners had, in some stage or the other, furnished personal guarantees to banks and financial institutions to avail loans for firms which they were associated with as directors, promoters or in some instances, as chairman or managing directors. In some cases, like that of Anil Ambani and Venugopal Dhoot, banks had submitted personal insolvency petitions.
In the case of Anil Ambani, the SC had stayed the personal insolvency proceedings initiated by SBI. Sumit Batra, a corporate lawyer, said the judgment paves the way for the lenders to initiate and pursue action against corporate debtors and personal guarantors simultaneously. “Earlier, with no remedy for the lenders... promoters had an easy escape route and, at times, used to act as a roadblock,” he pointed out.