Following a push from the Ministry of Finance, Indian public sector lenders, led by the State Bank of India, are preparing the list of all defaulters who had given their personal guarantees while taking loans and defaulted, resulting in bankruptcy proceedings. According to the council, the personal guarantees of all promoters, whose companies have turned to NCLT for debt resolution, should be invoked.
In a communication to the heads of all public sector banks on August 26, the Ministry of Finance reported that the Insolvency and Bankruptcy Rules (Request to the Adjudicating Authority for the Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) , of 2019, which have entered into force with effect. As of December 1, 2019, it empowers lenders to file an application for insolvency against personal guarantors to corporate debtors before the National Court of Commercial Law under the Bankruptcy and Bankruptcy Code of 2016.
“In this sense, banks may consider the implementation of a mechanism to monitor cases that may require the initiation of an individual insolvency process before the NCLT against personal guarantors of corporate debtors. Banks may also consider establishing an IT (information technology) system to collect data on personal guarantors from corporate debtors in all these cases for the required follow-up and consequent action, ”he said.
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The push from the Ministry of Finance came after the Supreme Court asked the Ministry of Finance to respond to a representation seeking disciplinary action against public sector banks (PSB) for failing to invoke personal guarantees from promoters and directors of companies that defaulted on large loans.
Previously, the State Bank of India had filed proceedings in the NCLT Delhi against Anil Ambani to invoke his personal guarantees.
Ambani’s personal guarantees were invoked after banks sent Reliance Communications to NCLT for debt resolution after a 45 billion rupee loan default. On August 22, the NCLT allowed banks to invoke Ambani’s guarantees, but the Delhi high court suspended the proceedings on August 27.
“Apart from all the companies that are already in the NCLT and their debt has been resolved, the list will also include the names of the companies that are currently pending in the NCLT,” said a source close to the development.
In 2017, the RBI had identified around 39 companies that were submitted to the NCLT for debt resolution in two batches. By invoking personal guarantees, banks seize the private properties of defaulters. To date, more than 3,900 companies are being admitted and the majority of these cases have been filed by operational creditors followed by financial creditors.
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