Top court to hear matter on insolvency of personal guarantors tomorrow

In the last hearing on Oct 29, SC had transferred to itself all petitions pending before various High Courts, challenging IBC provisions on the issue

The Supreme Court is likely to hear 19 petitions challenging the constitutional validity of provisions relating to insolvency of personal guarantors under the IBC on Thursday. 

In the last hearing on October 29, the top court had transferred to itself all the petitions pending before various High Courts, challenging the said IBC provisions. The SC had said that no further writ petitions on the issue were to be entertained by any High Court.

Among the personal guarantees which have been invoked by the banks are Anil Ambani, chairman of ADA group for Rs 1,200 crore. Other promoters facing invocation of personal guarantee include Sanjay Singhal of Bhushan Power and Steel, Atul Punj, founder, Punj Llyod. 

The ministry of corporate affairs has defended using the IBC provision to invoke promoter guarantees of corporate debtors.  

The rules for invoking personal guarantee of a corporate debtor were introduced in November 2019. The idea was to empower creditors to get the under-recovered amount from the corporate insolvency resolution process through personal guarantor. 

IBBI rules allowed such cases of personal guarantee to be dealt by the National Company Law Tribunal. However, personal guarantors have found gaps in the law which do not make it clear whether lenders have any right of recovery from them after agreeing to a resolution plan and taking a hair cut in the corporate insolvency process.