Why don't PSBs invoke personal guarantees of promoters: SC on bad loans

Top court asks Finance Ministry to look into plea that claims a loss of hundreds of crore every day due to loan defaults

The Supreme Court has asked the Ministry of Finance to look into a plea that claimed a loss of hundreds of crore every day, as the public sector banks are not invoking personal guarantees of big corporates who have defaulted on loans.

A bench comprising Justice R. F. Nariman and Navin Sinha asked the petitioners, Saurabh Jain and Rahul Sharma, who filed the PIL, to move the Finance Ministry with a representation within two weeks. The top court observed that the issue is important and the ministry should respond after the petitioner has made the representation before it. The matter had come up for hearing on Monday.

"We are of the view that at page 115 of the Writ Petition it has been made clear that the Ministry of Finance itself has, by a Circular, directed personal guarantees issued by promoters/managerial personnel to be invoked. According to the petitioners, despite this Circular, Public Sector Undertakings continue not to invoke such guarantees resulting in huge loss not only to the public exchequer but also to the common man", said the bench in its order.

Senior advocate Manan Mishra and advocate Durga Dutt, represented the petitioners.

Mishra contended before the bench that the statistics establish the public sector banks incurred a loss of approximately Rs 1.85 trillion in a financial year, and the banks did not take action to invoke personal guarantees of the biggest corporate defaulters.

The bench observed that since the petitioners claim the public sector undertakings are not complying with this circular. "We think you should first go to the ministry," said the bench.

Mishra argued before the bench that the loans from a common man are recovered through a mechanism where officials go through even the minutest detail, but promoters, chairpersons and other senior level functionaries of the big corporates find it convenient to get away by defaulting on loans.

The bench told the petitioner's counsel that the Finance Ministry has already issued a notification on this matter, and the petitioners should seek response from the ministry, and then move the top court. Mishra submitted before the bench to issue a direction to the Finance Ministry to give a response on their representation.

The bench said, "We allow the petitioners, at this stage, to withdraw this Writ Petition and approach the Ministry of Finance with a representation in this behalf. The representation will be made within a period of two weeks from today. The Ministry of Finance is directed to reply to the said representation within a period of four weeks after receiving such representation. With these observations, the petition is allowed to be withdrawn to do the needful."

Mishra contended before the bench seeking liberty to come back after a reply from the Finance Ministry. Justice Nariman said this option is open for petitioners after a decision has been taken by the ministry. "We will hear you", added Justice Nariman.