Bad loans: SC allows banks to invoke personal guarantees of defaulters

Apex court says approval of resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of his or her liabilities under contract of guarantee

The Supreme Court on Friday upheld a government notification of 2019 to invoke personal guarantees of promoters whose companies defaulted on bank loans.

The court ruling will allow banks to file personal bankruptcies against top Indian promoters whose companies have been sent to the National Company Law Tribunal (NCLT) for debt resolution.

The Insolvency and Bankruptcy Code (IBC) was enacted in 2016 and the government amended the IBC in November 2019 and gave additional powers to lenders to invoke the personal guarantees of defaulters.

Lenders have invoked the personal guarantees of companies including Bhushan Steel, Bhushan Power and Steel, Punj Lloyd, and Reliance