FinMin directs govt-owned banks to invoke personal guarantees of defaulters

SBI takes lead in preparing list of all defaulters, including large corporations, whose firms are under bankruptcy proceedings

Following a nudge from the finance ministry, 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 leading to bankruptcy proceedings. As per the advice, the personal guarantees of all promoters, whose companies have gone to NCLT for debt resolution, must be invoked.

In a communication to the heads of all public sector banks on August 26, the Finance Ministry said the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, which have come into force with effect from December 1, 2019, empowers lenders to file insolvency application against personal guarantors to corporate debtors before the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016.

“In this connection, banks may consider putting in place a mechanism for monitoring the cases which may require initiation of individual insolvency process before the NCLT against personal guarantors to corporate debtors. Banks may also consider setting up IT (information technology) system to collate data regarding personal guarantors to corporate debtors in all such cases for the requisite follow up and consequential action,” it said.

The finance ministry’s nudge came after the Supreme Court asked the finance ministry to respond to a representation seeking disciplinary action against public sector banks (PSBs) for not invoking personal guarantees of promoters and directors of firms defaulting in repayment of huge loans.

Earlier, 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 the NCLT for debt resolution after a default on loans worth Rs 45,000 crore.  On August 22, the NCLT allowed banks to invoke Ambani’s guarantees but the Delhi high court stayed the proceedings on August 27.

“Apart from all the companies which are already in the NCLT and their debt has been resolved, the list will also include the names of the companies which are currently pending in the NCLT,” said a source close to the development.

In 2017, the RBI had identified around 39 companies which were sent to the NCLT for debt resolution in two batches.  While invoking the personal guarantees, the banks attach the private properties of the defaulters. As of date, over 3,900 companies being admitted and a majority of these cases have been filed by the operational creditors followed by the financial creditors.

Rough road ahead
 

* Banks asked to prepare list of all defaulters

* Prepare IT system to collate data on all guarantors

* Invoke personal guarantees wherever possible

* List includes large borrowers, guarantors