Money & Banking

Banks to invoke sureties given by promoters of 17 defaulting cos

Our Bureau Mumbai | Updated on July 13, 2021

Over-burdened NCLTs Benches, endless litigation, defiant promoters and failing sectors are hampering the IBC process   -  istock/stocknshares

In May, the SC upheld the amendment to the Insolvency and Bankruptcy Code that allowed lenders to invoke the personal guarantees of promoters to recover dues

Several banks, including State Bank of India and Bank of Baroda, are moving to invoke the personal guarantees given by promoters of 17 defaulting companies including Punj Lloyd, Amtek Auto, ABG Shipyard, Videocon, Varun Shipping, and Lanco. They have approached the National Company Law Tribunal.

“Banks have decided that for invoking the personal guarantees, only the lead lender in each case will go to the NCLT. Applications have been filed before NCLT Benches in Delhi, Ahmedabad, Kolkata and Mumbai,”said a source.

In May, the Supreme Court upheld the amendment to the Insolvency and Bankruptcy Code that allowed lenders to invoke the personal guarantees of promoters to recover their dues. This came as a major relief for lenders as under the corporate insolvency process, they are able to recover 35-40 per cent of the total debt in most cases. Now, in the absence of a credible repayment plan, creditors can initiate bankruptcy proceedings against the promoters. According to a PIL in the Supreme Court, lenders can recover ₹1.6-lakh crore from 40 defaulting promoters through this route.

Post SC order, banks move to assess value of promoters’ assets

However, one major hurdle is that many promoters are scam-tainted and are being investigated for fraud. DHFL’s former promoter Kapil Wadhawan, for example, is in prison for alleged fraud. “Most of these promoters in default are scam-tainted and their multi-billion rupee assets already attached by the Enforcement Directorate and the Economic Offences Wing of the Police. Getting the assets released from these agencies will take its own time,” said a lawyer on conditions of anonymity as he represents a defaulting promoter.

Nakul Sachdeva of L&L Partners, said though there is the Supreme Court judgment, the procedure for invoking personal guarantees is yet to be fully tested.

Published on July 12, 2021

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