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The Debt Recovery Tribunal (DRT) has rejected a plea by Punjab National Bank to invoke personal guarantees of promoters of Essar Steel — Prashant and Ravi Ruia. The order was passed by the Ahmedabad Bench of the DRT on March 11.
“Since no debt is found due and recoverable by the applicant banks from the defendants, the present original application is hereby dismissed with no order as to cost,” said the ruling by Laxman Madnani, Presiding Officer, DRT, Ahmedabad.
The Tribunal also dismissed a similar case filed by State Bank of India to invoke personal guarantees taken by Prashant and Ravi Ruia.
“Typically, banks enter into the guarantee agreement and then invoke personal guarantees if they are unable to recover the debt. Guarantees act as a shield and protect investors’ interests, but if they are unable to invoke them in the event of a resolution plan being approved by the court, the guarantees will be meaningless and all companies will voluntarily declare bankruptcy,” said Sonam Chandwani, Managing Partner at KS Legal & Associates.
It makes sense for the bank to appeal the decision of the DRT in the High Court, she further said.
Personal guarantees
The Ruias were the promoters of Essar Steel India before it was sold under the insolvency process. The company was acquired by ArcelorMittal and Nipon Steel for ₹42,000 crore. The NCLT had iapproved the resolution plan by ArcelorMittal n March 2019.
Prashant Ruia had executed personal guarantees and guaranteed the amount due and payable by Essar Steel India Ltd under various credit and financial facilities.
In its ruling, the Tribunal noted that the application does not survive as the cause of action for recovery of alleged debt of the financial creditors has come to an end on assignment of the entire debt of the corporate debtor by the financial creditors in favour of ArcelorMittal India Private Ltd.
Advocates appearing for the Ruias contended that the entire liability of all secured financial creditors stands discharged. Applicant banks are also part of the secured financial creditors and their liabilities also stands fully discharged.
Applicant banks, however, submitted that they still have to recover the outstanding amount by way of interest from the guarantors.
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