Money & Banking

SBI moves to invoke promoter guarantees of defaulting companies

Mumbai | Updated on September 03, 2020 Published on September 02, 2020

40 entities could be hit; bank has prepared a list of defaulters and will send it to FinMin

State Bank of India is readying to invoke personal guarantees of promoters of defaulting entities through the insolvency process.

Once the nation’s top lender gets the nod of the National Company Law Tribunal (NCLT), personal guarantees given by the promoters of about 40 defaulting corporate entities could be invoked.

Top sources told BusinessLine that SBI has prepared a list of such defaulters and this is also being sent to the Finance Ministry.

In July, the Supreme Court had asked the Centre to explain why these guarantees have not been invoked by public sector banks. This came in the wake of a public interest litigation filed in the top court asking why ₹1.8-lakh-crore worth of personal guarantees given by defaulting promoters had not been invoked to recover the outstandings. The PIL named several promoters whose personal guarantees have not been invoked, including Kapil and Dheeraj Wadhwan of DHFL (₹79,344 crore); Venugopal and Rajkumar Dhoot (₹22,076 crore); Madhusudhan Rao and family (₹5,253 crore); IVRCL’s Sudhir Reddy (₹7,058 crore); and Jatin Mehta of Winsome Diamonds (₹6,185 crore). So far, only State Bank of India has moved to encash personal guarantees given by Anil Ambani.

FinMin nudge

In August, the Finance Ministry had directed public sector banks to institute a mechanism to monitor cases that may require the initiation of the individual insolvency process against such guarantors before the NCLT. Many bankers are viewing the advisory as a nudge from the Finance Ministry to file cases against personal guarantors.

“Personal guarantees are not taken by banks (including PSBs) as a matter of course but only in special circumstances. Accordingly, where the occasion arises to invoke such personal guarantees on account of default by the borrowing entity, the same ought to be done without delay,” said a corporate lawyer.

A Master Circular issued by the Finance Ministry on July 1, 2009, clearly allowed banks to invoke personal guarantees when a default happens, but banks have been reluctant to act until now.

But lawyers involved in such recovery proceedings say that cases related personal guarantees have continued for years in civil courts without any meaningful recovery given the case load and the legal system itself. For instance, in Anil Ambani’s case, the Delhi High Court has stayed proceedings even though the NCLT had approved invoking of personal guarantees.

“Creditors do approach recovery tribunals for claims under personal guarantees. Where there are assets available for realisation, usually debtors come forward to settle. However, in many cases, assets may not be available, traceable or limited and hence pursuit of legal action may not yield results,” said a Mumbai-based lawyer.

SBI did not reply to queries sent by BusinessLine.

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Published on September 02, 2020
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