The Supreme Court judgment upholding the constitutionality of the Insolvency and Bankruptcy Code relating to personal guarantors will put promoters of defaulting companies, including Anil Ambani, Venugopal Dhoot, Atul Punj, and the Wadhwans of DHFL, in further trouble as the lenders can now pursue around 2,200 cases to recover ₹163,917 crore from the personal guarantees provided by the promoters of insolvent companies.
Until now, of the overall applications filed for invoking personal guarantee, 150 have been rejected or withdrawn, and only 282 have been admitted as of September-end.
But this will change after the top court, while ruling on 350 petitions by personal guarantors, including by Reliance ADA Group chairman Anil Ambani, allowed banks to initiate insolvency proceedings against personal guarantors of defaulter companies without giving them an opportunity to present their stand to speed up the bankruptcy process.
A PIL filed earlier had named several promoters whose personal guarantees have not been invoked, including Anil Ambani (guarantees worth ₹1,400 crore), 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).
Dhiraj Mhetre, Partner, Khaitan Legal Associates, said there will be a sudden spike in insolvency petitions filed against personal guarantors, even though hearings on all pending cases will be speeded up after the Apex Court verdict.
“As we are yet to see the innovative defences that the promoters may come up with to defend themselves, lenders certainly have to get into another round of litigation with the promoters to recover the dues,” he added.
Ashwin R Anneppanavar, Partner, IndiaLaw LLP, said there will be a robust change in the recovery process, which is a big relief to the lenders as it gives them more strength to recover their bad debts.
The lenders initiating the resolution process against the personal guarantors can also recover the portion of the debt that was not settled in the corporate insolvency resolution process, he added.
Babu Sivaprakasam, Managing Partner, Lex Aeterna Practices, said banks will now have no impediments to pursue against such personal guarantors where the claim against the corporate debtor has been settled under IBC and still recourse against the personal guarantors is kept alive.
Now that the constitutional challenges have been addressed, he added that the process-related other matters will be streamlined either through statute or precedence, and thereafter the timeline will mostly depend on the infrastructure of the tribunals.
Ajay Monga, Partner, SNG & Partners, Advocates & Solicitors, said the personal guarantor would now be wary of getting in litigation involving their individual insolvency, and there is a likelihood for them to approach lenders for settlement.
The banks would now feel more secure to take personal guarantees as securities towards the loan as they know that they can initiate insolvency against guarantors, he added.
Amrita Panda, Advocate-on-Record and Arbitrator, said the Apex Court judgment upholds the constitutional validity of provisions relating to the imposition of a moratorium on personal guarantors’ assets at the initial stage without hearing the personal guarantor.