Bank can now recover loans debt by selling assets of personal guarantor

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Bank loans

The Supreme Court has given a shock to the well-known promoters of some corporate houses trying to escape the process of insolvency law. In a case related to the Insolvency and Bankruptcy Code (IBC), the apex court on Friday gave an exemption for recovery from the promoters of personal guarantees in providing bank loans to companies involved in the insolvency process, while giving an important verdict.

Banks will now be able to recover the debt by selling the assets of people who have given corporate guarantees. A notification in this regard was issued by the Central Government in November 2019, against which many big industrialists filed a petition in the court. These include people like Anil Ambani, Kapil Wadhawan, Sanjay Singhal, Venugopal Dhoot. Action is being taken under the IBC against the companies promoted by all of them.

Insolvency and Bankruptcy Code (IBC)

Insolvency law experts see this decision of the Supreme Court as a major victory in the context of the implementation of IBC. This decision has become more relevant when the banking sector is facing a further escalation in the banking sector due to Corona in the country.

In many cases of the insolvency process, the promoters of the insolvent company have given their personal guarantees for bank loans. Now banks can start the process of recovery from all these. In the event of non-recovery, he will be declared personally insolvent. The court has also allowed the guarantor to conduct insolvency proceedings in the National Company Law Tribunal (NCLT) like the company.

Supreme Court Justice L. Nageswara Rao and Justice S. The bench of Ravindra Bhatt has said in its order that the mere approval of the resolution plan does not mean that the personal guarantor who plays a key role in providing bank loans to the companies has no responsibility. The guarantor of the loan cannot be separated from the obligation of the contract of guarantee. The court has validated the notification issued by the central government in this regard. Around 75 people had filed a petition against the Central Government’s notification.

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