Lenders invoke personal guarantees worth Rs 34,000 crore in 201 default cases

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A 2019 notification by the Centre allowing the lenders to invoke personal guarantees of promoters whose companies defaulted on bank loans was upheld by the Supreme Court in May this year. Empowered by this judgment, Indian banks were found to have invoked personal guarantees of Rs 34,000 crore in 201 cases of loan defaults as of June 30 this year. The total debt default by companies was Rs 37,861 crore, according to a report in The Business Standard.

Within the April-June quarter of 2021-22, banks invoked personal guarantees worth Rs 8,437 crore of defaulting promoters by taking action against 56 accounts.

Lenders in action

The business daily further reported that this development happened soon after the banks invoked personal guarantees of 115 accounts after their companies defaulted on Rs 26,000 crore debts in 2020-21.

According to data obtained from insolvency professionals by the BS, 201 applications have been filed as of June 30. Of these, 17 applications have been filed by debtors and 184 by creditors under Sections 94 and 95 of the Insolvency and Bankruptcy Code (IBC), 2016, respectively.

Banks tighten the noose

The creditors are now filing more cases in the National Company Law Tribunal (NCLT). Against the seven suits that were filed before the Debt Recovery Tribunal, 194 were filed before the NCLT. According to BS, banks say more cases will be filed since the law is now unambiguous after the recent SC judgment.

The court ruling allowed banks to file applications for personal bankruptcy proceedings against top Indian promoters whose companies have been sent to the NCLT for debt resolution. Lenders have already invoked the personal guarantees of companies including Bhushan Steel, Bhushan Power & Steel, Punj Lloyd and Reliance Communications among others.

In several cases, the promoters of the loan defaulter companies earlier accused their professional managers of fraud and diversion of company funds, according to the report. But lawyers now suggest that they would not get any relief from the proceedings under IBC since the lenders will now invoke their personal guarantees.