On Finmin nudge, banks set to invoke guarantees

Public sector banks (PSBS), led by State Bank of India, are preparing a list of defaulters who had given personal guarantee while taking loans, following a nudge from the finance ministry.

According to the advice, personal guarantees of all promoters — whose companies have gone to the National Company

Law Tribunal (NCLT) for debt resolution — must be invoked.

In a communication to PSB heads on August 26, the finance ministry said that the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 — which came into force effective December 1, 2019 — empowered lenders to file insolvency applications against personal guarantors to corporate debtors before the NCLT, under the Insolvency and Bankruptcy Code, 2016.

“In this connection, banks may consider putting in place a mechanism for monitoring cases that may require initiation of individual insolvency process before the NCLT against personal guarantors to corporate debtors. Banks may also consider setting up an IT system to collate data regarding personal guarantors to corporate debtors, in all such cases, for the requisite follow-up and consequential action,” it said.

The finance ministry’s nudge came after the Supreme Court asked it to respond to a representation seeking disciplinary action against PSBS for not invoking personal guarantees of promoters and directors of firms that had defaulted.

Earlier, SBI had filed a plea at NCLT Delhi against Anil Ambani, seeking invocation of his personal guarantee. Ambani’s personal guarantees were invoked after banks sent Reliance Communications to the NCLT for debt resolution following the ~45,000-crore default.

On August 22, the NCLT allowed banks to invoke Ambani’s guarantees, but the Delhi High Court stayed the proceedings on August 27.