SC STAY ON PERSONAL GUARANTOR CASE MAY DELAY INSOLVENCIES

MUMBAI: A recent Supreme Court stay on a personal guarantor case is likely to be used across the country in all personal guarantee cases pending before various national company law tribunals, experts said.

In the matter, Gurmeet Sodhi, a personal guarantor, filed a plea before the Supreme Court, raising a constitutional challenge to the personal insolvency provision under the Insolvency and Bankruptcy Code (IBC). The case will be key for personal guarantors as it will require the court to explore the subject of personal guarantor rights, said advocate Srijan Sinha. On the other hand, Anushkaa Arora, principal and founder of ABA Law Office, said that though there won’t be any direct impact on other cases of NCLT, an implied effect can be seen in cases involving similar questions or points of law. “This can be a catch for guarantors of pending cases for obtaining interim relief on the same lines,” she said. “In granting interim relief to Sodhi, the top court took a forward step displaying its intention to decide the matter on merits. We will have to wait for a few more months to see how the law will evolve with respect to personal guarantors,” Arora said, adding that if the issue is not decided within six months, the interim relief will automatically get vacated. However, the court indicated that the issue of personal guarantors in IBC would be decided soon.

According to Insolvency and Bankruptcy Board of India data, applications invoking personal guarantees against corporate debtors filed by creditors surged to 637 as of March 2022 from 191 in FY21 and 16 in FY20. The total debt stands at ₹95,656.6 crore, while the guaranteed amount is ₹71,672.65 crore.

Ajay Shaw, partner, DSK Legal, said the SC order may result in other personal guarantors wanting to tag along to the matter filed by Sodhi, so that the proceeding against them under IBC is stayed till a final order is passed.