SC allows banks to proceed against personal guarantors under IBC
PremiumPetitioners had challenged the November 15, 2019 notification issued under the IBC and other provisions in as far as they relate to personal guarantors to corporate debtors.
The apex court of the country on Friday upheld the validity of the Centre's notification allowing banks to proceed against personal guarantors for recovery of loans given to a company under the Insolvency and Bankruptcy Code (IBC).
A bench comprising justices L Nageswara Rao and S Ravindra Bhat held that approval of resolution plan under the IBC does not discharge personal guarantors of their liability towards the banks.
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"In the judgment, we have upheld the notification," Justice Bhat said while reading out the conclusion of the judgement which decided as many as 75 petitions pertaining to the validity of the notification.
The verdict is a boost for lenders as it allows them to seek recovery of dues from guarantors of loans even while bankruptcy processes against the companies are pending. This could potentially speed up efforts by lenders trying to clear one of the world’s worst piles of bad loans.
The Insolvency and Bankruptcy Board of India (IBBI) had sought the transfer of all the matters pending before the High Courts to the Supreme Court.
Petitioners had challenged the November 15, 2019 notification issued under the IBC and other provisions in as far as they relate to personal guarantors to corporate debtors.
Upholding the validity of the notification, the top court ruled that initiation of an insolvency resolution plan for a company does not absolve corporate guarantees given by individuals from paying up the dues to financial institutions.
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