Personal Guarantors Liable for Corporate Debt: SC Upholds IBC Rule

The Supreme Court on Friday upheld the November 15, 2019 notification issued under the provisions of the Insolvency and Bankruptcy Code (IBC) that allow initiation of insolvency proceedings against personal guarantors and corporate debtors.

"It is also held that the approval of the resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of the personal guarantors of the corporate debtor. The writ petition and transferred petitions are dismissed in above terms without costs," Justice S Ravindra Bhat said reading the judgment.

On March 12, the top court had reserved its verdict on a batch of pleas challenging provisions of the IBC which allowed insolvency proceedings against personal guarantors. The court's decision impacts the likes of fallen billionaire Anil Ambani, Prashant Ruia of Essar Steel, Amtek Auto's Arvind Dham, Venugopal and Saurabh Dhoot from Videocon Group, Kapil and Dheeraj Wadhwan of DHFL, Moser Baer promoter Deepak Puri and Sanjay Singal, former chairman of Bhushan Power & Steel Limited.

On November 15, 2019, the Centre published the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 with effect from December 1, allowing lenders to simultaneously haul companies and personal guarantors before the National Company Law Tribunal (NCLT). This means, if an individual has executed a deed as a personal guarantor to avail a loan for a company, the lender can now recover dues from both parties.

On September 17 2020, the Supreme Court dismissed a plea filed by State Bank of India challenging the Delhi High Court (HC) order staying insolvency proceedings against businessman Anil Ambani.

The August 28 high court order came on a plea filed by Ambani challenging the constitutional validity of Part III of the Insolvency & Bankruptcy Code (IBC) which brought a corporate debtor's personal guarantor under the purview of insolvency proceedings.

Also Read: Anil Ambani's Bankruptcy Case: SC Dismisses SBI's Plea To Vacate Stay