The Supreme Court’s recent ruling on personal guarantors in insolvency proceedings is set to have a significant impact on corporate promoters with outstanding bank dues. The decision empowers banks to directly seize and sell the personal assets of these promoters to recover their debts, eliminating the need for lengthy and often futile attempts to collect from corporate assets. This shift in liability is expected to prompt promoters to proactively settle their dues, reducing the burden of bad loans on the banking sector.
According to a Financial Express report, banks previously relied on the sale of company assets to recover dues from promoters, a process often hampered by legal complexities and delays. The Supreme Court’s ruling eliminates this hurdle, allowing banks to swiftly seize personal assets, including residential properties, shares, bonds, gold, and jewelry, to recoup their losses.
Experts believe this decision will compel promoters and directors to voluntarily settle their outstanding debts, promoting a culture of accountability and enhancing the recovery of bad loans. The Insolvency and Bankruptcy Board of India (IBBI) reports that over 2,289 cases involving personal guarantees linked to corporate loans, amounting to Rs 1.64 trillion, have been filed in the National Company Law Tribunal (NCLT). With the legal ambiguity surrounding personal guarantees now removed, individual guarantors are forced to engage in negotiations and settlements with creditors. The Supreme Court’s directives are expected to expedite the resolution of outstanding loans by clarifying the legal position and discouraging protracted legal battles.