State Bank of India Initiates Sale of Personal Guarantees by Nikhil Gandhi for Recovery of Outstanding Dues

The State Bank of India (SBI) has announced its intention to sell the personal guarantees provided by Nikhil Gandhi, the former promoter of Reliance Naval and Engineering. This move comes as the bank seeks to recover outstanding dues. As of May 31, 2024, the bank has reported principal outstanding dues of ₹1,160 crore and total dues of ₹3,512 crore. Nikhil Gandhi, along with his brother Bhavesh Gandhi, has provided personal guarantees, while SKIL Infrastructure has provided corporate guarantees for the loan.
SBI has set a reserve price of ₹3.48 crore for the sale of the personal guarantees, which is less than 1% of the principal claim made by the bank. This sale is expected to be the largest secondary market trade in terms of outstanding dues for personal guarantees by any lender.
Recovery Under Personal Guarantees Could Be Minimal
This transaction highlights that the recovery under personal guarantees may be significantly less than the claim amount. A senior official from the distressed loan industry has suggested that the recovery amount could be minuscule compared to the outstanding claim.
Implications of the Sale and Personal Guarantee Provisions
SBI has stated its intention to assign the residual debt along with the guarantees. It is worth noting that in December, the Supreme Court upheld the constitutional validity of an Insolvency and Bankruptcy Code (IBC) provision that allows lenders to recover overdue money from personal guarantors of corporate debtors. This means that lenders can invoke the provisions of the act if they are unable to recover the entire debt even after selling the company under the IBC. The lender can do so provided that the promoter of the defaulting company has provided a personal guarantee against the loan.
In the case of Reliance Naval, the resolution professional had acknowledged claims totaling ₹12,429 crore from financial creditors, with lenders recovering only about 17% of the amount. This entitles lenders to recover the residual debt by invoking personal insolvency provisions. The residual debt refers to the difference between the claim and the recovery from the sale of the company under the IBC.
Auction Details and Timeline
SBI has invited expressions of interest for the sale of Nikhil Gandhi’s personal guarantees by May 31 and has scheduled an auction for June 25. Despite repeated attempts, Nikhil Gandhi could not be reached via email or mobile phone.