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Lenders can initiate insolvency proceedings against promoters, managing directors and chairpersons who have signed personal guarantees on corporate loans in case the borrowers default, the Supreme Court ruled.
The apex court on Friday upheld the central government’s November 2019 notification issued under the Insolvency and Bankruptcy Code (IBC) as “legal and valid".
“It is held that the impugned notification was issued within the power granted by Parliament and in valid exercise of it. The exercise of power in issuing the impugned notification is, therefore, not ultra vires; the notification is valid," said a bench of justices L. Nageswara Rao and S. Ravindra Bhat.
The bench dismissed a clutch of 75 petitions challenging the 2019 notification.
The petitioners included industrialists Anil Ambani, Venugopal Dhoot, Kapil Wadhawan, Sanjay Singal and Atul Punj, each of whom had stood as personal guarantor to corporate debts.
The 2019 notification sought to make them personally liable for that part of the debt that had remained outstanding in the resolution proposal of the companies under insolvency.
Friday’s ruling means if the debt owed by a company is not repaid under the resolution plan, the personal guarantor would not only not stand discharged but could find himself taken into bankruptcy proceedings by the creditors.
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