Review on Supreme Court’s Order on Invocation of Personal Guarantee by Public Sector Banks


Review on Supreme Court’s Order on Invocation of Personal Guarantee by Public Sector Banks

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Last month, an order was passed by Division Bench of Supreme Court of India, wherein J. Mr. Justice R. F. Nariman and J. Mr. Justice Navin Sinha, expressed views on the circular of Ministry of Finance, that personal guarantees issued by promoters/managerial personnel to be invoked. One of the Petitioners, Mr. Saurabh Jain, stated in his petition that huge loss would be caused not only to public exchequer but also to a common man, upon which Supreme Court directed Ministry of Finance to respond a Public Interest petition for seeking disciplinary action against Public Sector Banks for not invoking personal guarantees of promoters and directors of defaulter firms on large loans.

There are various paradigms on the point that, they flew away at the time of repayment of loan, even when they have given Personal Guarantee to the Financial Institution. Some of the recent examples are Jaypee, Bhushan Steel, Videocon and many others who had availed large loans on personal guarantee, whereas some of the former promoters of same kind are Jet Airways, Amtek Auto, Vijay Mallya of now-defunct Kingfisher Airline, Nirav Modi of Diamond Jewellery Designs. The very recent similar defaulter is Reliance Communications, wherein SBI invoked Personal Guarantee of Anil Ambani in NCLT Mumbai. The case is pending and may become a Landmark for cases like recovery of loans from Guarantor, where borrowers failed to repay.

Suspension of IBC also plays a vital role in such invocation of Personal Guarantee. Due to Covid-19 pandemic, Government has to impose National Lockdown, which has led to a great impact on economy and most of the companies are on verge of breakdown, so to help other or allowing them to cope-up with financial crisis, Ministry of Law and Justice has suspended initiation of CIRP cost or invocation of Personal Guarantee for six months from the date 05.06.2020.

Invoking of Personal Guarantee is very much needed in today’s times, because “there were” and “there are” many defaulters who have walked freely and loss has been suffered directly or indirectly by common man and Government of India as well. To get rid of these kind of losses, Ministry of Corporate Affairs has also incorporated sub-section (e) of S.2 i.e. “Personal Guarantors” to corporate debtors on 15.11.2019 and corresponding sections also. This would also lead to a great impact on recovery of loan from corporate debtors on huge basis and now a strict law may be required for invocation of Personal Guarantee by Public Sector Banks.


Dr. Sudhir Kumar Vats
Kanika Aggarwal