The recent Supreme Court (SC) ruling permitting bankruptcy proceedings against personal guarantors of defaulting companies is poised to unlock a new avenue for lenders, potentially amplifying banks’ recoveries. This decision is anticipated to strengthen lenders’ negotiation position with defaulters and act as a deterrent against unrealistic personal guarantees from promoters in the future, as noted by banking experts and legal professionals.
As per the latest data from the Insolvency and Bankruptcy Board of India (IBBI), a total of 2,289 cases related to personal guarantees, involving a corporate debt of Rs 1.63 lakh crore, have been filed at the National Company Law Tribunal (NCLT). Out of these, 282 have been admitted, with 21 yielding Rs 91.27 crore.
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The judgement could also impact the recovery from accounts that were previously written off, contributing to gains in banks’ financial performance. Bankers anticipate pursuing both old and new cases, leveraging the SC’s decision to expedite proceedings.
This SC ruling is expected to send a strong message to defaulters, preventing misuse of personal insolvency cases to impede recovery processes. Banks foresee this as a strategic tool to pressure defaulters into settlements and discourage promoters from offering impractical bank guarantees, aligning with the changing landscape of insolvency dynamics in India.
