The government and the Insolvency & Bankruptcy Board of India (IBBI) are set to challenge the position taken by Anil Ambani and former chairman of Bhushan Power and Steel Sanjay Singhal, questioning the invocation of their personal guarantee. Singhal, who has now been ousted from his company, and Ambani had been questioned for the validity of the provisions.
The government is of the view that the law had been approved by Parliament and the provisions were contained in it. Besides, a government sources said, “the promoters had offered personal guarantees to cover the risk of default and just as corporate guarantees are invoked in case of loan defaults, so is the personal guarantee. You can’t have different rules”.
The source also said, absence of the power to invoke personal guarantee will make it difficult for lenders to extend credit and will change the entire terms of the contract. Singhal was the first to challenge the provisions in the Delhi high court after SBI invoked the provisions and set a demand notice of over £1.2 billion.
Ambani, who is battling creditors in India as well as in the UK, was next to rush to the Delhi HC after SBI decided to invoke guarantees related to £120 million loans extended to two of his companies, Reliance Communications and Reliance Infratel.
The government and IBBI have put in place new rules that allow lenders to act against personal guarantors to recover their dues. Earlier, the Insolvency and Bankruptcy Code only covered companies but subsequently the government sought to distinguish between individual bankruptcy and those related to personal guarantees.
The developments in the case are being followed closely by a host of Indian promoters, who have been hit by the four-year old law, as they had liberally offered personal guarantees to secure loans to their companies.
