Editor's Pick: Some good news for banks

The Supreme Court of India has upheld a Central government notification from 2019 that allowed creditors to take up debt recovery procedures against personal guarantors of corporate loans. The court has clarified that any resolution of a corporate debt does not absolve personal guarantors, and lenders can recover any balance amount from them. Bankruptcy processes in India are governed by the Indian Bankruptcy and Insolvency Code; and the Corporate Insolvency Resolution Process (CIRP) — debt recovery from the bankrupt company by creditors — is dealt with by the National Company Law Appellate Tribunal. Till now, the approval of a resolution process for corporate debt was taken to mean that personal guarantors were off the hook. Now, the Supreme Court has said that personal guarantees are independent contracts and the guarantors remain responsible for any outstanding debt. Personal guarantors of corporate loans are often the promoters or owners of the companies taking out the loans. While these owners could insulate their personal assets from the bankruptcy of their companies earlier, now they have lost that shield. This is bad news for business owners such as Anil Ambani, one of the litigants in this case who stood as personal guarantor for loans amounting to ₹1,200 crore for his Reliance Communications and Reliance Infratel. The lender, SBI, moved personal bankruptcy proceedings against Mr. Ambani after the companies defaulted on the payments. The Supreme Court verdict is good news for lenders such as banks and financial institutions as the CIRP process for corporate entities do not always result in full recovery of the debt. Also, the possibility of personal bankruptcy could pressure owners who are personal guarantors to ensure that corporate debts do not go bad. These scenarios for the owners and banks are what make this story important. 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[Arrow]( [Open in browser]( [Mail icon]( [More newsletters]( Some good news for banks [Some good news for banks] The Supreme Court of India has upheld a Central government notification from 2019 that allowed creditors to take up debt recovery procedures against personal guarantors of corporate loans. The court has clarified that any resolution of a [corporate debt does not absolve personal guarantors]( and lenders can recover any balance amount from them. Bankruptcy processes in India are governed by the [Indian Bankruptcy and Insolvency Code]( and the Corporate Insolvency Resolution Process (CIRP) — debt recovery from the bankrupt company by creditors — is dealt with by the National Company Law Appellate Tribunal. Till now, the approval of a resolution process for corporate debt was taken to mean that personal guarantors were off the hook. Now, the Supreme Court has said that personal guarantees are independent contracts and the guarantors remain responsible for any outstanding debt. Personal guarantors of corporate loans are often the promoters or owners of the companies taking out the loans. While these owners could insulate their personal assets from the bankruptcy of their companies earlier, now they have lost that shield. This is bad news for business owners such as Anil Ambani, one of the litigants in this case who stood as personal guarantor for loans amounting to ₹1,200 crore for his [Reliance Communications and Reliance Infratel](. The lender, SBI, moved personal bankruptcy proceedings against Mr. Ambani after the companies defaulted on the payments. The Supreme Court verdict is good news for lenders such as banks and financial institutions as the [CIRP process]( corporate entities do not always result in full recovery of the debt. Also, the possibility of personal bankruptcy could pressure owners who are personal guarantors to ensure that corporate debts do not go bad. These scenarios for the owners and banks are what make this story important. 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