First, Chennai Debt Collection Court Admits Insolvency Plea Against Personal Guarantor

0

Experts believe that the personal insolvency process under the Insolvency and Bankruptcy Code of 2016 is likely to have strict deadlines to follow, unlike previous regimes.

In a first of its kind in Tamil Nadu, the Debt Recovery Tribunal – II, Chennai allowed an insolvency claim against a personal guarantor Rohit Nath in a case filed by KEB Hana Bank.

Mr. Nath had given a personal guarantee on the loans granted by Alectrona Energy Private Limited.

The law on the opening of collective proceedings against personal guarantors was notified on December 1, 2019 and according to experts, the current development should be a red flag for promoters and personal guarantors.

“By convention, in India, promoters and their family members, relatives and associates act as ‘personal guarantors’ for debts borrowed by the Company from lenders / financial institutions. It’s even more common in small and medium-sized businesses that were already in the red and now overwhelmed by the pandemic effect, ”said Anant Merathia, a Chennai-based corporate lawyer.

“With the evolution of times and legal frameworks, this is a serious aspect that Indian promoters / guarantors must take into account both for the ongoing personal guarantees issued against failures and performance. of their businesses and those they offer to donate for additional funding. They should think twice before involving family members as personal guarantors, ”Merathia said.

Experts believe that the personal insolvency process under the Insolvency and Bankruptcy Code of 2016 is likely to have strict deadlines to follow, unlike previous regimes.

Another interesting aspect to look forward to is the outcome of the litigation challenging the constitutional validity of the provisions of the Insolvency and Bankruptcy Code, 2016 regarding personal guarantors.

The provisions are being challenged in the High Court in the still pending Anil Ambani v State Bank of India case. The Court stayed the proceedings. Mr Merathia felt that ultimately a Supreme Court ruling on the matter would establish a solid basis for the law in this regard.

Share.

Comments are closed.