{"id":108292,"date":"2021-05-24T17:57:07","date_gmt":"2021-05-24T12:27:07","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=108292"},"modified":"2021-05-25T11:50:12","modified_gmt":"2021-05-25T06:20:12","slug":"sc-ruling-on-personal-guarantors-liability-for-corporate-debt","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/sc-ruling-on-personal-guarantors-liability-for-corporate-debt\/","title":{"rendered":"SC Ruling on Personal Guarantor&#8217;s Liability for Corporate Debt"},"content":{"rendered":"\n<h5><strong>What is the News?<\/strong><\/h5>\n<p>The <a href=\"https:\/\/forumias.com\/blog\/cannot-stop-media-reports-on-court-observations-supreme-court\/\" target=\"_blank\" rel=\"noopener\">Supreme Court<\/a> has upheld the government\u2019s move to allow lenders to initiate insolvency proceedings against personal guarantors.<\/p>\n<h5><strong>Who is a personal guarantor?<\/strong><\/h5>\n<ul>\n<li>To showcase their intent to repay the bank loan on time, the promoters of some big business houses submit a personal guarantee to the lenders. It <strong>secures them loans easily and timely.<\/strong><\/li>\n<li><strong>It is sort of like an assurance<\/strong> from the owner or the owners of the company that the money borrowed by their company for various purposes shall be repaid on time as per the agreed schedule.<\/li>\n<li><strong>Furthermore, it is different from the collateral. <\/strong>Indian corporate laws say that individuals such as promoters are different from businesses and the two are very separate entities. Thus, a promoter can give a guarantee for the company it is running<\/li>\n<\/ul>\n<h5><strong>What is the issue?<\/strong><\/h5>\n<ul>\n<li><strong>In 2019, the Government <\/strong>issued a notification. It allowed creditors, usually financial institutions and banks, to make a move against personal guarantors under the Indian <a href=\"https:\/\/forumias.com\/blog\/insolvency-and-bankruptcy-code-ibc-2016\/\" target=\"_blank\" rel=\"noopener\">Bankruptcy and Insolvency Code<\/a>(IBC).<\/li>\n<li><strong>The intention <\/strong>was to hold the guarantor promoters liable for the defaulting companies against loans.<\/li>\n<li><strong>However, the notification <\/strong>was challenged by the promoters, claiming that it was always a management board that ran the company. Therefore, the promoters alone should not be held liable for the default on debt repayment.<\/li>\n<\/ul>\n<h5><strong>What has the Supreme Court said?<\/strong><\/h5>\n<ul>\n<li><strong>The Supreme Court <\/strong>has upheld the notification issued by the Government.<\/li>\n<li><strong>The court said that there is a close connection <\/strong>between personal guarantors and their corporate debtors. Hence, it was this connection that made the government recognise personal guarantors as a separate category under the IBC.<\/li>\n<\/ul>\n<p><strong>Significance of this judgment:<\/strong><\/p>\n<ul>\n<li><strong>This judgment assumes significance <\/strong>as it will now allow lenders to go after personal guarantors even while bankruptcy proceedings against the ailing companies are pending. This will speed up the process for the recovery of dues.<\/li>\n<\/ul>\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.thehindu.com\/news\/national\/sc-upholds-centres-notification-permitting-banks-to-proceed-against-personal-guarantors-under-ibc\/article34612708.ece\"><strong>The Hindu<\/strong><\/a><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is the News? The Supreme Court has upheld the government\u2019s move to allow lenders to initiate insolvency proceedings against personal guarantors. Who is a personal guarantor? To showcase their intent to repay the bank loan on time, the promoters of some big business houses submit a personal guarantee to the lenders. It secures them&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/sc-ruling-on-personal-guarantors-liability-for-corporate-debt\/\">Continue reading <span class=\"screen-reader-text\">SC Ruling on Personal Guarantor&#8217;s Liability for Corporate Debt<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1566,1351,1310,3127,9],"tags":[1278,1581],"class_list":["post-108292","post","type-post","status-publish","format-standard","hentry","category-daily-factly-articles","category-daily-news","category-daily-news-updates","category-economy","category-public","tag-eco_4","tag-po_9","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":1700790055,"cached_date":1704881857},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/108292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=108292"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/108292\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=108292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=108292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=108292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}