Supreme Court ruled that Banks can invoke personal guarantees

NEW DELHI: The Supreme Court has ruled that banks can act against guarantors even as proceedings under the insolvency and Bankruptcy Code are on, which is a trouble for industrialists whose guarantees helped corporate entities owned by them get huge loans.

Justices Rohinton F Nariman and Indu Malhotra allowed an appeal filed by the SBI which challenged concurrent findings of the National Company Law Tribunal withholdings banks from moving against guarantors.

Kapoor Singh said, “As the guarantor’s liability is distinct and separate from that of the corporate debtor, a suit can be maintained against the surety, though the principal debtor has not been sued. Section 14 spoke only of corporate debtors and not about guarantors.”

“Section 14 refers to four matters that may be prohibited once the moratorium comes into effect,” said Justice Nariman in the judgement. The bench added, “A plain reading of the section leads to the conclusion the moratorium can have no manner of application to personal guarantors of a corporate debtor. So far as individual personal guarantors are concerned, they will continue to be proceeded against under the two.”