Debt Recovery Tribunal in Chennai

TAMIL NADU

In a first, Debt Recovery Tribunal in Chennai admits insolvency plea against personal guarantor

Sanjay Vijayakumar

CHENNAI, OCTOBER 28, 2020 11:32 IST

UPDATED:  OCTOBER 28, 2020 11:32 IST

Experts are of the view that the personal insolvency process under Insolvency and Bankruptcy Code, 2016 is likely to have strict timelines to be followed, unlike earlier regimes.

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

Mr. Nath had given personal guarantee on loans availed by Alectrona Energy Private Limited.

The law on initiating insolvency proceedings against personal guarantors was notified on December 1, 2019 and according to experts the current development should come as awakeup call for promoters and personal guarantors.

“Conventionally, in India, promoters and theirfamily members,relatives, associates act as “Personal Guarantors”for debts borrowed by the Company from lenders/financial institutions. This is even more common in small and mid-sized Companies which were already in the red and now burdened with the pandemic effect,” Anant Merathia, a Chennai-based corporate lawyer said.

“With changing times and legal frameworks, this is a serious aspect that Indian promoters/guarantors must factor in both for the ongoing personal guarantees issued visà-vis defaults and performance of their companies and ones they propose to give for further funding. They should think twice before involving family members as personal guarantors,” Mr Merathia pointed out.

Experts are of the view that the personal insolvency process under Insolvency and Bankruptcy Code, 2016 is likely to have strict timelines to be followed, unlike earlier regimes.

Another interesting aspect to wait and watch is the outcome of the litigation challenging the constitutional validity of Provisions of Insolvency and Bankruptcy Code, 2016 with respect to personal guarantors.

The provisions are challenged before the High Court in the matter of Anil Ambani vs State Bank of India, which is still pending. The Court has stayed the proceedings. Mr Merathia reckoned that eventually a decision by the Supreme Court on the issue would set a solid footing for the law in this regard.