IBBI approaches SC to club all cases on personal guarantee pending in HCs

Top court likely to give its order on Thursday, has indicated it may transfer all cases to itself, according to a senior lawyer

The Supreme Court on Wednesday heard the petition of the Insolvency and Bankruptcy Board of India (IBBI) to transfer all the ongoing cases of personal guarantee invocation currently under dispute including Reliance Group’s Anil Ambani from various high courts to the apex court and club them together.  

The Supreme Court is likely to give its order on Thursday. The SC has indicated that it may transfer all cases to itself, according to a senior lawyer.

“We have limited resources and different high court judges might give conflicting judgments in the matter. The litigations can be decided at one go by the Supreme Court,” a senior government official said.

Besides Ambani, promoters facing invocation of personal guarantee include Sanjay Singhal of Bhushan Power and Steel, Atul Punj, founder, Punj Llyod, among others. All matters are presently under litigation. 

Meanwhile, in an affidavit filed before the Delhi High Court, the Ministry of Corporate Affairs (MCA) has defended using a provision in the Insolvency and Bankruptcy Code to invoke promoter guarantees of corporate debtors in the matter of Ambani’s personal insolvency.

A senior MCA official said, “A notice was issued so we have to file a response. The ministry has to defend its law. The law is perfect and there is nothing wrong with it.”

MCA is engaging with the law ministry to present the government’s side of the argument. The official also said that the government is studying Ambani’s petition challenging the constitutional validity of the law. “The law is ultimately tested at the level of the Supreme Court.”

In August, Ambani had appealed against State Bank of India’s petition invoking his personal guarantee. The SC had rejected SBI’s pleas and directed the HC to hear Ambani’s challenge against the government’s Insolvency Resolution Process Regulations 2019 for Personal Guarantors to Corporate Debtors.

A Reliance group spokesperson said, "In Mr. Ambani’s case, the Delhi High Court has stayed the proceedings commenced by SBI under Part III of IBC. The matter is subjudice and listed for hearing before Delhi High Court on 10 November 2020."

Ambani provided guarantees for loans worth about $160 million to his two telecommunication companies. The matter has become a test case for the new IBC rules on personal guarantors, introduced last November by IBBI.

Another senior official said the rules for insolvency of personal guarantors to corporate debtors were brought in as part of the phased introduction of individual insolvency. One of the reasons, the official said, for these rules was that such matters could be heard by the National Company Law Tribunal (NCLT) if a company was already undergoing the corporate insolvency resolution process. “It was a practical decision since these cases could be dealt with by the NCLT if the company in question was also undergoing corporate insolvency resolution. We also wanted to provide a level playing field between the corporate and the personal guarantor.”

Matters related to other individual insolvencies will be heard at the debt recovery tribunal.

While the provisions for initiating corporate insolvency resolution are suspended till December, lenders are allowed to invoke insolvency of personal guarantors to corporate debtors.

Apart from Ambani, SBI had sent notice to Sanjay Singhal, promoter of Bhushan Power & Steel, invoking his personal guarantee. The matter is pending in the high court.