Personal guarantors lose protection

The Supreme Court ruled recently that lender banks can sell off assets of personal guarantors even during the corporate resolution proceedings under the Insolvency and Bankruptcy Code. The court stated so in the judgment, State Bank of India vs V Ramakrishnan while setting aside the order of the National Company Law Appellate Tribunal (NCALT) which granted protection to personal guarantors, who are generally promoters, under Section 14 of the Code. The judgment said that the NCLAT took a broad interpretation of the Section while holding that it would bar proceedings or actions against sureties.

Referring to the insolvency Law Committee report, the court stated that the assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third parties like sureties.