Subhash Chandra case: Why banks lose money in personal guarantor claims
What is the law on personal guarantors?
The recent approval of Subhash Chandra's ₹6.5 crore repayment plan by the insolvency court has sparked debate about the effectiveness of personal guarantor claims in recovering money from banks when company loans default. Personal guarantors are individuals who guarantee repayment of a borrower's loan in case of default, and under the Insolvency and Bankruptcy Code (IBC), they can be subjected to separate insolvency proceedings.
The IBC mandates that personal guarantors provide details of their assets, including beneficial interests and digital assets, to give creditors a clear understanding of the assets they can pursue through a court. While banks seek personal guarantees as a safety net when lending to companies, it does not ensure the promoter's wealth is sufficient to repay the company's liabilities.
Of the 2,137 proceedings against personal guarantors since fiscal year 2020, only 64 have resulted in approved repayment plans. This means that for every ₹100 loan that defaulted and was backed by personal guarantees, only ₹1 was recovered. While the purpose of personal guarantor insolvency is to establish liability and not guarantee a specific recovery, the limited success in recovering funds raises questions about the value of such guarantees in protecting banks' interests.
Written by urgent.news from Hindustan Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
