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SC allows banks to file personal bankruptcies against guarantors, even when insolvency of firms is yet to be resolved

Many Writ petitions were filed in the Delhi High Court and other High Courts, challenging the 2019 notification and the Insolvency and Bankruptcy Rules, 2019 as well as a number of similar Rules.

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The Supreme Court on Friday upheld the 2019 government notification to implement provisions of the Insolvency and Bankruptcy Code (IBC) relating to the insolvency of personal guarantors.

The bench of Justices L. Nageswara Rao and S. Ravindra Bhat delivered the judgment. The ruling allows banks to file personal bankruptcies against guarantors, even when the insolvency of firms is yet to be resolved. The Supreme Court said that an insolvency case against the company does not discharge the liability of guarantors.

Many writ petitions were filed in the Delhi High Court and other High Courts, challenging the 2019 notification and the Insolvency and Bankruptcy Rules, 2019 as well as a number of similar Rules.

The Insolvency and Bankruptcy Board of India (IBBI) had sought the transfer of all the matters pending before the High Courts to the Supreme Court, so as to avoid conflicting rulings by different courts.

The apex court transferred to itself, petitions challenging a notification dated November 15, 2019, enforcing certain provisions of the IBC relating to insolvency of personal guarantors.

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During the hearing, Justice Ravindra Bhat said, “The approval of resolution plan relating to the corporate debtor does not operate. So as to discharge the liabilities of the personal guarantor, writ petitions dismissed without cost.”

Bankruptcy cases on at least 70 businessmen that were stayed till this verdict can resume now.

Source: ILNS

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