By Ankur Mishra
The Department of Financial Services (DFS) has written to banks asking them to put in place a mechanism to monitor cases which could require initiation of individual insolvency proceedings in the NCLT against personal guarantors in corporate loans.
In a letter written to chairman of State Bank of India and heads of other banks on August 26, the Department of Financial Services has asked lenders to consider setting up of an IT system to collate such data, sources close to development told FE.
As per an amendment to the Insolvency and Bankruptcy Code (IBC) in December 2019, creditors can file insolvency application against personal guarantors before the NCLT. A senior banking official told FE that the government wants the exact data of individual insolvency petitions likely to be filed by banks. It will help in monitoring of such cases, he said.
The letter from the DFS comes in this context so that banks can monitor such cases. The letter from the DFS to lenders says, “Banks may consider putting in place a mechanism for monitoring the cases which may require initiation of individual insolvency process before the National Company Law Tribunal (NCLT) against personal guarantors to corporate debtors.”
The letter also says, “Banks may also consider setting up an IT system to collate data regarding personal guarantors in all such cases for the requisite follow up and consequential action.”
Sonam Chandwani, managing partner at KS Legal & Associates, said we may see many other individual insolvency petitions at the NCLT where personal guarantee was given. “By empowering creditors to file insolvency application against personal guarantors to corporate debtors before the NCLT under IBC 2016 is bold recognition of the principle of co-extensive liability of surety,” she said.