Recovery from personal guarantors drags with just ₹103 crore recovery in last 5 years

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Recovery from promoters of defaulted companies has barely made progress, with just two per cent or ₹103 crore recovered from 26 cases in the last five years.

Debtors and creditors have filed 3,184 cases to recover ₹2.07 lakh crore with National Company Law Tribunal and Debts Resolution Tribunal.

Of the 3,134 cases filed in NCLT, 117 cases have either been withdrawn or rejected before the appointment of resolution professional (RP). Of the remaining, RP was appointed in 1,542 cases and 468 cases were admitted for resolution, said a CareEdge Rating report.

Of these cases, 146 cases have been closed, 12 withdrawn and 108 closed due to non-submission or rejection of plans.

IBC provisions related to the personal guarantors were notified nearly three years after the promulgation of the Code. Till then, lenders were relying on SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) to recover dues from the personal guarantors.

Prashant Mara, Managing Partner, BTG, Advaya said even after all the provisions in Law, its constitutional vires were under challenge before the Supreme Court and was declared constitutional only last November.

With evolving clarity, lenders are slowly transitioning from the SARFAESI mechanism to the IBC platform and they should also initiate proceedings against personal guarantors simultaneously with the corporate debtors so that the quality of guarantors asset is preserved, he said.

Jidesh Kumar, Managing Partner, King Stubb & Kasiva, Advocates and Attorneys said personal guarantors often use legal tactics to delay proceedings and in many cases, their assets may be limited or difficult to liquidate.

Recovery from personal guarantors can be made more efficient by streamlining legal proceedings, improving asset tracking and enforcing stricter asset-freezing measures, he said.

Rahul Sundaram, Partner, IndiaLaw LLP said NCLT has admitted 81 petitions with recovery of Rs 1.88 lakh crore against personal guarantors in March quarter, marking the highest number in seven quarters.

Though the law is clear on the liability of personal guarantors co-extensive with that of the corporate debtor, the procedural delays can hinder the speed and efficiency of the recovery process, he added.

Smiti Tewari, Partner, Khaitan Legal Associates said the actual assets of the personal guarantor are drastically disproportionate to the default and lenders seldom have a charge on the personal assets.

Lenders should create security interests by way of mortgage, pledge on the personal assets of the guarantor and in the event of default by the borrower, enforcement of the guarantee should follow automatically as opposed to an action of the last resort, she added.