In a big relief to banks, the Supreme Court has upheld the provisions of the Insolvency and Bankruptcy Code (IBC) relating to insolvency of personal guarantors, usually promoters and the top brass of debt-laden companies.  

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With this, now the banks can make the recovery of their loans from the firm’s promoters’ assets, who act as the personal guarantor. Earlier, the government made some provisions in the IBC law and notified that promoters, who provide bank guarantees, will be included in the resolution process.

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Over 75 promoters from all over India challenged this decision by the government in various high courts, claiming of curbing their fundamental rights. The Supreme Court clubbed all the cases that were challenged by various high courts. The SC has clearly stated that the provisions of the IBC relating to the insolvency of personal guarantors will be considered.

The decision is now expected to provide the much-needed teeth to lenders to simultaneously invoke personal guarantees of promoters, even while bankruptcy proceedings against the ailing companies are pending, thus speeding up the process for recovery of dues. 

This means, when the resolution process is completed then the promoters are not set free. They are equally responsible for the deed. Let's say, under a resolution process, bank or bank's consortium Rs 5,000 crore was pending. And the recovery was possible for only Rs 4,000 crore. For the rest of Rs 1,000 crore, the bank can recover the amount from the promoters' assets. After the SC's nod and the government notification, this is considered a big relief to the banks.  

This will be a major setback for big promotors like Anil Ambani, Venugopal Dhoot, Kapil Wadhawan, who are facing the resolution process under IBC law.