The government and the Insolvency & Bankruptcy Board of India (IBBI) are all set to take on Ambani over his stance against lenders invoking his personal guarantee, the report said. He had called into question the validity of the move.
The rule that the government is about to bring into play is one that had been approved by Parliament. The government and IBBI had brought in the new rule sometime ago to enable banks to initiate action based on personal guarantees given by the borrower.
Before that, IBC rules only had provisions for companies. Seeking to close that loophole, the new rule made a distinction between cases of individual bankruptcy and those pertaining to personal guarantee.
The government's reasoning is that if corporate guarantees can be invoked in company defaults, personal guarantee should also be invoked in cases that warrant it. "You can't have different rules," the ToI report said citing an unnamed government source.
The inability to invoke personal guarantees will hinder lenders' ability to sanction loans, which in turn will distort many terms of contract, government authorities say.
During the last boom phase of the Indian economy, promoters had given out personal guarantees freely to secure loans for debt-driven expansion of business. But when the economy began slowing down rapidly, banks were stuck with huge loans that many businessmen could not, or did not, service. That eventually prompted the government to try and find a new playbook to enforce compliance.
Before Anil Ambani, Bhushan Power and Steel's former boss Sanjay Singhal had also called the move into question. The now-ousted Singhal was the first to contest the new rule in court following State Bank of India's invocation of personal guarantee in a Rs 12,000-crore demand notice. Ambani was the next to move court after SBI invoked guarantees in the Rs 1,200-crore default by RComm and Reliance Infratel.
This is only the latest in the beleaguered one-time tycoon's well-documented series of brushes with personal guarantee invocation. He is already being sued in a UK court by the Industrial & Commercial Bank of China over a personal guarantee he reportedly gave for a $925-million loan for Reliance Communications in 2012.
In the China bank case, Ambani averred that he had never gave any personal guarantee knowingly. The London judge in charge of the case had termed his evidence as "inexplicably incomplete, implausible and highly unlikely."
In another instance, he avoided jail only after his elder brother Mukesh Ambani agreed to settle Ericsson's $80 million claim in the case where the Swedish telecom equipment major had sued him over personal guarantee.
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16 Comments on this Story
Sebastian Kottayam43 days ago
Earlier laws were misused to get loans. Personal guarantees were given knowing fully well that courts can do anything. Even banks knew nothing can be done to invoke it. It was part of the vicious circle. Now things have changed. Rightly though. Because those who want to loot the taxpayers, both the so called industrialists and bank officials, will now think twice before giving and acception personal guarantees for loans. The laws should have also provisions to penalize bank officials also who take handsome cuts in authorising huge loans.
Tushar Shah45 days ago
now govt in india his of old days it's straight govt
p s chopra45 days ago
lenders must have acted few years back to recover money. now money is siphoned and nothing to recover and loopholes are created and share value is nothing and public is looted.