The has defended the Insolvency and Bankruptcy Code’s provision for invoking personal guarantees of corporate debtors in the matter of Reliance Group’s in the Delhi High Court.

A senior MCA official said, “A notice was issued, so we have to file a response. The ministry has to defend its law. The law is perfect and there is nothing wrong with it.”

MCA is engaging with the law ministry to present the government’s side of the argument. The senior official also said that the government is studying the petition filed by Ambani that challenges the constitutional validity of the law.

In August this year, Ambani had appealed against State Bank of India’s petition invoking his personal guarantee. The Supreme Court had rejected SBI’s pleas and directed the High Court to hear Ambani’s challenge to the government’s Insolvency Resolution Process Regulations 2019 for Personal Guarantors to Corporate Debtors.

Ambani guaranteed loans worth about $160 million to his two telecommunication

The matter has become a test case for the new IBC rules on personal guarantors introduced in November last year by the Insolvency and Bankruptcy Board of India.

Another senior official said that the rules for insolvency of personal guarantors to corporate debtors were brought in as part of the phased introduction of individual insolvency.

The official said that one of the reasons behind the introduction of these rules for personal guarantors was that the matter could be heard in the National Company Law Tribunal if a company was already undergoing the corporate insolvency resolution process. “It was a practical decision since these cases could be dealt by the National Company Law Tribunal if the company in question was also undergoing corporate insolvency resolution. We also wanted to provide a level playing field to the corporate guarantor and the personal guarantor.”

For all other individual insolvencies, the matter will be heard at the debt recovery tribunal.

While the provisions of initiating corporate insolvency resolution are suspended till December, lenders are allowed to invoke insolvency of personal guarantors to corporate debtors.

Apart from Ambani, the SBI had also sent a notice to Sanjay Singhal, promoter of Bhushan Power & Steel, invoking his personal guarantee. No decision has been taken in the matter yet.

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