Mapping The Insolvency Saga Of India’s Corporate High Flyers

From the promoters of a large housing finance company to the managing director of a consumer appliances behemoth, a lot of the big names have come under the Insolvency and Bankruptcy Code’s radar in their personal capacity.

According to the code, an insolvency proceeding can be initiated against personal guarantors if they fail to honour their guarantees to the corporate debtor.

Late last year, the apex court had given a stamp of approval to the provisions dealing with personal guarantors’ insolvency, stating that the provisions in question do not suffer from any manifest arbitrariness.

This meant bad news for big shots like Anil Ambani, Venugopal Dhoot, the Wadhawan brothers, as they have been facing the brunt of these provisions for failing to execute guarantees furnished by them for availing loans for their companies.

These are only some of the names that usually make headlines. However, the issue of non-execution of personal guarantees is huge as the Insolvency and Bankruptcy Board of India’s latest data suggests that 2,289 cases filed against personal guarantors are pending, that involve a corporate debt to the tune of Rs 1.63 lakh crore.

It is noteworthy to mention that after the top court’s verdict in this matter, certain proceedings under the personal guarantors’ insolvency provisions have picked up speed, while others have yet to do so.

In this backdrop, it becomes pertinent to look at the status of insolvency proceedings pending against high profile promoters.

The most recent and perhaps the biggest development after the top court’s verdict has been the admittance of Wadhawan brothers, erstwhile promoters of Dewan Housing Finance Ltd., into insolvency.

Dheeraj Wadhawan, the younger of the two brothers, was admitted into insolvency in March this year, whereas Kapil Wadhawan got admitted just a week ago.

DHFL had availed term-loan facilities worth Rs 4,009 crore along with working capital facilities to the tune of Rs 450 crore. The duo had furnished an unconditional and irrevocable guarantee for these loans. When the default occurred, the bank issued a demand notice to them to recover the outstanding amount. However, they failed to pay.

Since the Wadhawans were unable to pay the amount, the resolution professional advised the tribunal to admit them into insolvency.

As a result, the National Company Law Tribunal has admitted the insolvency application by the Union Bank of India against the duo for recovery of Rs 2,421 crore and a moratorium has now been imposed in relation to all their debts.

Once a household name in consumer appliances, Venugopal Dhoot has been under the insolvency radar for defaulting on its personal guarantees for loans availed for Videocon Industries Ltd.

In 2020, an application of insolvency was filed against Dhoot by the State Bank of India when he failed to honour the company's guarantee of Rs 6,157 crore, which was subsequently admitted by the NCLT.

Dhoot had given personal guarantees to the loans availed under several agreements between SBI and Videocon in 2012, which were invoked amid defaults.

However, since the top court was hearing petitions challenging the constitutionality of the provisions dealing with personal guarantors’ insolvency, the matter was adjourned last year and no action has since then taken place on the public sector bank’s plea.

SBI had also filed personal insolvency applications against the other two erstwhile promoters of Videocon Industries—Raj Kumar Dhoot and Pradeep Kumar Dhoot—which are pending admission.

In 2021, Catalyst Trusteeship Ltd. had filed an insolvency application against Future Group’s promoter, Kishore Biyani.

The application has been filed to recover loans, which were personally guaranteed by Biyani for some of his companies undergoing insolvency proceedings.

This matter, too, was in limbo due to the challenge to the provisions pertaining to personal guarantors' insolvency. Since the top court has now validated the provisions under challenge, the Mumbai bench of the NCLT has been quick to act in this case.

According to a lawyer involved in the matter, the trusteeship is looking to recover nearly Rs 400 crore worth of personal guarantees from Biyani.

The resolution professional has submitted a prima facie report to the tribunal, and now the tribunal will take a decision on whether the application against Biyani should be admitted or not.

Bhushan Power and Steel Ltd. was acquired by JSW Steel Ltd. for Rs 19,350 crore in 2020. However, its ex-promoters, Sanjay Singal and Aarti Singal, are reeling under an insolvency proceeding initiated by the SBI for recovery of their dues.

According to a lawyer involved in the matter, SBI is looking to recover nearly Rs 8,000 crore from them.

The case was filed by the public sector bank against the duo back in 2021, and this case too was in a state of uncertainty due to the case pending before the top court.

However, since the verdict has been delivered, regular hearings have been taking place before the NCLT and, as of now, the resolution professional has submitted a prima facie report to the tribunal for the initiation of insolvency proceedings against them. The tribunal will now have to take a call on whether the case is ripe for admittance or not.

In 2016, Anil Dhirubhai Ambani had given personal guarantees for availing loans worth Rs 1,200 crore for his companies, namely Reliance Infratel Ltd. and Reliance Communications Ltd. These loans were granted by the SBI.

When the companies were unable to pay back the loans and the guarantees furnished by Ambani were not honoured, the bank moved the NCLT in a bid to initiate insolvency proceedings against Ambani, based on the guarantees furnished by him.

In 2020, Ambani filed a plea before the Delhi High Court, seeking to challenge the provisions pertaining to the insolvency of personal guarantors, while simultaneously disputing the proceedings initiated against him. This prompted the high court to stay the proceedings against the former billionaire.

In the meantime, however, the top court transferred to itself all the petitions, which challenged the provisions pertaining to personal guarantors’ insolvency, and this put a virtual halt to the proceedings initiated against Ambani.

However, no further action has yet been taken in this case since the top court’s verdict from last year, as it remains pending before the NCLT.