'Why Personal Guarantees Of Promoters Of Corporates Defaulting Loan Repayments Are Not Invoked By PS Banks?' SC Asks Finance Ministry To Respond [Read Order]

The bench comprised of Justices RF Nariman and Navin Sinha has granted liberty to the Petitioner to place its representation before the Union Ministry of Finance within two weeks.

"The representation will be made within a period of two weeks from today. The Ministry of Finance is directed to reply to the said representation within a period of four weeks after receiving such representation," the bench has ordered.

The Petitioners, Saurabh Jain and Rahul Sharma had approached the Apex Court stating that even though the Ministry of Finance itself had, by a Circular, directed personal guarantees issued by promoters/managerial personnel to be invoked, the PSBs continued to not invoke such guarantees, resulting in huge loss not only to the public exchequer but also to the common man.

They pointed out that loan amounts of approximately Rs. 1,85,000 crores were unrecovered, certainly because PSBs do not adopt efficient and timely methods for recovery of loans advanced by them, unlike private sector banks.

"There are at least 42 large corporate entities in respect of which personal guarantees have been given by promoters/directors/ managerial personnel amounting to approximately Rs. 1,85,000 crores. Nearly all the corporate entities listed above have defaulted in repayment of loans taken by them from PSBs. However, no personal guarantees have been invoked thus far and proceedings initiated under the provisions of Part III of the Insolvency and Bankruptcy Code 2016," the plea stated.

It was asserted that the funds infused by the Government into PSBs are essentially public monies, which are then used by such PSBs for inter alia, onward lending. In this backdrop they submitted,

"when PSBs do not take timely action and pursue all remedies available to them in recovering loans advanced by them, the same amounts to a loss of public monies and is detrimental to public interest."

They highlighted that PSBs have higher NPAs/ bad debts than private sector banks, as evident from the Economic Survey of 2019-20 published by the Ministry of Finance, as per which:

"In 2019, every rupee of taxpayer money invested in PSBs on an average, lost 0.23 paise. In contrast, every rupee of investor money invested in private-sector banks, on average, gained 9.6 rupees."

Lastly they asserted that Bank frauds involving PSBs take place due to the involvement of employees of such PSBs, and prayed that a detailed enquiry/ investigation be carried out with respect to the reasons for the failure on the part of PSBs to invoke the personal guarantees of promoters/directors/managerial personnel of defaulter companies.

The petition had been drawn and filed by Mr. Durga Dutt, Advocate-On-Record, Supreme Court of India and argued by Mr. Manan Kumar Mishra, Senior Advocate.

Case Title: Saurabh Jain & Anr. v. Union of India & Ors.

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