The Mumbai National Company Law Court (NCLT) authorized the opening of insolvency proceedings against Anil Ambani after two companies promoted by him failed to pay the quotas of Rs 1200 million they had borrowed at the State Bank. of India (SBI). The insolvency process will begin against Ambani for giving a personal guarantee against the loans given to his companies.

Is this a personal insolvency case against Anil Ambani?

• The case is important because it is one of the first insolvency cases against an executive of a large group of companies.
• In 2015, Reliance Communications Limited (RCom) and Reliance Infratel Limited (RITL) promoted by Anil Ambani approached SBI’s strategic project finance business unit and requested two loans of Rs 565 crore and Rs 635 crore respectively.
• Anil Ambani provided a personal guarantee equivalent to the loan amount of 1200 rupees, which was disbursed in 2016.
• By not repaying the credit granted to RCom and RITL, State Bank invoked the personal guarantee provided by Ambani.
• However, before the same could be applied, both companies were declared insolvent in an application filed by Ericsson India Private Limited.
• Since the companies were admitted to bankruptcy, all of the company’s loans and assets, as well as the promoters, have been placed under moratorium.
• The Insolvency and Bankruptcy Code (IBC) also did not contain provisions relating to personal insolvency.
• The rules for opening personal insolvency were notified last year in December.

What is the personal insolvency process?

• As the NCLT authorized the appointment of an Interim Resolution Professional (IRP) in this matter, SBI will now approach the IRP with a list of assets provided by Ambani as personal collateral when their companies applied for the loan.
• In the case of banks that provide loans with personal collateral, the guarantor must provide a list of assets whose value is equal to the total amount of the loan granted. In the event of non-payment of these assets, these guarantees can be invoked.
• For example, if Ambani’s assets are worth Rs 2,000 crore and the bank’s receivables are worth Rs 1,200 crore, it is possible that the bank will recover all of its payments.
• However, if Ambani claims to have personal wealth less than the value of the personal guarantee he gave him, the banks will have to be happy with what they get.

What happens to Anil Ambani once the insolvency process is finalized?

• Similar to commercial insolvency proceedings, an entrepreneur is free to start with a clean slate after the end of personal insolvency proceedings against him.
• Lenders will only be able to recover their down payments from the security deposited or personal property belonging to that person.
• However, all or part of the goods mentioned in the list provided at the time of sanctioning of the loan, even if they are transferred to another person, can also be seized and sold.
• Ambani will be free to manage other businesses which are not insolvent or which can pay their debts and obligations on time.

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