Anil Ambani To Face Bankruptcy Proceedings – Free PDF Download

What is insolvency and bankruptcy?

• Insolvencyis when individuals or companies are unable to repay their outstanding debt.
• Bankruptcy is when a court has declared a person or other entity insolvent, having passed appropriate orders to resolve it and protect the rights of the creditors.
• It is a legal declaration of one’s inability to pay off debts.

• The Mumbai bench of the National Company Law Tribunal (NCLT) has allowed the initiation of insolvency proceedings against Anil Ambani
• After two companies promoted by him failed to pay dues on Rs 1,200 crore that they had borrowed from State Bank of India (SBI).

Why the process against Anil Ambani?

• The insolvency process will be initiated against Ambani as he had given personal guarantee against the loans provided to his firms.

Why it is significant?

• The case is significant as it is one of the first cases of insolvency against a major business group head.

What exactly happened?

• In 2015, Anil Ambani-promoted Reliance Communications Limited (RCom) and Reliance Infratel Limited (RITL)
• Approached the Project Finance Strategic Business Unit of the SBI, and sought two loans of Rs 565 crore, and Rs 635 crore
• Anil Ambani gave a personal guarantee equivalent to the loan amount of Rs 1,200, which was disbursed in 2016.
• On failure to repay the credit extended to RCom and RITL, State Bank invoked the personal guarantee given by Ambani.
• However, before the same could be enforced, both his companies were admitted into insolvency on an application moved by Ericsson India Private Limited.
• Since the companies were admitted into insolvency, all the loans and assets of the company as well as promoters were placed in a moratorium.
• The Insolvency and Bankruptcy Code (IBC) then did not have provisions for personal insolvency as well.
• The rules for initiation of personal insolvency were notified last year in December.

How banks provide loan on personal guarantee?

• When banks provide loans against personal guarantee,
• The guarantor has to furnish a list of assets whose value is equivalent to the total amount of loan being given.
• In case of failure to pay these assets, these guarantees can be invoked.
• For example, if Ambani’s assets are worth Rs 2,000 crore and the bank’s claims are worth Rs 1,200 crore, there is a possibility that the bank can recover all its dues.
• However, if Ambani claims to have personal assets less than the value of the personal guarantee given by him, the banks will have to make do with what they get.
• The bank can not claim rights over the assets of his wife or children.

Process for personal insolvency?

• NCLT has allowed the appointment of an interim resolution professional (IRP).
• SBI will now approach the IRP with a list of the assets provided by Ambani as a personal guarantee when his companies had sought the loan.
• However, any or all assets mentioned in the list provided at the time of sanctioning of the loan,
• Even if transferred to someone else, can also be attached and sold.

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