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Why aren’t Personal Guarantees of Big Corporate Loan Defaulters invoked by PSBs?: SC questions the Ministry of Finance

By Prachi Misra      Jul 24, 2020      0 Comments
Ministry of Finance Supreme Court public sector banks

The Ministry of Finance has been directed by the Apex Court to respond to a petition which claims Rs 1,900 crores are lost every day due to public sector banks not invoking personal guarantees of big corporate loan defaulters.

On Monday, 20th July 2020 a bench headed by Justice Rohinton F Nariman observed that the ministry should reply to the petitioner once representation is made.

The bench told Senior Lawyer Manan Mishra, who appeared in the PIL petitioners in the matter “Your petition has mentioned that the Ministry of Finance itself has, by a Circular, directed personal guarantees issued by promoters/managerial personnel to be invoked. But you claim the public sector undertakings are not complying with this circular. We think you should first go to the ministry.”

Manan Mishra argued based on the statistics that there has been a loss of approximately 1.85Lakhs Crore in a financial year to the public sector banks while they shy away from invoking personal guarantees of the biggest corporate defaulters.

He further added that loans of individuals get recovered easily but it becomes difficult for promoters, chairpersons, and managers of big corporations to get away despite making huge defaults of loans.

At this, the bench said that since the ministry has issued notification for the same, it is better to seek a response from there and then back to the court. 

Manan Mishra accepted the suggestion and requested the bench to issue a specific direction to the ministry for giving its response.

The court agreed and stated “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 representations.”

The Senior Advocate asked for the liberty to come back after the ministry’s reply. Justice Nariman said “Of course it is open to you to come back once they decide. We will hear from you.”


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