India Top Court Allows Personal Bankruptcy Cases on Tycoons

India’s Supreme Court has allowed personal bankruptcy cases to resume against individuals including tycoons who were once among the country’s richest.

The top court upheld the legal validity of the country’s law that allowed lenders to drag them into bankruptcy court. The two-judge panel headed by Justice L. Nageswara Rao said petitions challenging the law are dismissed.

The federal government in 2019 introduced the law that allowed lenders to file parallel bankruptcies against defaulting firms and the individuals who guaranteed those loans. Lenders last year filed bankruptcy cases against businessmen including Reliance Group’s Anil Ambani, Dewan Housing Finance Corp Ltd.’s Kapil Wadhawan and Bhushan Power & Steel Ltd.’s Sanjay Singal. The cases were halted on appeals filed in higher courts.

The verdict is a boost for lenders as it allows them to seek recovery of dues from guarantors of loans even while bankruptcy processes against the companies are pending. This could potentially speed up efforts by lenders trying to clear one of the world’s worst piles of bad loans.

Read more: India Bankruptcies Seen Piling on Virus Adding to Distress

Bank stocks added to their gains. Seven out of the top 10 performers on the benchmark S&P BSE Sensex were lenders, led by IndusInd Bank Ltd. which jumped 3.4% to its highest level in two months. A measure of banks, S&P BSE Bankex, was the best performer among 19 sector gauges compiled by BSE Ltd, advancing 2%, compared to a 1.4% gain in the benchmark Sensex.

The Supreme Court has ruled that debt resolution for companies, does not extinguish the liability of the personal guarantor, said Misha, a partner at Shardul Amarchand Mangaldas & Co. who goes by one name. “This will help settling the jurisprudence finally on simultaneous initiation and proceeding with insolvency resolution process against principal borrower and guarantors,” she said.

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