Published On: Wed, Dec 4th, 2019

DHFL promoters gave personal guarantees to Rs. 80,000-cr Loans

MUMBAI: The promoters of Dewan Housing Finance have given personal guarantees to more than Rs. 80,000 crore of loans on the firm’s books, filings and the annual report for March 2019 show. The personal guarantees cover various borrowings and include guarantee on secured non-convertible debenture of Rs. 42,344 crore, Rs. 31,975 crore worth term loans from banks, Rs. 2,435 crore of term loans from NHB and foreign debt worth Rs. 2,807 crore. The total debt covered by personal guarantees of the Wadhwan family is Rs. 82,949 crore.

DHFL became the first financial services company on Monday to be admitted to the bankruptcy courts after the rules were changed last month. The Reserve Bank of India has already superseded the board and appointed an administrator.

Personal guarantees are usually given by promoters but they assume a new significance in light of the changes to the Insolvency and Bankruptcy Code last month. The ministry of corporate affairs has extended the scope of IBC to personal guarantors to corporate debtors and this became effective from December 1.

The change means personal guarantors can also seek resolution under the insolvency process and this will facilitate faster resolution and disposal of cases.

MS Sahoo, chairman of the Insolvency and Bankruptcy Board of India (IBBI) told media that the new rules will be prospective and kick in when there is a default. He also added that the law of limitation will apply. A DHFL spokesperson declined comment on the guarantees given by the promoters.

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“If the company fails to get any viable resolution plan and goes for the liquidation or there are dues left after the resolution of the company,the lenders can seek recovery from the individuals who have extended personal guarantee,” said Sudip Mahapatra, partner at law firm S&R Associates.

“ “More clarity on the subject will come as we see actual cases that set precedents.” The high level of guarantees does not necessarily mean that the wealth of the DHFL promoters will be seized by banks.

A successful resolution will help banks and other lenders recover a part of their money and they can then decide whether to also invoke the personal guarantees to recover the full amount. Failure of resolution or liquidation will put more pressure on the promoters and the changes in the Insolvency code will help them get relief from the courts.

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