Lenders’ dilemma resolved as guarantors caught in net

The impact of economic and financial crises and the accumulation of non-performing assets paved way for the Insolvency and Bankruptcy Code, 2016 (IBC). The aim of the IBC was to curtail the financial uncertainty, loss of market confidence and reduction in liquidity in the credit markets.

The IBC brought about substantial moderation in non-performing assets of banks and financial institutions and helped them recover more than 50% of their dues, but various controversial issues marred the IBC in its original form. These included the issue of “moratorium” granted to corporate debtors under section 14, which was sought to be extended to the personal guarantors of corporate debtors, thus defeating the purpose of seeking a guarantee by lenders.

Shweta Bharti is a senior partner and Sukrit Kapoor is a senior associate at Hammurabi & Solomon.