While the provisions of Indian Contract Act, 1872 pertaining to guarantee provided in Chapter VIII and stipulations under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act are applicable to guarantees provided under the Insolvency and Bankruptcy Code (IBC), since November, 2019 when the provisions of the IBC pertaining to personal guarantors came into effect creditors opted for it because it was time efficient. 

However, data released by the Insolvency and Bankruptcy Board of India (IBBI) shows that only 2.16% or Rs 102.78 crore worth of personal guarantee claims have been recovered under the Insolvency and Bankruptcy Code (IBC).  Further, over 2,496 insolvency cases against personal guarantors are awaiting admission at various tribunals. 

The afore-cited data shows that better calibration of creditor protection and debtor accountability under the IBC may be brought in through regulatory reforms and judicial pronouncement. So we take a look at significant judgements pronounced in 2024 laying or reiterating the law governing personal guarantors in insolvency proceedings:

1. In Indiabulls Housing Finance Ltd. v. Mohit Singh, 2024 SCC OnLine NCLT 3568, Decided on 04-09-2024, the National Company Law Tribunal (NCLT), New Delhi held that the Section 10-A of the IBC (that provided a moratorium period of 6 months due to COVID19) does not apply to proceedings against personal guarantors under Section 95 of the IBC and admitted the insolvency resolution process against the personal guarantor based on the default on the loan and the failure to pay after the guarantee was invoked.
2. In M/s Apogee Enterprises Pvt. Ltd. v. Mr. Anil Nanda, I.A. No. 1362/2024 in C.P. (IB) No. 514 of 2020, the NCLT, New Delhi held that Insolvency proceedings abate upon the personal guarantor’s death and substitution of legal heirs or representatives for recovery of the debt is against the scheme of the IBC and therefore not allowed. 
3. In Jammu and Kashmir Bank Ltd. v. Mr. Kanumuru Raghu Rama Krishna Raju, the NCLT Hyderabad has held that since it is clearly established by the law that the liability of Corporate Debtor and Personal Guarantor are co-extensive in nature they should be treated on an equal legal footing. Therefore, the provisions of the Limitation Act must be applied consistently to both.
4. In Ramesh Kumar Chugh v. Assets Care & Construction Enterprises Limited, CA (AT) (I) No. 1726 of 2024, NCLAT Delhi held that assets held in the name of the partnership firm cannot be subjected to the provisions of interim moratorium merely because a Section 95 application has been filed against a partner of the firm in respect of a personal guarantee given for a party other than the partnership firm since it is not the personal property of the personal guarantor.
5. In Raghavendra Joshi v. Indian Bank, I.A. No. 2247/2023, the Mumbai bench of the NCLT has held that property of the personal guarantors cannot be sold by the financial creditor under the SARFAESI Act during the subsistence of moratorium under Section 96 of the IBC even when the action of taking symbolic possession under SARFAESI Act was taken prior to commencement of interim moratorium.
6. In Mudraksh Investfin Pvt. Ltd. Vs Gursev Singh, RCP IB-21/ND/2024 Old No- IB-422/ND/2024, the NCLT Delhi held that the threshold limit for invoking the provisions of Section 95 of IBC qua the Personal Guarantor would be the same as for Corporate Debtor i.e. Rs. 1 Crore. Hence an application where the amount defaulted was less than 1 Crore was dismissed. 

The personal guarantor insolvency provisions have resulted in reduction of NPAs, more options for creditors and timely resolution but the legal framework is still evolving and with these judgements that offer much needed clarity, an enabling environment is being created for individuals to act as personal guarantors.

For matters related to personal guarantors under the IBC, law firms in India can offer legal consultancy to entities and individuals for appropriate resolution in a time efficient manner. Support is also provided to entities by various law firms in India in the implementation of restructuring through the formulation of strategies, drafting, negotiating and finalizing relevant transaction documents. Legal advisors also act for the Committee of Creditors and the Interim Resolution Professional or Resolution Professional or Liquidator and help in settling matters and offer litigation support if needed. 

Disclaimer: The contents of this publication are for general information only and should not be relied upon as a substitute for professional legal advice, which should always be sought in relation to any specific matter prior to acting in reliance upon any such information.