Insolvency Resolution of Personal Guarantors

A personal guarantor is an individual who promises to repay a corporate debtor's debt if the company defaults. Under Part III of the Insolvency and Bankruptcy Code, 2016, insolvency may be resolved through a supervised repayment plan, with bankruptcy available if resolution fails.

Jurisdiction and initiation

The National Company Law Tribunal is the adjudicating authority for personal guarantors to corporate debtors, ensuring that connected corporate and guarantor proceedings are handled in the same forum. Appeals lie to the National Company Law Appellate Tribunal.

• The guarantor may initiate the process under Section 94, while a creditor may apply under Section 95.
• Filing triggers an interim moratorium under Section 96, restricting legal action concerning the guarantor's debts.

Resolution process

The tribunal appoints a resolution professional, who examines the application and recommends its admission or rejection. Admission creates a 180-day moratorium and begins the process of verifying creditor claims.

• The debtor prepares a repayment plan in consultation with the resolution professional, potentially providing for debt restructuring and payment arrangements.
• Where a creditors' meeting is held, approval requires more than three-fourths in value of creditors present and voting.
• The tribunal considers the repayment plan and the resolution professional's report before approving or rejecting the plan.

Outcome and liability

An approved plan binds the debtor and the creditors covered by it, while the resolution professional supervises implementation. Successful completion can lead to a discharge order; failure or rejection may permit bankruptcy proceedings under the Code.

• In Lalit Kumar Jain v. Union of India, 2021, the Supreme Court upheld the application of the Code's personal-guarantor provisions.
• Approval of a corporate debtor's resolution plan does not by itself discharge the personal guarantor; the guarantor's liability remains governed by the guarantee and the applicable insolvency process.