Personal Guarantors to Corporate Debtors under IBC

Lenders to Indian companies routinely take personal guarantees from promoters. When the company fails, those guarantees become the lenders' main route to recovering what the company's resolution leaves unpaid. The Code's provisions for personal guarantors to corporate debtors are the only part of Part III in force, and they have been tested repeatedly before the Supreme Court. The 2026 Amendment made further changes to stop their misuse. This note explains the process, the leading cases and the current law.

1. The Guarantor's Liability

• Section 5(22). A personal guarantor means an individual who is the surety in a contract of guarantee to a corporate debtor.
• Coextensive liability. Under section 128 of the Indian Contract Act, 1872, the surety's liability is coextensive with that of the principal debtor, unless the contract provides otherwise, and the creditor may proceed against the surety without first suing the principal debtor.
• Independent contract. The guarantee is a separate contract, so events affecting the principal debtor do not automatically affect the surety's liability.

Figure 1: The company and its guarantor compared

2. The Leading Cases

Figure 2: Development of the law on personal guarantors

• SBI v V. Ramakrishnan, 2018. The Supreme Court held that the moratorium under section 14 in the corporate debtor's CIRP does not protect its personal guarantor, so creditors may proceed against the guarantor during the CIRP.
• Lalit Kumar Jain v Union of India, 2021. Decided on 21 May 2021, the Supreme Court upheld the notification of 15 November 2019 applying Part III to personal guarantors to corporate debtors, noting the intimate connection between such guarantors and their companies, and held that the approval of a resolution plan does not by itself discharge the guarantor, whose liability arises from an independent contract.
• Dilip B Jiwrajka v Union of India, 2023. Decided on 9 November 2023 by a bench led by Chief Justice Chandrachud, it upheld sections 95 to 100, holding that the resolution professional only facilitates and collects information, that no adjudication occurs before the NCLT decides under section 100, and that the guarantor need not be heard before the resolution professional is appointed or the interim moratorium begins.

3. The Process

Figure 3: Insolvency resolution of a personal guarantor

• Forum. The NCLT is the adjudicating authority; where a CIRP or liquidation of the corporate debtor is pending, the application must be filed before the NCLT dealing with it (section 60(1) and (2))
• Application. The guarantor may apply under section 94, or a creditor under section 95, through a resolution professional.
• Resolution professional's report. The professional examines the application and recommends acceptance or rejection, within 21 days of appointment after the 2026 Amendment, instead of 10 (section 99)
• Admission and moratorium. The NCLT decides under section 100 after hearing the parties; on admission, a moratorium under section 101 bars legal actions in respect of the guarantor's debts for 180 days.
• Repayment plan. The guarantor proposes a repayment plan, which the creditors consider at a meeting and approve by more than three-fourths in value, and which the NCLT then approves; if no plan is submitted in time, the process terminates and bankruptcy may follow (section 106(1A))

4. The Interim Moratorium and the 2026 Change

• Section 96. On filing of an application under section 94 or 95, an interim moratorium begins automatically and stays legal action in respect of the debt until admission or rejection; in Jiwrajka, the Court described it as protective and debt-specific.
• The problem. Guarantors used the interim moratorium to stall recovery: an application could remain pending for months, during which creditors could not enforce against them under other laws.
• Section 96(4), 2026. Section 96 no longer applies where the application is against a personal guarantor to a corporate debtor, and section 124(4) similarly excludes the interim moratorium in bankruptcy; the guarantor is protected only by the section 101 moratorium after admission.
• Tata Capital v Neel Motors, 2026. The Bombay High Court held in August 2026 that section 96(4) applies to section 95 applications pending on 26 May 2026, so the interim moratorium no longer barred arbitration proceedings against the guarantors.

5. Guarantor Assets in the Company's CIRP, Section 28A

The 2026 Amendment inserted section 28A, under which a creditor that has enforced its security over a guarantor's asset may, with the prior approval of the committee of creditors of the corporate debtor, allow the asset to be transferred as part of the corporate debtor's resolution, so that the company and the guarantor's assets can be sold together. Where the personal guarantor is itself in insolvency resolution or bankruptcy, the transfer needs approval of more than three-fourths in value of the guarantor's creditors, and the proceeds form part of its estate. The proceeds are applied to the guarantor's debt after deducting preservation costs, and any surplus is paid to the guarantor.

6. Frequently Asked Questions

Can a bank sue the promoter on his guarantee while the company is in CIRP?

Yes. The moratorium under section 14 protects only the corporate debtor, as held in V. Ramakrishnan (2018). The bank may also start insolvency proceedings against the guarantor under section 95.

Does a guarantor get immediate protection by filing his own insolvency application under section 94?

Not after the 2026 Amendment. Section 96(4) excludes the interim moratorium for personal guarantors to corporate debtors, so protection comes only with the moratorium under section 101 after admission.

If the company's lenders accept 40 per cent under a resolution plan, is the guarantor liable for the remaining 60 per cent?

Yes. Lalit Kumar Jain (2021) held that approval of the plan does not discharge the guarantor, so the creditor may recover the unpaid balance from him, subject to the terms of the guarantee.

Is the guarantor entitled to a hearing before a resolution professional is appointed on a creditor's application?

No. Dilip B Jiwrajka (2023) held that the resolution professional only collects information and makes a recommendation, and the guarantor is heard by the NCLT before it decides under section 100.

7. Related Topics

• Topic 12: Corporate Guarantors and Simultaneous CIRP. Guarantors that are companies.
• Topic 65: Part III. Insolvency of individuals and firms.
• Topic 68: Interim Moratorium. Sections 96 and 101.