Can a personal guarantor to a corporate debt be pursued under the IBC?

Question

I gave a personal guarantee for my company's loan and the bank has now filed insolvency proceedings against me personally. Is this permitted? What I am unsure about is the procedure — where the application goes, what it costs, and how long personal guarantor insolvency ibc matters usually take. A plain explanation of the steps, in order, would help more than a general answer.

MyVakeel Legal Desk · Accepted Answer

The law that applies to personal guarantor insolvency ibc here is Insolvency and Bankruptcy Code 2016, Section 60, Insolvency and Bankruptcy Code 2016, Section 95 and Insolvency and Bankruptcy Code 2016, Section 5. The detail below matters, because Insolvency and Bankruptcy Code 2016, Section 60 draws the line differently depending on what your documents show.

Section 60 makes the NCLT the adjudicating authority for insolvency of personal guarantors to corporate debtors, ensuring both the corporate debtor's and the guarantor's insolvency proceedings can be handled by the same tribunal.

Section 95 allows a creditor to file an application for initiating the insolvency resolution process against a personal guarantor upon default, distinct from the corporate insolvency resolution process applicable to companies.

The Supreme Court has clarified that approval of a resolution plan for the corporate debtor does not automatically discharge the personal guarantor's liability under the guarantee, since the creditor's right against the guarantor is independent and coextensive under the Indian Contract Act.

The insolvency process for personal guarantors involves a resolution professional preparing a repayment plan, which the creditors consider, followed by adjudication before the NCLT, differing procedurally from the corporate process.

A personal guarantor facing such proceedings can still be pursued for the full guaranteed amount even after the principal borrower company undergoes resolution, subject to adjustment for amounts recovered.

In practice, in this order: 1) Review the terms of the personal guarantee and the notice of default received from the creditor; 2) Verify whether the NCLT bench handling the corporate debtor's case also has jurisdiction over the guarantor application; 3) Prepare a repayment plan proposal with professional assistance if insolvency proceedings are admitted; 4) Consult a lawyer to assess defences and negotiate settlement before adjudication.

Timing matters here: Insolvency and Bankruptcy Code 2016, Section 60 works on limitation periods, so a personal guarantor insolvency ibc claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.