Personal Guarantors and Individual Insolvency Under the IBC

A personal guarantor to a corporate debtor is an individual who has stood surety for a company's loan, and Part III of the Insolvency and Bankruptcy Code, 2016 (sections 94 to 187) has applied to such guarantors since 1 December 2019. A bank can start an insolvency resolution process against the guarantor even while the company itself is in insolvency, because the Supreme Court has held that the guarantor's liability is not discharged merely because the corporate debtor is discharged. The process runs through a resolution professional, a report, an admission order and a repayment plan, and it was amended in important ways by the IBC (Amendment) Act, 2026.

This explainer is written for B.A. LL.B. and LL.B. students preparing for company law and insolvency papers, and for any reader who has signed a guarantee for a family business. Think of a shop owner in Nagercoil who signed as guarantor when his brother's private limited company took a working capital loan. If the company defaults, this is the law that decides what happens to him.

Who is a personal guarantor, and where does the IBC cover them?

Section 5(22) defines a personal guarantor as "an individual who is the surety in a contract of guarantee to a corporate debtor." Section 2(e) brings personal guarantors to corporate debtors within the Code as a separate category, distinct from partnership firms, proprietorship firms and other individuals in clauses (f) and (g).

Part III was not brought into force all at once. By notification S.O. 4126(E) dated 15 November 2019, the Ministry of Corporate Affairs brought section 2(e), section 78 (except the fresh start process), section 79 and sections 94 to 187 into force from 1 December 2019, but only in so far as they relate to personal guarantors to corporate debtors. Insolvency of other individuals under Part III has not been brought in by that notification, so students should not assume that every individual borrower can use this route.

On the forum, the Supreme Court noted in Dilip B Jiwrajka that Amending Act 26 of 2018 amended section 60 to give the National Company Law Tribunal jurisdiction over the insolvency of personal guarantors. Read section 60 itself before writing on which bench hears a particular case.

What are the steps in the process?

1. Application. The guarantor may apply under section 94, or a creditor under section 95, either personally or through a resolution professional. A creditor can apply alone or jointly with other creditors, and must attach proof that the debt was not paid within 14 days of a demand notice.
2. Interim moratorium. Under section 96(1), an interim moratorium starts on the date of the application, staying pending proceedings in respect of any debt and barring creditors from starting new ones. As explained below, the 2026 amendment switched this off for personal guarantors.
3. Appointment of resolution professional. If the application was filed through a resolution professional, section 97(1) requires the Adjudicating Authority to direct the Insolvency and Bankruptcy Board of India, within seven days of the application, to confirm that no disciplinary proceedings are pending against that professional. If the debtor or creditor filed directly, section 97(3) requires a direction within seven days to nominate one, and under section 97(4) the Board nominates a resolution professional within ten days.
4. Report. Under section 99(1), the resolution professional examines the application and recommends approval or rejection. The 2026 amendment extended the time for this report from ten days to twenty-one days. The resolution professional can seek further information under section 99(4), and under section 99(5) the person asked must reply within seven days of the request.
5. Admission or rejection. Under section 100(1), the Adjudicating Authority must pass an order within fourteen days of the report.
6. Moratorium. On admission, section 101 imposes a moratorium on all debts for 180 days or until a repayment plan order under section 114, whichever is earlier. During this period the debtor cannot transfer, alienate, encumber or dispose of his assets.
7. Repayment plan. Claims are invited, a repayment plan is prepared and creditors meet to vote on it under sections 102 to 114.

What did the Supreme Court decide?

Lalit Kumar Jain v. Union of India (2021)

Reported at (2021) 9 SCC 321, this case dealt with the challenge to the 15 November 2019 notification. As later summarised by the Supreme Court in Dilip B Jiwrajka, a two-Judge Bench held that "the liability of a guarantor is not discharged merely on the discharge of the corporate debtor." This is the point that lets a lender pursue the company and the guarantor at the same time. It sits comfortably with section 128 of the Indian Contract Act, 1872, under which a surety's liability is co-extensive with that of the principal debtor.

Dilip B Jiwrajka v. Union of India (2023)

On 9 November 2023, a three-Judge Bench (Dr D.Y. Chandrachud, CJI, J.B. Pardiwala and Manoj Misra, JJ) upheld sections 95 to 100 against challenges under Articles 14 and 21. The main holdings are:

• No judicial adjudication takes place at the stages in sections 95 to 99.
• The resolution professional plays a facilitative role, and the report is only recommendatory.
• There is no right to a hearing on "jurisdictional facts" before the resolution professional is appointed under section 97(5).
• The Adjudicating Authority must follow natural justice when it decides under section 100.
• The interim moratorium under section 96 protects the debtor from further legal proceedings in respect of the debt. It does not, by itself, stop him from dealing with his assets.

What changed in 2026?

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) received assent on 6 April 2026. Under notification S.O. 2625(E) dated 22 May 2026, the provisions discussed below came into force on 26 May 2026.

• Section 96(4): the interim moratorium under section 96 no longer applies where the application concerns a personal guarantor to a corporate debtor. This is a major shift from the position discussed in Jiwrajka, so check the current text before answering any question on interim moratorium.
• Section 99(1): the resolution professional now has twenty-one days, not ten, to submit the report.
• Section 106: under the new sub-section (1A), if no repayment plan is submitted in time, the resolution professional reports this and the Adjudicating Authority terminates the process, after which the debtor or creditors may apply for bankruptcy under Chapter IV. A new sub-section (3A) sets out how the creditors' meeting is called for a personal guarantor.
• Section 28A: a creditor who holds a guarantor's asset after enforcing security can, with approval, allow it to be transferred during the company's resolution. Where the personal guarantor is in insolvency, more than three-fourths in value of his creditors must approve.
• Section 31(6), Explanation I: extinguishment of claims on approval of a resolution plan does not affect claims against a guarantor of the corporate debtor.
• Section 183A: a person who starts a frivolous or vexatious proceeding under Part III can face a penalty of not less than one lakh rupees, which may extend to two crore rupees.

How should you write this in an exam?

• Start with the definition in section 5(22) and the category in section 2(e).
• Mention the 15 November 2019 notification and the date of 1 December 2019.
• Set out the stages from section 94 to section 101 with time limits, and flag the 2026 changes.
• Cite Lalit Kumar Jain for the guarantor's continuing liability and Dilip B Jiwrajka for the constitutional validity and the recommendatory role of the resolution professional.
• Close with a short critical comment, for example on the removal of the interim moratorium for guarantors.

I could not confirm a leading Madras High Court ruling on this part of the Code from official sources, so check the High Court's own judgment database before you cite one. Students who want to see how debt problems reach ordinary families can also volunteer with the college legal aid clinic.

Sources

• Insolvency and Bankruptcy Code (Amendment) Act, 2026: gazette text of Act No. 6 of 2026, published by IBBI.
• Notification S.O. 2625(E) dated 22 May 2026: commencement of the 2026 amendments from 26 May 2026.
• Dilip B Jiwrajka v. Union of India, 2023 INSC 1018: Supreme Court judgment dated 9 November 2023.
• Lalit Kumar Jain v. Union of India: Supreme Court judgment reported at (2021) 9 SCC 321, hosted by IBBI.
• Insolvency and Bankruptcy Code, 2016 (up to 12.08.2021): IBBI consolidated text, for sections 2(e) and 5(22).
• IBBI: Acts and amendments: official list of the Code and its amending Acts.
• IBBI: Notifications: commencement notifications under the Code and the 2026 amendment.