THE PREDICAMENT OF A PERSONAL GUARANTOR UNDER THE INSOLVENCY AND BANKRUPTCY CODE OF INDIA

The ever-evolving regulatory framework of the Insolvency and Bankruptcy Code of 2016 initially provided for the creditor to initiate a corporate insolvency resolution process against the corporate debtors. The personal guarantors would thus escape payments by standing outside the corporate insolvency resolution process. The government, therefore, brought into force certain provisions of Part III of the Insolvency and Bankruptcy Code. These provisions enabled the creditors to drag the personal guarantors before the adjudicatory forum under § 95 of the Insolvency and Bankruptcy Code. However, the guarantors long contended that their liability stands discharged upon approval of a resolution plan under § 31 of the Insolvency and Bankruptcy Code. The Hon’ble Supreme Court in Lalit Kr. Jain v. Union of India resolved this conundrum by holding that the personal guarantor is not ipso facto discharged of his liability under the contract of guarantee on completion of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code. The authors endeavour to analyse the status of the personal guarantors under the Insolvency and Bankruptcy Code in the light of the evolving jurisprudence, core principles, and recent judicial pronouncements and explore its ramifications on the legal rights of the personal guarantor under the Indian Contract Act of 1872. The article shall highlight the issues at point, alongside tracing the legislative and the judicial history. Parallelly, the major factors underlying the dilemma will be highlighted. Lastly, the authors have critically analysed the judicial pronouncements and explored its ramifications on the liability of the personal guarantor post the completion of the corporate insolvency resolution process.