Approval of a resolution plan does not ipso facto discharge a personal  guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee

Supreme Court of India has upheld provisions of the Insolvency & Bankruptcy Code, 2016 (IBC) allowing lenders to pursue insolvency proceedings against promoter guarantors of companies facing Corporate Insolvency Resolution Process (CIRP). This would allow banks to file personal bankruptcies against guarantors, even when the insolvency of corporate debtor is yet to be resolved.

“The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, led to carving out personal guarantors as a separate species of individuals, for whom the Adjudicating authority was common with the corporate debtor to whom they had stood guarantee,” the judgment said.

The Bench delivered the judgment after the Apex Court transferred to itself petitions challenging a notification dated November 15, 2019, enforcing certain provisions of the IBC relating to insolvency of personal guarantors.