Vol 19 (2022) - Issue 5

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Evolution of Personal Guarantor Insolvency Regime in India

Synopsis
In 2016, the Insolvency and Bankruptcy Code, 2016 ('IBC') was enacted in India with the fundamental objective of remedying the issue of bludgeoning nonperforming or stressed assets in the banking and finance sector. Unlike in case of insolvency resolution of corporate persons, the Indian Government has been adopting a 'wait and watch' approach and has been implementing provisions pertaining to insolvency resolution/bankruptcy of natural persons in a phased manner presumably taking into account the various social sensitivities involved in relation to insolvency resolution/bankruptcy of natural persons in addition to simpliciter economic considerations. After much wait, the Central Government by way of a notification dated 15 November 2019, notified the provisions pertaining to insolvency resolution/bankruptcy of natural persons effective from 1 December 2019 ('Notification') only in so far as they relate to natural persons who have acted in the capacity of personal guarantors of corporate debtor with a view to experiment and bring into force Part III of the IBC, which deals with insolvency of individuals and partnerships in phases.
However, right from the very constitutionality of the Notification to deciding the appropriate forum for instituting proceedings against personal guarantors, the jurisprudence in relation to treatment of personal guarantors under the scheme of the IBC has been in a state of constant evolution from its inception. In fact, even as on this date, there are several teething issues which have yet remain unresolved. In this paper we attempt to trace the jurisprudence relating to insolvency of personal guarantors by analysing certain landmark judicial pronouncements and bring out the nuances relating to insolvency of personal guarantors of corporate debtors, which now occupies a position much different from that of natural persons acting as principal borrowers.