Rs 6.25 Crore or Rs 1,500 Crore? Reading a Personal Guarantor Repayment Plan

Part III of the Insolvency and Bankruptcy Code, 2016 lets a creditor pull an individual who signed a personal guarantee into the National Company Law Tribunal and have his personal affairs resolved through a statutory repayment plan. A recent proceeding involving a well known promoter has been reported as a plan of about Rs 6 crore against claims of roughly Rs 22,000 crore, which reads as a ninety-nine per cent write-off. The tribunal record shows something different. The plan before the tribunal was Rs 1,500.25 crore, being 6.91 per cent of the admitted debt, of which the guarantor's personal contribution was Rs 6.25 crore and the principal borrower's was Rs 1,494 crore.

Part of the corporate and commercial law practice at S Jain & Attorneys, Bangalore.

That gap between the headline and the file is worth walking through, because it explains what a guarantee actually is, what a repayment plan can and cannot do, and why this particular matter divided the bench that heard it.

The genesis: how a promoter's signature reached the tribunal

Part III was enacted in 2016 but was not brought into force for individuals generally. On 15 November 2019 the Ministry of Corporate Affairs issued notification S.O. 4126(E) appointing 1 December 2019 as the date from which those provisions came into force, but only in so far as they relate to personal guarantors to corporate debtors. One class of individual was carved out of a dormant chapter and made subject to it alone.

That selective commencement was challenged. In Lalit Kumar Jain v. Union of India, decided on 21 May 2021, the Supreme Court held that the impugned notification is legal and valid. It also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors, reasoning that release of a principal borrower by an involuntary process, that is by operation of law or through liquidation or insolvency, does not absolve the surety, whose liability arises out of an independent contract.

Key takeaway. The guarantee is a separate contract. A company can be resolved, sold or liquidated and the promoter who signed for it remains personally answerable. That is the architecture, and it is why these applications exist.

What the order actually records

The proceeding began in 2022, when a housing finance company filed a petition under Section 95 against the promoter as personal guarantor for a facility to a borrower company. It was admitted by a detailed order in April 2024, a resolution professional was appointed and later replaced, claims were collected, and creditors voted in November 2024 on a repayment plan the professional then placed before the tribunal for approval under Section 114.

The figures in the record are these. Twenty-five creditors came forward, of whom two were not found eligible, leaving twenty-three. Their admitted claims totalled Rs 21,696,89,92,221, or about Rs 21,697 crore. Against that, the plan proposed the following.

The plan carried a vote of 80.814 per cent in value. So the number that has travelled, the guarantor's Rs 6.25 crore, is his personal share of a plan more than two hundred times larger. It is small precisely because he is a guarantor rather than the borrower, and because a plan under Part III is paid out of one individual's estate.

Why the reported haircut is arithmetic on the wrong number

Two things get conflated. The first is the difference between the plan and the guarantor's contribution to it, which the table above separates. The second is a point of law that is easy to miss and does more work than either figure.

Section 119 allows the resolution professional to apply for a discharge order in relation to the debts mentioned in the repayment plan. Sub-section (4) then provides that the discharge order shall not discharge any other person from any liability in respect of his debt. Borrower companies remain liable for what they borrowed. Co-guarantors remain liable on their own guarantees. Security over corporate assets is untouched by a discharge in an individual's personal proceeding.

Common mistake. Reading the plan as extinguishing Rs 21,697 crore of debt. It does not. It resolves one individual's personal exposure out of one individual's estate, and Section 119(4) expressly preserves every claim against every other obligor.

A guarantee is a promise, not a fund. Recovery from a guarantor is bounded by what that person owns when the promise is tested, not by the size of the claim the promise supported. That is the risk a lender takes when a signature is treated as security and never revalued.

Is it legal? The bench itself could not agree

Section 111 provides that a repayment plan shall be approved by a majority of more than three-fourth in value of the creditors present in person or by proxy and voting on the resolution. On the face of it a vote of 80.814 per cent clears that bar, and Section 115 then makes an approved plan binding on the creditors named in it and on the debtor.

The two members who first heard the approval application did not agree that this was the end of the enquiry. They authored dissenting orders, and the points of difference were referred to the President under Section 419(5) of the Companies Act, 2013, which is the statutory route when a bench divides. Reported accounts say a third member later approved the plan in an order of 25 August 2026.

The referred questions are the interesting part, and they are the honest answer to whether an outcome like this is lawful. One was whether, when Section 114 says the Adjudicating Authority shall by an order approve or reject the repayment plan on the basis of the professional's report, the tribunal retains any power to reject a plan the creditors have approved, or is confined to the report before it. The dissenting member also questioned the inclusion of related and associate parties in the meeting of creditors and their participation in the vote, with reference to Section 109(4)(b), and was critical of the conduct of the resolution professional.

So the correct answer to "is this legal" is not that the vote settles it. The vote satisfies the statutory threshold, and whether that threshold is the whole test, and whether this particular vote was properly constituted, were live questions inside the tribunal itself. Appeals by objecting lenders have been reported. Nothing here comments on the merits of any of that.

How the process really runs

1. A creditor applies under Section 95, or the debtor under Section 94. Most applications are creditor-driven.
2. A resolution professional is appointed under Section 97 and reports to the tribunal within ten days under Section 99, recommending admission or rejection.
3. The tribunal admits or rejects within fourteen days of that report under Section 100, and may direct negotiations towards a plan.
4. On admission a moratorium runs under Section 101 for one hundred and eighty days or until the order on the plan, whichever is earlier, during which the debtor cannot transfer or encumber assets.
5. Public notice issues and claims are collected and listed under Sections 102 to 104.
6. The debtor prepares the repayment plan in consultation with the professional under Section 105, with a justification and the reasons creditors may agree to it.
7. The professional reports under Section 106, convenes the meeting under Sections 107 and 108, and voting rights are set under Section 109.
8. Creditors vote. Section 111 requires more than three-fourths in value of those present and voting.
9. The tribunal approves or rejects under Section 114. On rejection, Section 115(2) leaves the parties to bankruptcy under Chapter IV.
10. The plan is implemented under supervision and a discharge order may follow under Section 119.

The 2026 amendment that changed the opening move

Anyone working from an older commentary will be wrong about the first step. Section 96 used to give an automatic interim moratorium the moment an application was filed, staying proceedings in respect of the debts before any tribunal examined anything.

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 inserted a new sub-section (4) into Section 96 excluding personal guarantors to corporate debtors from that interim moratorium. In Tata Capital Financial Services Limited v. Neel Motors LLP the Bombay High Court held the change applies to pending Section 95 applications and not only to fresh filings, observing that an application in respect of such a guarantor would not fall within Section 96(1) with effect from 26 May 2026.

The consequence is direct. A guarantor no longer gets an automatic stay, so enforcement under securitisation law and before the debts recovery tribunal can continue in parallel. The interim moratorium survives for other individuals and for partnership firms.

Does the framework work?

As a recovery tool it has so far returned very little. Figures reported from the regulator's data indicate that of roughly 2,137 personal guarantor cases in which a resolution professional had been appointed as at June 2026, only about 64 had reached an approved repayment plan, with creditors realising in the region of Rs 234.56 crore, a low single-digit percentage of admitted claims across those matters.

Two conclusions follow and they cut both ways. For lenders, a personal guarantee has not proved the enforcement lever it was assumed to be, because a signature taken at sanction and never revalued is worth whatever the estate is worth on the day it is tested. For guarantors, the process is not an escape hatch, because the borrower and every co-obligor remain liable under Section 119(4) and the individual's affairs are placed under supervision for the duration.

What each side should take from this

In my experience the mistake on the lending side is treating a personal guarantee as a number rather than as a monitored security. A guarantee supported by a net worth statement taken once, never refreshed, never tested against filings and never backed by a restriction on transferring assets, is a comfort letter with a stamp on it. The time to discover that an estate has thinned is not at the meeting of creditors. On the borrower side, the mistake is assuming the guarantee is decorative because the company is the real obligor. It is a separate contract, it survives the company's resolution, and Part III is the forum in which it is enforced personally.

Both sides should read Section 111 for what it says. Creditors who do not attend and do not vote block nothing. They lower the denominator against which the three-fourths majority is measured and are then bound by the result under Section 115. Where a plan turns on the participation of related parties, the question of who was admitted to the meeting is not a technicality. It is the case.

Frequently Asked Questions

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Related Guides

If a guarantee has been invoked or an application has been filed, our corporate and commercial practice and our money recovery practice act for lenders and for guarantors in Bengaluru. These guides go further on the points above.

• Operational Debt and Financial Debt Under the IBC
• The One Crore Threshold for Insolvency Under the IBC
• Form CA: How a Homebuyer Files a Claim in NCLT
• Builder in Insolvency? Homebuyer Rights After the Mantri Ruling
• Oppression and Mismanagement Before the NCLT
• Share Valuation in an NCLT Buyout