Personal Guarantors under IBC: Jurisdictional Clarity and Threshold Complexities

The issue of the proper adjudicating authority in proceedings against personal guarantors to corporate debtors has undergone extensive judicial scrutiny. While Section 79 of the Insolvency and Bankruptcy Code, 2016 (IBC), which governs Part III dealing with individuals and partnership firms, defines the “Adjudicating Authority” as the Debt Recovery Tribunal (DRT), this is expressly made “subject to the context otherwise requiring.” This qualification becomes crucial in interpreting the jurisdiction where personal guarantors are involved, especially in light of the provisions of Section 60 of the Code.

This issue was considered by the NCLAT in Anita Goyal v. Vistra ITCL (India) Ltd. & Anr. (Company Appeal (AT) (Ins.) No. 2282 of 2024, decided on 23.02.2025), where the personal guarantor contended that any application under Section 95 should lie before the DRT. However, the Appellate Tribunal, relying extensively on the Supreme Court’s decision in Lalit Kumar Jain v. Union of India [(2021) 9 SCC 321], rejected the argument and held that it is the NCLT, not the DRT, that is the correct adjudicating authority for personal guarantors to corporate debtors. This conclusion was reinforced by examining Section 60 of the IBC, which, under subsection (1), provides that:

“The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal…”

The Tribunal also referred to the Report of the Insolvency Law Committee, March 2018, which had emphasized the need for a unified forum to adjudicate matters involving both the corporate debtor and their personal guarantor. Paragraph 23.1 of the report clearly acknowledged that Section 60 of the Code was designed to “create a link between the insolvency resolution or bankruptcy processes of the corporate debtor and the personal guarantor such that the matters relating to the same debt are dealt in the same tribunal.” It was observed that this linkage was deliberate and not present in cases involving corporate guarantors, which required separate legislative treatment. Thus, the Committee’s recommendation further underscored the legislative intent to place personal guarantors before the NCLT in all cases.

In Lalit Kumar Jain, the Hon’ble Supreme Court unequivocally upheld this distinction, and the resulting notification dated 15.11.2019, operationalizing provisions of Part III for personal guarantors to corporate debtors. The Court observed:

“Parliamentary intent was to treat personal guarantors differently from other categories of individuals… 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…” (para 100) (Emphasis supplied)

Further, the Court explained that the phraseology of Section 60(2), which applies when CIRP or liquidation is pending, does not limit the general scope of Section 60(1). Instead, Section 60(2) supplements Section 60(1). This interpretation was also adopted by the NCLAT in SBI v. Mahendra Kumar Jajodia (Company Appeal (AT) (Ins.) No. 60 of 2022), where the Tribunal clarified that even in the absence of a pending CIRP against the corporate debtor, proceedings under Section 95 against a personal guarantor could be validly initiated before the NCLT. This decision was later affirmed by the Supreme Court, effectively endorsing the NCLAT’s view that Section 60(1) is independently sufficient to confer jurisdiction on the NCLT.

In summary, the legislative scheme, read with the judicial pronouncements in Lalit Kumar Jain, Anita Goyal, and Mahendra Kumar Jajodia, clearly establishes that the NCLT is the sole adjudicating authority for insolvency and bankruptcy applications involving personal guarantors to corporate debtors. Any contrary reading of Section 79 of the Code would fail to account for the qualifying phrase and the broader statutory context under Section 60. The evolving jurisprudence consistently supports this harmonized framework for the resolution of debts involving corporate entities and their personal guarantors.

A significant interpretational issue that emerged following the operationalisation of Part III of the IBC in respect of personal guarantors to corporate debtors, was the applicable threshold of default for initiating insolvency resolution under Section 95 of the Code. Specifically, confusion persisted on whether the threshold would be governed by Section 4 of the Code, which stipulates a default of INR 1 crore (as amended with effect from 24.03.2020), or Section 78, which under Part III prescribes a minimum default of INR 1,000, extendable up to Rs. INR lakh by government notification.

This legal ambiguity was definitively addressed by the National Company Law Appellate Tribunal (NCLAT) in Mudraksh Investfin Pvt. Ltd. v. Gursev Singh (CA(AT)(Insolvency) No. 9 of 2025) Decided on May 02, 2025, where the Appellate Tribunal answered this interpretative question in favour of applying Section 4 to proceedings under Section 95 against personal guarantors to corporate debtors. The NCLAT held that where the application is filed before the National Company Law Tribunal (NCLT), which is the Adjudicating Authority under Section 60(1) for personal guarantors to corporate debtors, the threshold under Part II, i.e., INR 1 crore, would govern the proceedings and not the lower threshold of INR 1,000 or INR 1 lakh under Section 78 of Part III.

The reasoning adopted by the Tribunal rested on a careful interplay between Section 60(1), which vests jurisdiction in the NCLT for both corporate debtors and their personal guarantors, and the legislative context provided by the Supreme Court in Lalit Kumar Jain v. Union of India [(2021) 9 SCC 321]. The Tribunal noted that while Section 78 governs the general application of Part III, it is overridden by Section 60 in the case of personal guarantors. Importantly, Section 60(4) vests in the NCLT all powers of the DRT for the purposes of adjudicating matters under Section 60(2), but the jurisdiction is exercised in relation to the same class of defaults and thresholds applicable under Part II, as the personal guarantor’s insolvency is treated as an extension of the corporate debtor’s default.

Quoting from the judgment:

“When Section 60(1) itself provides that the Adjudicating Authority for insolvency proceedings of personal guarantors to corporate debtors shall be the NCLT, and Section 60(4) vests NCLT with powers under Part III, the logical inference is that the threshold under Section 4 of Part II will apply, not Section 78 of Part III, in such proceedings.” (Mudraksh Investfin, para 11) (Emphasis supplied)

This interpretation harmonises with the rationale in Lalit Kumar Jain, where the Supreme Court held that personal guarantors are carved out as a distinct class from other individuals under Part III, precisely because of their “intimate connection” with the corporate debtor. Therefore, proceedings against them must follow a unified process in the same forum (NCLT) and be governed by consistent procedural and substantive standards, including threshold default.

Furthermore, this interpretation avoids a regulatory absurdity: that creditors would need to meet a INR 1 crore threshold to initiate CIRP against a corporate debtor but only INR 1,000 or INR 1 lakh against a guarantor who is intrinsically linked to the same debt. Applying the higher threshold under Section 4 maintains parity and ensures that personal insolvency applications are not used frivolously or as a pressure tactic, particularly when initiated independently of any CIRP.

In conclusion, the law as settled by Mudraksh Investfin v. Gursev Singh, now is that:

• Where insolvency proceedings are filed under Section 95 against a personal guarantor to a corporate debtor,
• And such proceedings are filed before the NCLT as the Adjudicating Authority under Section 60(1),
• The threshold default shall be INR 1 crore, as provided under Section 4 of the IBC.

While this position appears logically given the legislative mandate that personal guarantor proceedings be heard by the NCLT, it inadvertently gives rise to jurisdictional and procedural complexity. Specifically, it creates a dichotomy wherein personal guarantors to corporate debtors are required to approach the NCLT only if the default exceeds INR crore, and for defaults below this threshold, the route under the Provincial Insolvency Act, 1920 must be pursued. This fragmented approach not only raises concerns about the uniformity of treatment under IBC but also risks creating dual forums even for similarly situated personal guarantors. Though the judgment resolves the question of monetary threshold under the IBC, it leaves unresolved the practical and systemic challenges now faced by creditors and debtors alike in navigating between two distinct insolvency regimes.

We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at   insights@elp-in.com or write to our authors:

Mukesh Chand, Senior Counsel – Email – mukeshchand@elp-in.com