Personal Guarantors' Rights Within The Insolvency Framework

Bhavik Gupta, Symbiosis Law School, Noida

ABSTRACT

The Insolvency and Bankruptcy Code, 2016 (IBC) has brought significant changes to resolving insolvency proceedings involving personal guarantors ensuring co-extensive liability provided under Section 128 of the Indian Contract Act akin to that of the debtor. This paper explores the legal framework under the IBC, particularly Part III, which addresses the insolvency of individuals and partnership firms. Recent judicial interpretations, such as in cases like Dilip B. Jiwrajka vs. Union of India and Lalit Kumar Jain vs. Union of India, underscore that resolution plans for corporate debtors do not discharge personal guarantors from their obligations and liability. The paper further delves into the role of the Resolution Professional (RP) under Part III, which is pivotal but circumscribed, focusing on facilitation rather than adjudication. Judicial scrutiny emphasizes adherence to natural justice principles, affirming personal guarantors' rights while balancing creditor interests. The contentious issue of subrogation rights for personal guarantors remains a subject of debate within the IBC's ambit. Overall, the evolving jurisprudence seeks to maintain fairness and equity in insolvency proceedings, enhancing confidence in financial transactions while safeguarding individual rights.