Behind most bank loans to Indian companies stands a personal guarantee, usually from the promoters and sometimes from their family members. For years, lenders enforced these guarantees through civil suits or DRT cases. Since November 2019, they have had another route: an insolvency process against the guarantor personally, before the NCLT, under Part III of the Insolvency and Bankruptcy Code.
This guide explains that process for both sides: guarantors who have received a demand, and lenders considering it. It covers how the process starts, the role of the resolution professional, admission, the moratorium, the repayment plan and what happens if the plan fails. It also explains the important change made on 26 May 2026, when the interim moratorium for guarantors of company loans was removed.
हिंदी में सारांश
कंपनी के लोन के लिठवà¥à¤¯à¤•à¥à¤¤à¤¿à¤—त गारंटी देने वाले पà¥à¤°à¤®à¥‹à¤Ÿà¤°à¥‹à¤‚ के खिलाफ लेनदार IBC के à¤à¤¾à¤— III के तहत NCLT में दिवाला पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ शà¥à¤°à¥‚ कर सकते हैं। मामला उसी NCLT बेंच में जाता है जो कंपनी के मामले देखती है। पहले आवेदन दायर होते ही अंतरिम मोरेटोरियम लग जाता था, लेकिन 26 मई 2026 से कंपनी लोन के गारंटरों पर यह लागू नहीं होता। कंपनी का रेज़ोलà¥à¤¯à¥‚शन पà¥à¤²à¤¾à¤¨ मंज़ूर होने से गारंटर अपने-आप मà¥à¤•à¥à¤¤ नहीं होता।
The process in brief
The guarantee survives
Approval of the company's resolution plan does not by itself release the guarantor, as held in Lalit Kumar Jain (2021).
Same NCLT bench
The case goes to the NCLT that deals with, or would deal with, the company whose loan was guaranteed.
A resolution professional examines first
The professional reviews the application and reports to the NCLT before admission. The guarantor is heard at the admission stage.
No interim moratorium since 2026
Filing no longer triggers an interim moratorium for guarantors of company loans.
A repayment plan is the goal
After admission, the guarantor can propose a repayment plan for creditors to approve.
Bankruptcy if the plan fails
If no plan is approved or it fails, creditors can seek bankruptcy, with the guarantor's assets vested in a trustee.
How the process starts
A creditor first sends a demand notice to the guarantor in the prescribed form, giving 14 days to pay. If the guarantor does not pay, the creditor files an application under Section 95 before the NCLT. A guarantor can also file under Section 94 for themselves. The application goes to the NCLT that has jurisdiction over the corporate debtor whose loan was guaranteed, under Section 60(1), so all proceedings arising from the same company are heard together.
The NCLT appoints a resolution professional, often the one proposed by the applicant, who examines the application and submits a report under Section 99 recommending acceptance or rejection. The guarantor can submit evidence of repayment or other objections to the professional. The Supreme Court in Dilip B. Jiwrajka v Union of India (2023) upheld this scheme, holding that the professional's role is facilitative and that the guarantor need not be heard before the professional is appointed; the hearing comes at admission under Section 100.
The 2026 change to the interim moratorium
Under the original Section 96, an interim moratorium began the moment an application was filed by or against a guarantor. It paused all legal actions in respect of the guarantor's debts until the NCLT decided admission, which could take months. Some guarantors filed their own Section 94 applications to freeze SARFAESI sales and DRT cases.
The Insolvency and Bankruptcy Code (Amendment) Act, 2026, in force from 26 May 2026, provided that the interim moratorium does not apply where an application is filed in respect of a personal guarantor to a corporate debtor. Lenders can now continue recovery actions while the application is examined, and guarantors cannot use filing as a shield. The moratorium under Section 101 still begins on admission. How the change affects applications pending on 26 May 2026 depends on the transitional position and the orders in each case. See Section 96 after 2026.
The guarantor insolvency process
Demand notice
The creditor sends a demand under the personal insolvency rules, with 14 days to pay.
Application under Section 95 (or 94)
The creditor, or the guarantor, files before the NCLT dealing with the company.
Resolution professional's report
The professional examines the application and the guarantor's response, and reports to the NCLT within the time set by Section 99.
Admission or rejection
The NCLT hears the guarantor and decides under Section 100. On admission, the Section 101 moratorium begins.
Public notice, claims and repayment plan
Creditors file claims. The guarantor, with the professional, prepares a repayment plan, which creditors vote on at a meeting.
Approval or bankruptcy
If approved by the required majority and accepted by the NCLT, the plan binds creditors. If not, creditors can apply for bankruptcy.
Key differences from company insolvency
| Point | Company (CIRP) | Personal guarantor (Part III) |
|---|---|---|
| Who runs things | Resolution professional takes over the company | The guarantor keeps their assets; the professional facilitates |
| Threshold | Rs 1 crore | A much lower minimum under Section 78 |
| Interim moratorium | Not applicable | Not available for guarantors of company loans since 26 May 2026 |
| Moratorium after admission | Section 14 | Section 101, for the process period |
| Outcome | Resolution plan or liquidation | Repayment plan or bankruptcy |
| Effect on guarantor's liability | Not released by company's plan | Discharged as provided in the approved plan |
Defences a guarantor can raise
Guarantors are not without defences. A guarantee may be limited in amount or period. Under Section 133 of the Indian Contract Act, a variance in the terms of the loan made without the guarantor's consent discharges the guarantor for later transactions. Under Section 139, an act or omission by the creditor that impairs the guarantor's eventual remedy against the borrower, such as releasing security, can discharge the guarantor. Limitation runs from the invocation of the guarantee, and a claim that is time-barred cannot found an application. The creditor must also credit recoveries from the company, including payments under the company's plan.
These defences should be raised in writing before the resolution professional, whose report shapes the NCLT's decision, and again at the admission hearing. See defending a personal guarantor case.
A guarantor's repayment plan
Here's a made-up example. A Ludhiana promoter had guaranteed Rs 20 crore of loans to his company, which went into liquidation. Two banks filed Section 95 applications before NCLT Chandigarh. After admission, the promoter, with the resolution professional, prepared a repayment plan: the sale of a commercial property, monthly payments from his rental income for three years, and a contribution from a family member. The creditors approved the plan by the required majority, and the NCLT accepted it. When the plan was completed, the guarantor was discharged from the debts covered by it.
A lender's choice of route
Here's a second made-up example. A bank was owed Rs 6 crore by a Delhi guarantor after the company's CIRP ended. It held a mortgage over his house and had a pending DRT application. It weighed three routes: continue the DRT case and SARFAESI enforcement on the house, file under Section 95, or negotiate. Because the house was enough to cover most of the debt and enforcement could continue, the bank completed the SARFAESI sale first and then used a Section 95 application for the shortfall, when the guarantor's other assets were in doubt.
For guarantors who have received a demand
- Note the date the demand was received and the 14-day period
- Get the guarantee deed and check for a cap or conditions
- Check the date and proof of invocation
- Collect records of changes to the loan made without your consent
- Collect records of security released by the lender
- Check what the lender has recovered from the company and others
- List your assets and liabilities honestly
- Take advice before replying or making payment proposals
Guarantors and the company's resolution plan
A company's resolution plan may say that guarantors' liability is extinguished, or may expressly preserve the lender's rights against guarantors. In Lalit Kumar Jain, the Supreme Court held that approval of the plan does not by itself release guarantors, because their liability arises under a separate contract. Lenders who receive part payment under the company's plan can pursue guarantors for the balance. Guarantors who pay lenders may, in principle, have a right of subrogation against the company, but where the company's plan has extinguished claims not provided for, that right may be of little value. Guarantors should read the company's plan carefully and take advice on its effect on them.
Key rulings on personal guarantors
| Case | What it decided |
|---|---|
| SBI v V. Ramakrishnan (2018) | The company's moratorium does not protect personal guarantors |
| Lalit Kumar Jain v Union of India (2021) | Upheld the 2019 notification; approval of the company's plan does not discharge guarantors |
| Dilip B. Jiwrajka v Union of India (2023) | Upheld Sections 95 to 100; no hearing needed before the professional is appointed |
Family members as guarantors
Lenders often take guarantees from promoters' spouses, parents or adult children, who may have had little to do with the business. They are guarantors in law, and the same process applies to them. But their position can raise additional defences: whether they understood what they signed, whether they received independent advice, whether the guarantee was taken under pressure, and whether the lender followed its own policies on third-party guarantees. These questions are fact-specific and should be raised early, in writing, at the resolution professional's report stage.
Frequently Asked Questions
Can a lender start insolvency against a personal guarantor?
Yes, under Section 95 of the IBC, before the NCLT dealing with the company whose loan was guaranteed.
Does the company's resolution plan release the guarantor?
Not by itself. The Supreme Court so held in Lalit Kumar Jain (2021).
Is there still an interim moratorium for guarantors?
Not for guarantors of company loans, for applications filed on or after 26 May 2026.
Is the guarantor heard before the professional is appointed?
No. Dilip Jiwrajka held that the hearing comes at the admission stage.
What is a repayment plan?
A proposal by the guarantor to repay creditors over time or in part, which creditors vote on and the NCLT accepts.
What if the repayment plan fails?
Creditors can apply for bankruptcy, and the guarantor's assets vest in a bankruptcy trustee.
Can a guarantor's liability be limited?
Yes, if the guarantee is capped, or reduced by discharge under the Contract Act or recoveries already made.
Which NCLT hears the case?
The bench that has jurisdiction over the company whose loan was guaranteed.
Guarantor or Lender?
Send us the guarantee deed and the demand. We will explain where you stand and what to do next.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Have a question about your own case?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
