Personal Guarantors Held Accountable Under The IBC - A Case Study

The Supreme Court, in a recent judgment titled Lalit Kumar Jain vs. Union of India & Others (along with numerous other matters)¹, has held that a personal guarantor cannot be absolved of their responsibilities to pay back the lenders, as they are bound by separate contracts, for a corporate undergoing resolution under the Insolvency and Bankruptcy Code, 2016 (Code). It was also held by the court that the approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of their liabilities under the contract of guarantee.

Factual Matrix

The provisions of the Code were brought into force through different notifications issued on different dates. The Central Government issued a Notification dated 15.11.2019 (Impugned Notification)² and the following provisions of the Code, only in so far as they relate to personal guarantors to corporate debtors, were brought into force with effect from 01.12.2019 i.e. (A) Clause (e) of Section