Lalit Kumar Jain v. Union of India: Personal Guarantors
An approved plan for the company does not release the promoter who guaranteed its loans.
Lalit Kumar Jain v. Union of India, decided by the Supreme Court on 21 May 2021, answered two questions that matter to every promoter who signed a bank guarantee. First, could the Central Government bring Part III of the Code into force only for personal guarantors to corporate debtors? Second, once a resolution plan for the company is approved, is the promoter's guarantee gone?
The court said yes to the first and no to the second. Banks can pursue personal guarantors before the NCLT, and an approved plan for the corporate debtor does not by itself discharge them.
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The Challenge
By a notification dated 15 November 2019, the Central Government appointed 1 December 2019 as the date from which provisions of Part III, including sections 94-187, came into force in so far as they relate to personal guarantors to corporate debtors. Rules and IBBI regulations for the process followed. Promoters and directors facing insolvency applications challenged the notification across several High Courts; the cases were transferred to the Supreme Court, and argument was confined to the notification.
They argued it was an impermissible legislative act by the executive, that it split individuals into classes the Code did not create, and that approval of the company's resolution plan should discharge the guarantor.
What the Court Held
- The notification is valid
- It is not a legislative exercise or an impermissible selective application of the Code. Sections 2(e), 5(22), 60 and 179 show Parliament meant personal guarantors to be dealt with differently, because of their intrinsic connection with corporate debtors.
- One forum
- Under section 60, the NCLT hearing the company's case also hears its personal guarantors' insolvency, so it sees the whole picture. Section 60(2) applies distributively: corporate debtors and corporate guarantors face resolution or liquidation, personal guarantors face resolution or bankruptcy, never liquidation.
- No automatic discharge
- Approval of a resolution plan does not ipso facto discharge a personal guarantor. A surety's liability under section 128 of the Indian Contract Act is coextensive with the principal debtor's, and a discharge of the principal debtor by operation of law, in liquidation or insolvency, does not absolve the surety, whose liability arises from an independent contract.
Personal Guarantors Since the Judgment
Dilip B. Jiwrajka v. Union of India
Date
9 Nov 2023
Effect
Sections 95-100 upheld. The resolution professional only collates facts and recommends; no adjudication until the NCLT decides under section 100, where natural justice applies.
Section 31(6), Explanation I (2026 Act)
Date
26 May 2026
Effect
An approved plan extinguishes claims against the corporate debtor but does not affect claims against a guarantor or anyone jointly liable. Lalit Kumar Jain, now in the Code.
Section 31(6), Explanation II (2026 Act)
Date
26 May 2026
Effect
A person jointly liable who pays the creditor after plan approval loses any right to be indemnified by the corporate debtor.
Section 96(4) (2026 Act)
Date
26 May 2026
Effect
The interim moratorium under section 96 does not apply to an application against a personal guarantor to a corporate debtor.
Section 28A (2026 Act)
Date
26 May 2026
Effect
A creditor that has enforced security over a guarantor's asset may transfer it as part of the corporate debtor's resolution, with prior CoC approval; for a personal guarantor in insolvency or bankruptcy, the guarantor's creditors approve by more than three-fourths in value.
| Development | Date | Effect |
|---|---|---|
| Dilip B. Jiwrajka v. Union of India | 9 Nov 2023 | Sections 95-100 upheld. The resolution professional only collates facts and recommends; no adjudication until the NCLT decides under section 100, where natural justice applies. |
| Section 31(6), Explanation I (2026 Act) | 26 May 2026 | An approved plan extinguishes claims against the corporate debtor but does not affect claims against a guarantor or anyone jointly liable. Lalit Kumar Jain, now in the Code. |
| Section 31(6), Explanation II (2026 Act) | 26 May 2026 | A person jointly liable who pays the creditor after plan approval loses any right to be indemnified by the corporate debtor. |
| Section 96(4) (2026 Act) | 26 May 2026 | The interim moratorium under section 96 does not apply to an application against a personal guarantor to a corporate debtor. |
| Section 28A (2026 Act) | 26 May 2026 | A creditor that has enforced security over a guarantor's asset may transfer it as part of the corporate debtor's resolution, with prior CoC approval; for a personal guarantor in insolvency or bankruptcy, the guarantor's creditors approve by more than three-fourths in value. |
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The Exam's Version
The exam tests the law as on 4 February 2025: Lalit Kumar Jain and Dilip B. Jiwrajka, with the section 96 interim moratorium still applying to personal guarantor applications. The 2026 changes in the table are current law, not exam law.
How the Limited Insolvency Examination Tests This
The individual insolvency case study (four two-mark questions) and the CIRP case studies both use guarantors. A typical fact: the CoC approves a plan paying a bank 40% of its ₹50 crore claim, and the bank then files under section 95 against the promoter who guaranteed the loan. Is the balance still recoverable from the promoter? Lalit Kumar Jain says the guarantee survives; the bank cannot recover more than its total dues across both.
Traps: placing a personal guarantor's case before the DRT instead of the NCLT, saying a personal guarantor can be "liquidated", or reading section 133 or 134 of the Contract Act as releasing the surety when the release came by operation of law.
FAQs
Does a resolution plan discharge a personal guarantor?expand_more
No. Lalit Kumar Jain (21 May 2021) held that approval of a resolution plan does not ipso facto discharge a personal guarantor. From 26 May 2026, Explanation I to section 31(6) says the same in the Code.
What was decided in Lalit Kumar Jain v. Union of India?expand_more
The Supreme Court upheld the 15 November 2019 notification bringing Part III of the Code into force for personal guarantors to corporate debtors, and held that their liability survives approval of the company's resolution plan.
Which tribunal hears insolvency of a personal guarantor to a corporate debtor?expand_more
The NCLT, under section 60 of the Code. The court explained that a common forum lets it consider the corporate debtor's and the guarantor's positions together.
Can a creditor recover twice from the company and the guarantor?expand_more
It can pursue both, but the judgment, citing the rule against double proof, notes that a creditor cannot recover more than 100% of its debt in all.
Next steps
- Landmark judgmentsarrow_forward
- Personal Guarantorsarrow_forward
- Contract & Guaranteearrow_forward
- IBC Amendment 2026arrow_forward
65 questions, case-study format, negative marking.