The noose is tightening around personal guarantors under India’s bankruptcy regime.
Recent tribunal rulings and new disclosure requirements signal that promoters and directors who back corporate loans with their personal guarantees may find it difficult to avoid liability when a company defaults.
On 18 June, the Kolkata bench of the National Company Law Tribunal, while admitting Indian Bank’s insolvency plea against Santosh Jhawar, personal guarantor to Burgundy Life Style Pvt Ltd, held that insolvency proceedings against a personal guarantor are maintainable even if no such proceedings have been initiated against the principal borrower.
On 9 June, the Chennai bench of the NCLT, while hearing Aditya Birla Finance’s insolvency plea against G. Thiyagarajan, personal guarantor to Velohar Infra Pvt Ltd, ruled that a settlement during the liquidation of a corporate debtor does not automatically discharge a guarantor’s liability.
“The key message is simple: a personal guarantee is not discharged merely because the corporate debtor is in insolvency, has undergone a resolution process or has reached a settlement,” said Anoop Rawat, partner and national practice head (restructuring and insolvency) at Shardul Amarchand Mangaldas & Co.
Guarantors cannot assume that if a company’s debt is settled, reduced or restructured, their own exposure disappears, Rawat said.
“Unless the lender expressly releases the guarantor, the guarantor may still face separate proceedings for the unpaid balance,” he said.
Personal guarantors, typically promoters or directors who back corporate loans, have been covered under a dedicated insolvency framework since December 2019.
Since then, creditors have filed 4,203 applications against personal guarantors, with 664 cases admitted, according to the Insolvency and Bankruptcy Board of India’s annual report for 2024-25. Only 39 resulted in approved repayment plans, yielding recoveries of ₹129.4 crore, or 2.49% of the admitted claims.
Lawyers said the figures highlight the growing importance of personal guarantees as a recovery tool for lenders.
Maximizing recoveries
“Personal guarantors have increasingly become a focal point of the insolvency framework because creditors are seeking to maximize recoveries beyond the assets of the corporate debtor,” said Yogendra Aldak, executive partner at Lakshmikumaran & Sridharan Attorneys.
According to Aldak, lenders have become more conscious of recovery risks following several high-profile insolvency cases where recoveries from corporate assets alone proved inadequate. As a result, personal guarantees are being viewed as an important source of recovery, particularly in promoter-driven businesses.
“In many cases, when recoveries from the corporate debtor prove insufficient, guarantors are pursued for the balance outstanding,” said Abhishek Sharma, a partner at Dentons Link Legal. “This transforms a personal guarantee from a mere formality into an enforceable recovery tool.”
The trend has been accompanied by regulatory changes aimed at increasing transparency of the financials of personal guarantors. The IBBI amended the insolvency resolution and frameworks governing personal guarantors to corporate debtors from 1 June 2026. The changes require wider disclosures of assets and liabilities and mechanisms to be established to facilitate asset transfers in connected insolvency proceedings.
The new rules seek to increase transparency in personal guarantor insolvency cases by requiring disclosure of all major assets, including bank accounts, property, investments, business interests, cryptocurrencies, insurance claims and other valuable holdings.
Serious commitments
advise promoters and business owners to consider personal guarantees as serious legal commitments rather than routine financing formalities.
“Business owners should treat a personal guarantee as seriously as taking the loan in their own name,” said Rawat of Shardul Amarchand Mangaldas. “Before signing, they should understand the amount covered, whether the guarantee is continuing, whether it covers future facilities, interest, costs and penalties, and the circumstances in which a lender can invoke it.”
Sharma of Dentons Link added that promoters should assess the wider implications of insolvency across their business groups.
“In many promoter-led businesses, personal guarantees sit alongside inter-company loans, support arrangements and asset transfers. A guarantee should never be considered in isolation from the rest of the group’s transaction footprint,” he said.
Dikshat Mehra, a partner at Rajani Associates, said creditors will get a free pass to hold personal guarantors liable due to the absence of any provision under the Insolvency and Bankruptcy Code that automatically releases a personal guarantor upon a settlement.
Queries sent to creditors including State Bank of India, Punjab National Bank, Axis Bank, ICICI Bank, Indian Bank, Aditya Birla Finance and asset reconstruction companies Edelweiss Asset Reconstruction Co. and JC Flowers ARC as well as the IBBI remained unanswered till press time.