The Insolvency and Bankruptcy Board of India (IBBI) has made it mandatory for resolution professionals (RPs) to inform the national company law tribunal (NCLT), if a personal guarantor fails to submit a repayment plan.
The new rule will effectively increase the accountability of personal guarantors, make it difficult for them to escape culpability.
“Where no repayment plan has been prepared by the debtor under section 105 of the (Insolvency and Bankruptcy) Code, the resolution professional shall file an application, with the approval of creditors, before the adjudicating authority intimating the non-submission of a repayment plan and seek appropriate directions,” the IBBI said in new notification.
Experts said that the addition of this rule — regulation 17B — is a significant and will help address a critical lacuna by prescribing a definitive course of action for RPs in regard to personal guarantors. “The amendment ensures procedural continuity and mitigates the risk of undue delay or procedural stasis,” said Amit Agarwal, partner at Nangia & Co LLP.
The IBC lacked a clear directive when a personal guarantor fails to submit a repayment plan, and this has stalled the resolution process in many cases. The insolvency of personal guarantors, who are recognised as a specific category of individuals under the IBC, can be resolved independently but in coordination with the corporate insolvency resolution process (CIRP).
With this new addition to the code, the NCLT could issue time-bound directions or consider transition to bankruptcy proceedings.
“This change brings much-needed procedural clarity and ensures personal guarantor cases don’t remain in limbo. It also nudges personal guarantor cooperation and allows creditors to explore alternative recovery strategies without delay including bankruptcy,” said Kalpit Khandelwal, partner at Aekom Legal.
A 2021 Supreme Court order upheld the validity of a government notification that brought personal guarantors under the IBC. This judgment allowed creditors to initiate insolvency proceedings against personal guarantors even if the resolution process for the corporate debtor is ongoing or has been completed.
The rules governing personal guarantors came into effect through a government notification in December 2019. The first major amendment to this framework came in 2024 that introduced a presumption that a repayment plan shall be submitted. This was operationalised through the insertion of Regulation 17A, that mandated RPs to present the repayment plan in a meeting of creditors for their consideration.
Judicial delays and the slow approval of resolution plans hinder the effectiveness of IBC. The latest data shows that the 1,194 CIRPs, which have yielded resolution plans by the end of March 2025, took on average 597 days which is over twice the 270 days extended deadline provided under the code.