The Supreme Court has allowed lenders to proceed against promoters, directors and chairman of the company who have given personal guarantees to get corporate loans. This is irrespective of whether the case is in the bankruptcy court or outside it. 

The apex court has held that a personal guarantor's liability does not cease even after the approval of a resolution plan, and it is possible to proceed against them.

Even if a case is pending in the National Company Law Tribunal (NCLT), the lenders have a right to proceed against the promoters. If there is no case filed in the NCLT, the lenders can proceed against the company in the Debt Recovery Tribunal (DRT).

“There was clarity even before this, but someone had filed a case seeking clarification. Supreme Court has made it clear that even if a CIRP (corporate insolvency resolution process) is not pending for the principal debtor, either because it has concluded or because it has not been filed, it is possible to proceed against a personal guarantor under the IBC (insolvency bankruptcy code) or the DRT,” said Rajesh Sheth a insolvency professional.

The appellate tribunal had in late January ruled that initiation of corporate insolvency was not a pre-requisite to initiate insolvency process against the personal guarantor.

It is expected that the Supreme Court's decision in this appeal will provide more clarity on the position that an application for initiation of an insolvency process against a personal guarantor can be filed in the absence of any pending CIRP or liquidation against the corporate debtor.

The apex court ruled that proceedings against personal guarantors need not be linked to the CIRP of the principal debtor. This should imply that even if a CIRP is not pending for the principal debtor, either because it has concluded or because it has not been filed, it is possible to proceed against a personal guarantor under the IBC. The corporate guarantees can be invoked when there are pending payments.

Another important aspect put to rest by the apex court is where the personal guarantee can be invoked. The court has clarified it can be invoked in the NCLT if bankruptcy proceedings are on and in the DRT if the IBC is not underway. The confusion was because Section 60 (1) provides that the NCLT with which a corporate debtor is registered (as there are several benches of the NCLT across regions) shall be the adjudicating authority for insolvency resolution and liquidation of corporate debtors, including that of personal guarantors.