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Supreme Court bench led by Justice S. Ravindra Bhatt upheld the notifications dated 15.11.2019, by Ministry of Corporate Affairs related to ‘personal guarantors to corporate debtors’.

The bench while pronouncing the Order said, “Approval of Resolution Plan relating to Corporate Debtor does not operate so as to discharge the liabilities of the personal guarantor.”

Earlier by order dated 29.10.2020, A 3 Judge bench of Justice Hemant Gupta, Justice Nageswara Rao and Justice Ajay Rastogi, while exercising powers under Article 139A read with Article 142 of the Constitution had said, “The Insolvency and Bankruptcy Code is at a nascent stage and it is better that the interpretation of the provisions of the Code is taken up by this Court to avoid any confusion, and to authoritatively settle the law.”

By a Notification dated 15.11.2019, Ministry of Corporate Affairs, brought into force the following provisions of the Insolvency and Bankruptcy Code, 2016 insofar as they related to ‘personal guarantors to corporate debtors’ with effect from 01.12.2019:

• Clause (e) of Section 2;
•  Section 78 (except with regard to fresh start process) and Sections 79;
• Sections 94 to 187 (both inclusive);
• Clause (g) to Clause (i) of sub-section (2) of Section 239;
• Clause (m) to Clause (zc) of sub-section (2) of Section 239;
• Clause (zn) to Clause (zs) of sub-section (2) of Section 240;  
• Section 249

Writ Petitions were filed challenging notification dated 15.11.2019 and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019.

Declaration was further sought for holding Section 95, 96, 99, 100, 101 of the Insolvency and Bankruptcy Code, 2016 as unconstitutional, so far as they apply to personal guarantors of corporate debtors.

Case Title: Lalit Kumar Jain v. Union of India