Kapil Kumar, a prominent businessman, had provided personal guarantees to several financial institutions for loans extended to his company, "KK Enterprises Limited", institutions invoked Kapil's personal guarantees and i

CS Professional · Insolvency and Bankruptcy - Law and Practice · PYQS · June 2025
Kapil Kumar, a prominent businessman, had provided personal guarantees to several financial institutions for loans extended to his company, "KK Enterprises Limited", institutions invoked Kapil's personal guarantees and initiated insolvency proceedings against him under the Insolvency and Bankruptcy Code, 2016 (IBC, 2016), specifically under the provisions related to personal guarantors to corporate debtors. Kapil challenged the validity of these proceedings, arguing that the notification bringing personal guarantors within the ambit of the IBC was arbitrary and discriminatory. On this background, mentioning relevant provisions of the IBC, 2016 and applicable case laws answer the following questions: According to the Supreme Court's ruling in a case with similar facts, what is the nature of a personal guarantor's liability and what did the Supreme Court rule about the validity of the November 15, 2019 notification issued by the Ministry of Corporate Affairs under IBC, 2016?

Answer & Explanation:

Following the notification by the Ministry of Corporate Affairs on 15-11-2019, in a significant ruling dated 21-5-2021, in Lalit Kumar Jain v. Union of India , the Supreme Court addressed the constitutionality of the provisions of the Insolvency and Bankruptcy Code that permitted the initiation of insolvency process against personal guarantors, including the promoters, of a corporate debtor that is facing insolvency. The Supreme Court maintained the terms of the notification, ruling that the guarantor remains liable even if the corporate debtor or principal borrower is released from their obligation to the creditor through an involuntary process like insolvency. In essence, the Supreme Court opened the door for creditors to file for bankruptcy against the personal guarantors of a company debtor going through liquidation or insolvency.

Topics: Personal Guarantors

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic