NCLAT rules personal guarantors remain liable despite corporate resolution plan approval under IBC.

May 12, 2026 : The National Company Law Appellate Tribunal (NCLAT) has upheld insolvency proceedings against personal guarantors Amit Bhatnagar and Sumit Bhatnagar in connection with the debts of Diamond Power Transformers Ltd. (DPTL), ruling that approval of a resolution plan for a corporate guarantor does not extinguish the liability of personal guarantors under the Insolvency and Bankruptcy Code (IBC). The appellate tribunal dismissed both appeals filed by the guarantors and reaffirmed that lenders are entitled to pursue recovery of unpaid dues even after partial settlement through a corporate insolvency resolution process.

In a detailed judgment delivered on May 12, 2026, the NCLAT Principal Bench at New Delhi rejected the contention that the dues of consortium lenders UCO Bank and Indian Overseas Bank had already been fully settled under the resolution plan approved for Diamond Power Infrastructure Ltd. (DPIL), the corporate guarantor of DPTL. The tribunal held that the personal guarantees executed by the appellants continued to remain enforceable because the approved resolution plan did not specifically discharge their obligations.

The dispute arose from a consortium lending arrangement under which banks had sanctioned credit facilities to DPTL beginning in 2011. The facilities were later enhanced through a consortium agreement executed in March 2015 for an aggregate amount of Rs. 114.60 crore. Amit Bhatnagar and Sumit Bhatnagar had executed personal guarantees in favour of the consortium banks to secure repayment obligations of DPTL.

The appellants argued before the tribunal that the banks failed to disburse a portion of the sanctioned amount, specifically Rs. 24 crore, thereby materially altering the original terms of the lending arrangement without their consent. According to them, such alteration discharged their liability as guarantors under Section 133 of the Indian Contract Act, 1872. They further contended that the consortium banks had already accepted full and final settlement under the approved resolution plan of DPIL and therefore no surviving debt remained recoverable from them.

The guarantors also claimed that the insolvency applications filed under Section 95 of the IBC were barred by limitation. They pointed out that DPTL’s account had been declared a non-performing asset in July 2016 and guarantees were invoked in April 2018, while the insolvency proceedings against them as personal guarantors were initiated only in 2024. According to the appellants, the delay rendered the proceedings legally unsustainable.

However, the consortium banks strongly opposed these arguments and maintained that substantial dues remained unpaid despite recoveries made under the DPIL resolution plan. The lenders argued that the debt had been crystallised through a Debt Recovery Tribunal (DRT) judgment dated February 6, 2020, which awarded recovery of over Rs. 109 crore along with contractual and penal interest. The banks submitted that this DRT order created a fresh cause of action and extended the limitation period.

The NCLAT accepted the banks’ submissions and held that the proceedings were not barred by limitation. The tribunal noted that the DRT judgment, coupled with the Supreme Court’s suo motu extension of limitation during the Covid-19 pandemic, effectively preserved the lenders’ right to initiate insolvency proceedings against the personal guarantors. The bench observed that “the decree of guarantee by DRT, Ahmedabad gives a fresh lease to the limitation and a new cause of action to the Applicant.”

On the central issue of guarantor liability, the tribunal relied heavily on the Supreme Court’s landmark ruling in Lalit Kumar Jain v. Union of India, which clarified that approval of a resolution plan under Section 31 of the IBC does not automatically discharge personal guarantors. The NCLAT reiterated that under Section 128 of the Indian Contract Act, the liability of a guarantor remains co-extensive with that of the principal debtor unless expressly released.

The appellate tribunal also referred to previous judicial precedents, including Roshan Lal Mittal v. Rishabh Jain and Gouri Shankar Jain v. Punjab National Bank, to reinforce the legal principle that creditors may continue recovery proceedings against guarantors for unpaid balances even after accepting haircuts or settlements during corporate insolvency proceedings. The bench observed, “The liability of the personal guarantor remains co-extensive with that of the principal debtor and is not extinguished merely by reason of the approval of a Resolution Plan.”

Importantly, the tribunal found that the resolution plan approved for DPIL did not specifically deal with or extinguish the personal guarantees executed in favour of the consortium banks. The NCLAT noted that while secured financial creditors had received certain upfront and deferred payments under the plan, substantial interest liabilities awarded by the DRT still remained outstanding. The tribunal observed that the banks retained the legal right to recover the remaining unpaid debt from the guarantors.

The judgment also clarified the distinction between liabilities of the corporate guarantor and liabilities of personal guarantors under the IBC framework. The NCLAT held that proceedings under Section 95 of the IBC against personal guarantors are maintainable independently of the corporate insolvency resolution process involving the principal borrower or corporate guarantor.

Rejecting allegations that the banks were attempting unjust enrichment, the tribunal concluded that the lenders were merely pursuing legitimate recoveries based on contractual guarantees and a binding DRT recovery certificate. It also observed that the DRT order had attained finality because it had not been challenged by the appellants.

The ruling is significant for insolvency jurisprudence in India because it reinforces the continuing exposure of personal guarantors even after corporate insolvency resolutions are approved. The decision strengthens creditor rights under the IBC and sends a clear message that resolution plans involving corporate entities do not automatically wipe out independent contractual obligations of guarantors unless explicitly stated. For banks and financial institutions, the judgment offers further legal support to pursue parallel recovery mechanisms against promoters and guarantors despite partial recoveries under insolvency plans.

The NCLAT ultimately dismissed both appeals and upheld the orders of the National Company Law Tribunal, Ahmedabad Bench, admitting insolvency proceedings against the personal guarantors under Section 95 of the IBC.

Case Reference: Amit Bhatnagar v. UCO Bank & Anr., Comp. App. (AT) (Ins) No. 2038 of 2024 and Sumit Bhatnagar v. UCO Bank & Anr., Comp. App. (AT) (Ins) No. 2039 of 2024, decided on May 12, 2026 by the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi.