The National Company Law Appellate Tribunal (NCLAT), New Delhi, has reiterated that the Covid-era suspension introduced under the Insolvency and Bankruptcy Code, 2016 does not extend any protection to personal guarantors. The Appellate Tribunal held that Section 10A of the IBC, which temporarily barred initiation of insolvency proceedings during the Covid period, applies only to corporate insolvency proceedings and does not prevent creditors from initiating insolvency proceedings against personal guarantors under Part III of the Code.
The Bench comprising Justice Ashok Bhushan, Chairperson, and Barun Mitra, Technical Member, dismissed the appeals filed by personal guarantors, holding that neither the moratorium under Section 14 nor the Covid-related suspension under Section 10A can be invoked to shield personal guarantors from insolvency action.
The matter arose from term loans amounting to ₹90 crore granted by ECL Finance Ltd. to Saha Infratech Pvt. Ltd. between 2017 and 2019. These facilities were secured by corporate as well as personal guarantees furnished by the appellants. Following defaults by the borrower, insolvency proceedings against the corporate debtor were initiated on February 28, 2020. The debt was subsequently assigned to Assets Care & Reconstruction Enterprise Ltd.
After invocation of the personal guarantees in March 2022, a demand notice was issued in November 2022 claiming outstanding dues exceeding ₹229 crore. An application under Section 95 of the IBC was thereafter filed against the personal guarantors and admitted by the NCLT, New Delhi. Challenging this admission order, the guarantors approached the NCLAT, contending that once corporate insolvency proceedings had commenced against the principal borrower, parallel proceedings against them were not maintainable. They further argued that the alleged default fell within the Covid-protected period under Section 10A and that insolvency proceedings against them were therefore barred.
The appellants also disputed the quantum of the claim, pointing out that only about ₹55 crore had been admitted in the corporate debtor’s insolvency proceedings and that recoveries had already been made from co-guarantors.
Opposing the appeals, the creditor submitted that the defaults had occurred prior to the Covid suspension period and that insolvency proceedings against personal guarantors are independent of corporate insolvency proceedings. It was argued that Section 10A is expressly limited to applications under Sections 7, 9 and 10 of the Code and does not apply to proceedings initiated under Part III against individuals.
After examining the statutory scheme, the NCLAT held that the moratorium under Section 14 of the IBC operates only in relation to the corporate debtor and does not bar proceedings against personal guarantors. The Tribunal observed that a financial creditor is not precluded from initiating action under Section 95 of the Code against a personal guarantor during the corporate insolvency process.
The Tribunal further clarified that Section 10A introduced a limited and specific suspension applicable only to insolvency applications under Sections 7, 9 and 10. It does not, in any manner, bar insolvency proceedings against personal guarantors under Part III of the IBC.
In support of its conclusion, the Bench relied on its earlier decision in Amit Jain v. Siemens Financial Services Pvt. Ltd. (2022), where it was held that the Covid-era suspension does not protect personal guarantors from insolvency proceedings. On the issue of the disputed quantum, the Tribunal agreed with the NCLT that the exact liability of the personal guarantors is a matter to be determined during the course of proceedings. Since the outstanding amount admittedly exceeded the statutory threshold of ₹1 crore, no interference was warranted at the admission stage.
Accordingly, the NCLAT dismissed the appeals, reaffirming that Covid-era insolvency protection under the IBC is confined to companies and does not extend to personal guarantors.
