Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has reiterated that the Covid-era suspension under the Insolvency and Bankruptcy Code, 2016, does not extend protection to personal guarantors. The Appellate Tribunal held that while Section 10A of the IBC barred initiation of corporate insolvency proceedings during the specified Covid period, it does not prevent creditors from initiating insolvency proceedings against personal guarantors under Part III of the Code.

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The Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) dismissed the appeals filed by the personal guarantors, affirming that neither the moratorium under Section 14 of the IBC nor the Covid-era suspension could be invoked to shield personal guarantors from insolvency action.

The case arose from term loans aggregating to ₹90 crore granted by ECL Finance Ltd. to Saha Infratech Pvt. Ltd. between 2017 and 2019. The loan facilities were secured by both corporate guarantees and personal guarantees furnished by the appellants. Following defaults by the borrower, insolvency proceedings against the corporate debtor commenced on February 28, 2020. Subsequently, the debt was 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 an outstanding amount of over ₹229 crore. Thereafter, an application under Section 95 of the IBC seeking initiation of insolvency proceedings against the personal guarantors was filed and admitted by the NCLT, New Delhi.

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Aggrieved by the admission order, the personal guarantors approached the NCLAT contending that once corporate insolvency proceedings had commenced against the principal borrower, no parallel action could be initiated against them. It was further argued that the alleged default fell within the Covid-protected period covered by Section 10A of the IBC and that the insolvency proceedings against them were therefore barred. The guarantors also disputed the quantum of the claim, pointing out that only around ₹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 defaults had occurred prior to the Covid suspension period and that proceedings against personal guarantors are independent of corporate insolvency resolution proceedings. It was argued that Section 10A applies only to applications under Sections 7, 9 and 10 of the Code, and does not bar proceedings initiated under Part III of the IBC against individuals.

After examining the statutory framework, the Appellate Tribunal held that the moratorium imposed under Section 14 of the IBC during corporate insolvency proceedings has no application to personal guarantors. It observed that “the moratorium under Section 14 of the IBC does not preclude the financial creditor to initiate action under Section 95 against the personal guarantor.” The Tribunal further clarified that Section 10A of the IBC, which introduced a temporary suspension on initiation of insolvency proceedings during the Covid period, is expressly limited in its scope. It held that Section 10A prohibits filing of applications only under Sections 7, 9 and 10 of the Code, and “does not in any manner bar proceedings against the personal guarantor under Part III of the IBC.”

In reaching this conclusion, the Bench relied on its earlier decision in Amit Jain v. Siemens Financial Services Pvt. Ltd. (2022), wherein it was held that the Covid-era suspension does not protect personal guarantors from insolvency proceedings. On the issue relating to the quantum of liability, the Tribunal agreed with the NCLT that the exact amount payable by the personal guarantors is a matter to be determined during the course of proceedings. Since it was undisputed that the outstanding dues exceeded the statutory threshold of ₹1 crore, the Tribunal held that no interference was warranted at the admission stage.

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Accordingly, the NCLAT dismissed the appeals, reaffirming that Covid-era insolvency protection under the IBC applies only to companies and does not shield personal guarantors from insolvency proceedings.

Appearance

For Appellant: Advocates Rajat Bhardwaj and Kaustubh Khanna

For Respondent: Advocates Gaurav Mitra, Aditya Vashisth and Anmol Bansal

Cause Title: Neeta Saha & Ors. vs Assets Care & Reconstruction Enterprise Ltd.

Case No: Comp. App. (AT) (Ins.) No. 61, 649 & 399 of 2025

Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member)