After a 99.97% haircut order, IBBI proposes safeguards in personal guarantor insolvency
Claims of ₹22,006 crore settled for ₹6.5 crore. What stops a guarantor's friends from voting the deal through?
Published 15 September 2026. Written by Pratidin from the reports linked at the end; every fact checked by a separate review before publishing. How we work
The Insolvency and Bankruptcy Board of India (IBBI) has issued a discussion paper proposing four changes to the insolvency resolution process for personal guarantors to corporate debtors, with comments invited until 3 October 2026. The Indian Express reported on 15 September 2026 that the proposals follow a National Company Law Tribunal (NCLT) order in the case of Subhash Chandra, whose personal guarantees backed loans to Essel Group companies. On 25 August 2026 a single-member NCLT bench rejected lenders' objections and approved a repayment plan under which he would pay ₹6.5 crore against admitted creditor claims of about ₹22,006.57 crore, a haircut of 99.97%. A haircut is the share of admitted claims that creditors give up. Some lenders, including HDFC Bank and LIC Housing Finance, said they would challenge the order before the National Company Law Appellate Tribunal (NCLAT).
Personal guarantors are covered by Chapter III of Part III of the Insolvency and Bankruptcy Code, 2016 (IBC). In Lalit Kumar Jain v. Union of India (2021), the Supreme Court held that approval of a resolution plan for a company does not by itself discharge its personal guarantor, so lenders can pursue promoters separately. The IBBI paper says several safeguards that exist in the Corporate Insolvency Resolution Process (CIRP) have no counterpart for guarantors. Its four proposals are: creditors who are 'related parties' of the guarantor under Section 5(24A) would have a nil voting share, closing a gap left by the narrower test of 'associate'; the resolution professional must examine and report whether the guarantor entered into avoidance transactions; a registered valuer must determine the fair value and realisable value of the guarantor's assets; and minutes must record the creditors' deliberations and reasons, not only the vote.
For companies, the CIRP Regulations already require the resolution professional to report preferential (Section 43), undervalued (Section 45), extortionate credit (Section 50) and fraudulent (Section 66) transactions, and to appoint registered valuers to find the fair value and liquidation value of the company under Regulations 27 and 35. For individuals, the matching avoidance powers in Sections 164, 165 and 167 of the IBC apply only once a bankruptcy trustee is appointed. The IBBI argues that the risk of value being drained before insolvency 'is no different merely because the debtor is an individual rather than a company', and that approval of a plan should rest on 'a reasoned commercial assessment by the creditors of the plan on its merits'. The changes are at the consultation stage, and the Subhash Chandra order itself remains open to challenge before the NCLAT.
Prelims facts
- The IBBI's discussion paper (comments until 3 October 2026) proposes four safeguards in the insolvency resolution process for personal guarantors to corporate debtors.
- Creditors who are related parties of the guarantor, as defined in Section 5(24A) of the IBC, would have a nil voting share on the repayment plan.
- In Lalit Kumar Jain v. Union of India (2021), the Supreme Court held that approval of a company's resolution plan does not by itself discharge a personal guarantor.
- On 25 August 2026 the NCLT approved Subhash Chandra's plan to pay ₹6.5 crore against admitted claims of about ₹22,006.57 crore, a 99.97% haircut.
- The IBBI was established on 1 October 2016 under the IBC and regulates insolvency professionals, their agencies and information utilities as well as the processes.
Quick recall
- Where in the IBC is the insolvency resolution process for personal guarantors to corporate debtors?
- Chapter III of Part III.
- Which section of the IBC defines a related party of an individual?
- Section 5(24A).
- What haircut did the NCLT approve in the Subhash Chandra case?
- 99.97%: ₹6.5 crore against admitted claims of about ₹22,006.57 crore (order of 25 August 2026).
- What did the Supreme Court hold in Lalit Kumar Jain v. Union of India (2021)?
- Approval of a company's resolution plan does not by itself discharge a personal guarantor.
- Which IBC sections cover preferential, undervalued, extortionate and fraudulent transactions for companies?
- Sections 43, 45, 50 and 66.
- When was the IBBI established?
- 1 October 2016, under the IBC.
- What is the outer time limit for completing a CIRP?
- 330 days including extensions and litigation time (the Code envisages 180 days from admission); the Supreme Court in Essar Steel (2019) allowed it to be exceeded in exceptional cases.
- Last date for comments on the IBBI's personal guarantor discussion paper?
- 3 October 2026.
Prelims practice question
With reference to the Insolvency and Bankruptcy Code, 2016, consider the following statements:
1. The insolvency resolution process for personal guarantors to corporate debtors is provided in Part III of the Code.
2. Approval of a resolution plan for a corporate debtor automatically discharges its personal guarantors.
Which of the statements given above is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Show answer
Answer: (a) 1 only. Statement 1 is correct: the process for personal guarantors is in Chapter III of Part III. Statement 2 is incorrect: in Lalit Kumar Jain v. Union of India (2021), the Supreme Court held that approval of a resolution plan does not by itself discharge a personal guarantor.
Use this in UPSC Mains: previous-year questions
Recurring theme: Insolvency resolution, creditor rights and financial regulation
- How to use this
The IBBI's proposals show regulators tightening related-party controls, independent valuation and recorded reasons, recent accountability reforms in corporate debt resolution.
- An NCLT order of 25 August 2026 approved Subhash Chandra's plan to pay ₹6.5 crore against admitted claims of about ₹22,006.57 crore, a 99.97% haircut, prompting IBBI's discussion paper.
- IBBI proposes a nil voting share for related-party creditors under Section 5(24A) of the IBC and mandatory examination of avoidance transactions by the resolution professional.
- It also proposes registered valuers for fair and realisable value and minutes recording creditors' reasons, not only the vote, so approval rests on 'a reasoned commercial assessment'.
The IBBI, a regulator of both a profession and processes, is a useful example when discussing how India designs and divides financial regulation.
Mains practice question
The insolvency process for personal guarantors lacks several safeguards available in the corporate insolvency process. Discuss with reference to the IBBI's recent proposals. (150 words)
Model answer
An NCLT order of 25 August 2026 let Subhash Chandra settle about ₹22,006.57 crore of claims for ₹6.5 crore, a 99.97% haircut. The IBBI has since proposed four safeguards for personal guarantor cases.
Gaps compared with the CIRP
- Voting: related parties of a company cannot vote, but for guarantors only narrower 'associates' are restricted.
- Asset stripping: no duty to examine preferential, undervalued or extortionate transactions before the vote.
- Valuation: no independent valuation of the guarantor's assets.
- Reasons: minutes record only the vote, not the creditors' reasoning.
Proposals
- Nil voting share for related parties under Section 5(24A).
- Mandatory examination of avoidance transactions.
- Registered valuer to fix fair and realisable value.
- Recorded deliberations and reasons.
Significance
- Protects recovery after Lalit Kumar Jain (2021) kept guarantors liable.
These changes would make promoter guarantees a real discipline on borrowing.
The basics
Why this matters
When a company borrows, banks often ask its promoter to sign a personal guarantee: a promise to repay from personal wealth if the company fails. How that promise is enforced decides whether promoters take lenders seriously. A tribunal order letting a promoter settle about ₹22,006 crore of claims for ₹6.5 crore has pushed the regulator to tighten the rules.
Two tracks under one Code
The Insolvency and Bankruptcy Code, 2016 has one track for companies, the Corporate Insolvency Resolution Process (CIRP), and another for individuals. Personal guarantors under the IBC fall in Chapter III of Part III. Under the company track, creditors vote in a committee of creditors on a resolution plan. Under the guarantor track, creditors vote on a repayment plan proposed by the guarantor. A 'haircut' is the share of admitted claims that creditors give up under such a plan.
What the company track has and the guarantor track lacks
The Insolvency and Bankruptcy Board of India's discussion paper lists four gaps. In each case, a safeguard exists for companies but not for individual guarantors.
- Related parties of the company cannot vote in the committee of creditors
- Resolution professional reports preferential, undervalued, extortionate and fraudulent transactions
- Registered valuers find fair value and liquidation value
- Minutes record the creditors' deliberations
- Only the narrower group of 'associates' is restricted
- No duty to examine avoidance transactions
- No independent valuation of the guarantor's assets
- Minutes record only the result of voting
The four proposals
The paper would close each gap by amending the regulations for personal guarantors, including a duty to look for Avoidance transactions that drained assets before insolvency. Comments are open until 3 October 2026.
- 1Bar related partiesCreditors who are related parties of the guarantor under Section 5(24A) get a nil voting share
- 2Check for asset strippingResolution professional examines avoidance transactions and reports to creditors before the vote
- 3Value the assetsA registered valuer determines fair value and realisable value
- 4Record reasonsMinutes must record creditors' deliberations and reasons, not only the vote
Who writes these rules
The Insolvency and Bankruptcy Board of India frames regulations under the Code and consults the public through discussion papers like this one before notifying changes.
Go deeper
In one line: The IBBI has proposed four safeguards for the insolvency resolution of personal guarantors, after the NCLT approved a plan letting Subhash Chandra settle about ₹22,006.57 crore of claims for ₹6.5 crore.
Why it matters for UPSC
The IBC is central to Mains questions on banking, bad loans and creditor rights, and to Prelims questions on the NCLT, the IBBI and resolution timelines. Personal guarantors are the link between a failed company and the promoter's own wealth, so gaps here weaken the whole recovery system.
The core idea
The Insolvency and Bankruptcy Code, 2016 lets lenders pursue Personal guarantors under the IBC separately from the company. But several protections built into the corporate process were never copied to the guarantor process. The IBBI now proposes to bar related parties from voting, require checks for Avoidance transactions, mandate independent valuation of assets and record the creditors' reasons. As the regulator, the Insolvency and Bankruptcy Board of India can make these changes by amending its own regulations after consultation.
Numbers and dates to remember
- 25 August 2026: NCLT approves the Subhash Chandra repayment plan.
- ₹22,006.57 crore admitted claims; ₹6.5 crore to be paid; 99.97% haircut.
- 3 October 2026: last date for comments on the IBBI paper.
- 1 October 2016: IBBI established.
- 330 days: outer limit for completing a corporate insolvency resolution process.
- Section 5(24A): definition of related party of an individual.
Where to go next
- Insolvency and Bankruptcy Code, 2016: the two tracks and the key bodies.
- Personal guarantors under the IBC: why guarantors are pursued separately.
- Avoidance transactions: how value is drained before insolvency.
- Insolvency and Bankruptcy Board of India: the regulator proposing the change.
Go deeper: why the guarantor track needs company-style safeguards
The problem the paper identifies. Under the corporate process, a related party of the company cannot vote in the committee of creditors. Under the guarantor process, only 'associates' face limits. The paper gives an example: a company that habitually acts on the guarantor's instructions, without the guarantor owning shares in it, would be a related party but not an associate. Such a creditor could vote on a plan that decides how far the guarantor is discharged from his debts. The IBBI's principle is that 'a party connected to the debtor should not be permitted to influence a vote on a matter from which its connected debtor stands to benefit'.
Value leakage. For companies, the resolution professional must report preferential (Section 43), undervalued (Section 45), extortionate (Section 50) and fraudulent (Section 66) transactions. For guarantors, the bankruptcy provisions on Avoidance transactions (Sections 164, 165 and 167) apply only once a bankruptcy trustee is appointed. The paper argues that the risk of value being eroded shortly before insolvency 'is no different merely because the debtor is an individual rather than a company'.
Information and accountability. Without an independent valuation, creditors may lack an objective basis to judge whether a repayment offer is fair. Without recorded reasons, a vote to accept a deep haircut cannot be scrutinised. The paper wants approval backed by 'a reasoned commercial assessment by the creditors of the plan on its merits'.
Context. In Lalit Kumar Jain v. Union of India (2021), the Supreme Court held that approval of a resolution plan for a company does not by itself discharge the Personal guarantors under the IBC, which is why guarantor cases now matter so much to lenders. The proposals are at the consultation stage, and the Subhash Chandra order remains open to challenge before the NCLAT, where lenders including HDFC Bank and LIC Housing Finance said they would appeal.
Insolvency and Bankruptcy Code, 2016
The two tracks of the Code, its timelines and its tribunals.
In one line: The Insolvency and Bankruptcy Code, 2016 (IBC) is a single law for time-bound resolution of insolvency of companies, partnership firms and individuals.
How it is organised
Part II deals with companies through the Corporate Insolvency Resolution Process (CIRP). Creditors form a committee of creditors, an insolvency professional runs the company, and a resolution plan is voted on. The Code envisages completion within 180 days of admission, and within 330 days including extensions and time spent in litigation, though the Supreme Court in the Essar Steel case (2019) held that this limit may be exceeded in exceptional cases. Part III deals with individuals and partnership firms, including personal guarantors to companies. The National Company Law Tribunal (NCLT) is the adjudicating authority for companies and their personal guarantors, with appeals to the National Company Law Appellate Tribunal (NCLAT).
Why it is in the news
The IBBI says several safeguards of the company process, such as barring related parties from voting and independent valuation, are missing from the personal guarantor process, and proposes to add them.
Where to go next
Personal guarantors under the IBC
Why lenders pursue promoters separately, and how a repayment plan works.
In one line: A personal guarantor promises to repay a company's loan from personal wealth; under the IBC, lenders can start insolvency against the guarantor separately from the company.
How the process works
The insolvency resolution process for personal guarantors to corporate debtors is in Chapter III of Part III of the IBC. A resolution professional is appointed, creditors' claims are collected, and the guarantor proposes a repayment plan that creditors vote on at a meeting of creditors. The tribunal then decides whether to approve the plan.
Why guarantors matter
In Lalit Kumar Jain v. Union of India (2021), the Supreme Court held that approval of a resolution plan for the company does not by itself discharge the personal guarantor. So lenders who take a haircut in the company's case can still pursue the promoter. The Subhash Chandra case, in which the NCLT approved a plan to pay ₹6.5 crore against about ₹22,006.57 crore of claims arising from guarantees for Essel Group companies, shows why the rules for these plans matter.
Where to go next
Avoidance transactions
How value is drained before insolvency and how the law reverses it.
In one line: Avoidance transactions are deals made before insolvency that unfairly move value away from creditors, which the law allows to be reversed.
The main types
- Preferential transactions: paying or favouring one creditor over others shortly before insolvency (Section 43 for companies).
- Undervalued transactions: selling or gifting assets for much less than their value (Section 45 for companies).
- Extortionate credit transactions: lending on grossly unfair terms (Section 50 for companies).
- Fraudulent trading: carrying on business to defraud creditors (Section 66 for companies).
For individuals, Sections 164, 165 and 167 of the IBC let a bankruptcy trustee apply to the tribunal about undervalued transactions, preferences and extortionate credit transactions within specified look-back periods.
Why it is in the news
These powers apply to individuals only in bankruptcy. The IBBI proposes that the resolution professional in a personal guarantor case must examine and record such transactions and place the findings before creditors before they vote.
Where to go next
Insolvency and Bankruptcy Board of India
The regulator that writes the rules and proposed these changes.
In one line: The Insolvency and Bankruptcy Board of India (IBBI), set up on 1 October 2016 under the IBC, regulates both the insolvency processes and the professionals who run them.
What it does
The IBBI describes itself as a regulator of a profession as well as of processes. It oversees insolvency professionals, insolvency professional agencies, insolvency professional entities and information utilities. It writes the regulations for corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy. It is also the authority for the valuation profession under the Companies (Registered Valuers and Valuation) Rules, 2017. It is not a court: cases are decided by the NCLT and, for other individuals, the Debt Recovery Tribunal.
Why it is in the news
The IBBI issued a discussion paper proposing four safeguards for personal guarantor cases and invited public comments until 3 October 2026. Changes of this kind are made by amending its regulations.
Where to go next
Take the 15 September 2026 quiz: 30 Prelims-style questions with answers