Personal Guarantor Insolvency Under Section 95 IBC

What is a section 95 application against a personal guarantor?

A section 95 application is a creditor's request to the NCLT to start an insolvency resolution process against an individual who personally guaranteed a company's debt. The Central Government brought the Part III provisions on personal guarantors to corporate debtors into force from 1 December 2019. The Supreme Court upheld that notification in Lalit Kumar Jain v Union of India (2021) and held that approval of a resolution plan for the company does not, by itself, discharge the personal guarantor. Whatever the lenders do not recover from the company remains recoverable from the guarantor, subject to the guarantee's terms.

The creditor can apply by itself, jointly with other creditors, or through a resolution professional (section 95(1)). In practice the applicant is usually a bank, an asset reconstruction company or an NBFC that lent to the company and took personal guarantees from promoters and directors. The guarantor can also apply for his own insolvency under section 94, which some guarantors used in the past mainly to obtain the interim moratorium.

The process is different from corporate insolvency. There is no Committee of Creditors running a business, and the resolution professional does not take over the guarantor's affairs in the same way. The aim is a repayment plan: a proposal by the guarantor, prepared with the resolution professional, that creditors approve and the NCLT confirms. If there is no plan, or it fails, the creditor or guarantor can apply for bankruptcy.

Which court hears insolvency against a personal guarantor?

The NCLT, not the DRT. Section 60(1) makes the NCLT having territorial jurisdiction over the registered office of the corporate debtor the adjudicating authority for its personal guarantors. If the company is registered in Delhi, the application goes to the New Delhi benches, even if the guarantor lives in Noida or Gurugram. Insolvency of individuals who are not guarantors to companies, such as a proprietor or a guarantor of a partnership firm's loan, remains with the DRT.

Section 60(2) says that where the company's insolvency or liquidation is already pending before an NCLT bench, an application against its personal guarantor must be filed before the same bench. Section 60(3) transfers to that bench any insolvency or bankruptcy proceeding of the guarantor pending elsewhere. The point is to keep the company's case and the guarantor's case before the same tribunal, which knows what the lenders have already recovered.

The demand notice and the 14 days

Before filing, the creditor must serve a demand notice on the guarantor requiring payment of the amount in default within 14 days, under the 2019 Rules for personal guarantors, using the prescribed form (Form B). The application under section 95 follows if the guarantor does not pay. The application must state the debts owed by the guarantor to the creditor, the failure to pay within 14 days of the demand, and the relevant evidence (section 95(4)).

The guarantor's liability usually arises only once the guarantee is invoked, meaning the lender has written to the guarantor calling on the guarantee after the company defaulted. Many guarantee deeds make the guarantor liable on demand, and the bank's invocation letter is often sent together with, or before, the SARFAESI notice or the DRT case. Check the date and terms of invocation, because limitation against the guarantor and the existence of a default both depend on it.

When Advocate B.K. Singh reads a demand notice addressed to a guarantor, the first things he checks are which guarantee deed is relied on, whether it was invoked before the notice, and whether the amount demanded takes account of what the lender has already recovered from the company and its security. Guarantees signed years ago for a smaller limit, later enhanced without fresh consent, are a common source of real defences.

What changed on 26 May 2026: no interim moratorium for guarantors

Under section 96, the filing of an insolvency application against an individual triggers an interim moratorium: pending legal actions in respect of any debt are stayed and creditors cannot start new ones until the application is decided. For years, personal guarantors relied on this, sometimes by filing their own section 94 applications as soon as the bank started SARFAESI or DRT proceedings. The IBC (Amendment) Act 2026 added section 96(4), and a matching section 124(4) for bankruptcy applications, so that the interim moratorium does not apply where the application concerns a personal guarantor to a corporate debtor. These provisions came into force on 26 May 2026.

Whether the change affected applications already pending on that date was litigated quickly. Single judges of the Bombay and Delhi High Courts, and a Division Bench of the Bombay High Court, held that the interim moratorium ceased from 26 May 2026 even in pending matters, because a guarantor has no vested right in a procedural protection of this kind. The IBBI issued a circular on 21 September 2026 recording the same position. Further appeals may follow, so check the current position for your case.

The practical result is that a bank can continue SARFAESI measures against the guarantor's mortgaged property, pursue its DRT original application, and continue arbitration or civil suits against the guarantor until the NCLT admits the section 95 application. The moratorium under section 101, which starts on admission, is unchanged. For a guarantor, filing an application is no longer a way to buy time.

Stages of a section 95 case at a glance

The time limits in Part III are short on paper. In practice each stage takes longer, depending on the bench's list and how actively the parties contest.

How a section 95 case runs, step by step

1. The creditor files the application

   The application is filed with the NCLT bench dealing with the company, with the guarantee deed, the invocation letter, the demand notice and proof of non-payment. If filed through a resolution professional, that professional's details are given; otherwise the NCLT asks the IBBI to nominate one.

2. A resolution professional is appointed

   Under section 97, the NCLT has the IBBI confirm that no disciplinary proceeding is pending against the proposed professional, or nominate one, and then appoints the professional. No hearing of the guarantor is required at this stage.

3. The resolution professional examines the application

   Under section 99, the professional examines the application, may require the guarantor to prove repayment of any debt claimed as unpaid by evidence such as an electronic transfer record or an encashed cheque, and may seek information from both sides. The professional then reports to the NCLT recommending acceptance or rejection.

4. The NCLT hears and decides admission

   Under section 100, the NCLT considers the report and decides whether to admit or reject the application. This is the stage at which the guarantor can argue that the guarantee is invalid, discharged, not invoked or not in default.

5. Moratorium, public notice and claims

   On admission, a 180-day moratorium begins under section 101. The professional issues a public notice and creditors file their claims, after which a list of creditors is prepared.

6. Repayment plan and creditors' vote

   The guarantor, with the professional's help, prepares a repayment plan setting out how creditors will be paid, from what assets or income and over what period. A meeting of creditors votes on it; it needs more than three-fourths in value of the creditors present and voting.

7. NCLT approval and implementation

   The NCLT approves or rejects the plan under section 114. If approved, the professional supervises its implementation, and on completion the guarantor can obtain a discharge from the debts covered. If no plan is submitted or approved, or it fails, a bankruptcy application can follow.

Does the guarantor get a hearing before the resolution professional is appointed?

No. In Dilip B. Jiwrajka v Union of India (2023), the Supreme Court upheld sections 95 to 100 and held that no adjudication takes place before the NCLT decides admission under section 100. The resolution professional's role under section 99 is facilitative: to collect information and make a recommendation, not to decide. The guarantor's right to be heard is protected because the NCLT must hear the parties before admitting the application.

That does not mean the section 99 stage is a formality. The resolution professional can call for documents and the guarantor can place material before the professional, such as proof of payments, the lender's recoveries from the company, or a settlement. A report recommending rejection carries weight with the bench. A guarantor who ignores the professional's letters and then argues everything at the admission hearing has lost an opportunity.

What defences can a personal guarantor raise?

The strongest defences go to whether the guarantor is liable at all. The guarantee deed may not have been executed by the guarantor, may have been signed for a different facility, or may have a cap lower than the amount demanded. The guarantee may not have been invoked in the manner the deed requires. The claim may be time-barred if the application comes more than three years after invocation and refusal, without any acknowledgment. The guarantor may have been released, for example by a written release when he exited the company.

The Indian Contract Act 1872 gives sureties specific protections. A variance in the terms of the loan made without the guarantor's consent discharges him for transactions after the variance (section 133). A release or discharge of the principal borrower by the creditor can discharge the guarantor (section 134). A creditor's act that impairs the guarantor's eventual remedy against the borrower, such as releasing security, can discharge him to that extent (section 139, and see section 141 on loss of security). Many guarantee deeds contain clauses waiving these protections, and courts generally give effect to them, so read the deed before relying on the Act.

Some arguments do not work. That the company's resolution plan has been approved does not discharge the guarantor, as Lalit Kumar Jain held. That the bank has not first exhausted its remedies against the company is generally no answer, because a surety's liability is coextensive with the borrower's (section 128) unless the deed says otherwise. That a guarantor has resigned as a director does not end a continuing guarantee for past advances, though notice of revocation may limit liability for future advances.

Documents to gather

Guarantor cases are decided on documents that are often years old and scattered. Collect them early.

What does the 180-day moratorium stop?

Once the NCLT admits the application, section 101 imposes a moratorium for 180 days. Pending legal actions or proceedings in respect of any debt are stayed, and creditors cannot start new ones. In practice this halts SARFAESI action, DRT proceedings, recovery suits and execution against the guarantor during the moratorium. The guarantor's own freedom to deal with his assets is restricted during the process.

The moratorium covers debts, not every proceeding. Whether a criminal case, such as a cheque bounce complaint against the guarantor as a signatory, is caught depends on the nature of the proceeding and should be checked on the facts. Certain excluded debts under the Code, such as maintenance, fines imposed by a court and some damages claims, are dealt with differently. The moratorium also does not protect the company, whose position depends on its own case. For the corporate moratorium, see our post on the section 14 moratorium in CIRP.

The repayment plan: what it contains and how it is approved

A repayment plan is the guarantor's proposal to pay creditors, prepared in consultation with the resolution professional. It sets out the guarantor's assets and liabilities, how much each creditor will receive, the source of payment (sale of property, future income, family contributions), the time frame, and how the plan will be supervised. A plan that offers creditors more than they would realistically get in bankruptcy, with a credible source of funds, has a real chance of approval.

The resolution professional reports on the plan to the NCLT and convenes a meeting of creditors. The plan is approved if more than three-fourths in value of the creditors present and voting support it. A secured creditor that participates and votes generally gives up the right to enforce its security during the term of the plan, so lenders with good security think carefully about whether to vote. Once approved by creditors, the NCLT examines the plan under section 114 and may approve it, with or without modifications, or reject it.

The 2026 amendment added a provision under which, if no repayment plan is submitted, the resolution professional reports to the NCLT, which terminates the process and opens the way to bankruptcy. It also adjusted the resolution professional's timelines under section 99 and required written notice of creditors' meetings in personal guarantor cases, so check the current text for exact periods. Guarantors should treat the plan as the central task from the day of admission, not an afterthought.

What happens if there is no repayment plan?

The guarantor or a creditor can apply for bankruptcy under Chapter IV of Part III. On a bankruptcy order, a bankruptcy trustee is appointed, the guarantor's estate vests in the trustee, and the trustee realises assets and distributes the proceeds among creditors in the order of priority the Code sets. The 2026 amendment aligned the treatment of government dues in personal bankruptcy with the corporate rule, giving priority only to dues for the two years before bankruptcy commencement.

A bankrupt faces restrictions on holding certain public offices and on acting as a director or promoter of a company without the NCLT's leave, among others, until discharged. Transactions entered into before bankruptcy at an undervalue, or to prefer some creditors, can be reversed, and the 2026 amendment added a provision allowing the NCLT to set aside transactions made deliberately to put assets beyond creditors' reach, subject to protection for buyers in good faith. Transferring a house to a spouse when the bank's notice arrives is the kind of transaction these provisions target. Our post on preferential and fraudulent transactions explains the corporate equivalents.

The provisions you will meet

Mistakes guarantors make

• Assuming the company's resolution plan ends their liability. Lalit Kumar Jain settled that it does not, unless the guarantee or plan says otherwise.
• Relying on the interim moratorium. Since 26 May 2026, filing an application does not stop the bank's SARFAESI or DRT action against a personal guarantor.
• Ignoring the resolution professional. The section 99 stage is where documents and explanations can shape the report the NCLT reads.
• Not reading the guarantee deed. Caps, specific facilities, conditions for invocation and waiver clauses decide many cases.
• Moving assets to family members. Transfers at an undervalue or to defeat creditors can be reversed and damage credibility with the bench and creditors.
• Waiting until admission to talk settlement. Lenders are often more flexible on a one-time settlement before the process has run up costs.
• Treating the repayment plan as a formality. If no plan is submitted, the process can now be terminated and bankruptcy follows.

When does section 95 make sense for a lender?

Section 95 suits a lender where the guarantor has substantial assets beyond the mortgaged security, or income that can fund a repayment plan, and where a collective process under the NCLT's supervision is more efficient than separate suits and executions. It also brings all the guarantor's creditors into one forum and exposes asset transfers to scrutiny. It suits less well where the guarantor's only asset is already mortgaged to the lender, because SARFAESI gives the lender direct control over that security without a collective process.

The two routes can be combined. A bank may continue SARFAESI against a mortgaged property, pursue its DRT case and file under section 95, adjusting its claim for whatever it recovers. Guarantors facing these parallel actions should read our posts on replying to a SARFAESI section 13(2) notice and negotiating a one-time settlement with a bank. Orders of the NCLT in a section 95 case can be appealed to the NCLAT under section 61, as explained in our post on NCLAT appeals.

What to do this week if you have received a demand notice as a guarantor

Find every guarantee deed you signed and the sanction letters they relate to. Check the date and wording of the invocation letter and the demand notice. Ask the company's resolution professional or liquidator, if there is one, what the lenders have recovered so far. Prepare an honest statement of your assets, income and liabilities, because you will need it whether you defend, settle or propose a plan. Do not transfer property while this is pending.

Then decide on your approach: a defence on the guarantee itself, a negotiated settlement with the lender, or a repayment plan if the process goes ahead. If you would like an advocate to read the guarantee and the notice and tell you which of these is realistic, the team of Advocate B.K. Singh can look at the papers; you can reach us through the online enquiry form, or read about our insolvency practice in Delhi and our work on banking and recovery matters.