Definition
An individual who has given a personal guarantee for the debts of a corporate entity — subject to separate insolvency proceedings under Part III of the IBC when the corporate debtor undergoes CIRP or liquidation.
Personal guarantors (typically promoters/directors who personally guaranteed corporate loans) are subject to separate insolvency provisions under Part III of the IBC. When a corporate debtor undergoes CIRP and a resolution plan or liquidation is ordered, lenders may simultaneously proceed against personal guarantors. The NCLT handles insolvency proceedings against personal guarantors in the context of related corporate insolvency; where there is no related corporate insolvency, the Debt Recovery Tribunal (DRT) has jurisdiction over personal insolvency of guarantors. Key Supreme Court ruling: State Bank of India v. V. Jagdishkumar Gupta (2021) — a personal guarantor's discharge by the corporate debtor's resolution plan does not discharge the guarantor under the general law of surety; the creditor can still proceed against the personal guarantor.
Statutory Definition
Section 60(2), Insolvency and Bankruptcy Code, 2016: 'Without prejudice to the provisions of sub-section (1), a proceeding of insolvency resolution process or liquidation or bankruptcy of a personal guarantor of a corporate debtor, as the case may be, shall be filed before the Adjudicating Authority dealing with the insolvency resolution or liquidation proceedings of such corporate debtor.' The Supreme Court in State Bank of India v. V. Jagdishkumar Gupta (2021) confirmed that personal guarantee insolvency proceedings can be initiated even when the corporate debtor's CIRP is underway.
Etymology & Origin
From 'personal' (relating to an individual person, not a corporate body) + 'guarantor' (one who gives a guarantee, from Old French 'garant' — guarantor, surety). A 'personal guarantor' is an 'individual' who personally 'guarantees' the debts of a corporate entity.
Full Legal Analysis
Personal Guarantor: Promoter on the Hook
When banks lend to companies, they often insist on personal guarantees from promoters. The promoter’s personal liability becomes the bank’s backstop — if the company fails, the promoter must pay from their personal assets. The IBC created a separate regime for personal guarantors, ensuring that promoters cannot shield their personal assets behind the corporate veil when the company they promoted fails in insolvency.
SBI v. V. Jagdishkumar Gupta (2021): Personal Guarantee Survives CIRP
The Supreme Court’s landmark ruling: (a) a resolution plan that extinguishes the corporate debtor’s debt does not automatically extinguish the personal guarantee; (b) a bank that approved a resolution plan can still proceed against the personal guarantor for the amounts it wrote off under the plan; (c) the personal guarantor’s liability is independent of and co-extensive with the corporate debtor’s original debt — not the reduced amount under the resolution plan. This ruling had massive implications: promoters who agreed to resolution plans expecting that it would end their personal liability discovered that their personal guarantees survived the plan.
Personal Guarantor Insolvency: Separate Process
Section 60(2) IBC allows banks to file insolvency proceedings against personal guarantors before the same NCLT bench handling the corporate debtor’s CIRP. This unified process enables the NCLT to coordinate: (a) recovery under the resolution plan against the corporate debtor; (b) recovery from personal guarantors for the remaining amounts. The personal guarantor undergoes their own insolvency process — their personal assets (property, investments) are distributed to creditors under the IBC framework for individual insolvency (Part III).
“The personal guarantee is the ultimate skin in the game. When promoters give personal guarantees, they are saying: I believe in this company enough to put my personal wealth behind it. When the company fails and the IBC comes for the promoter, that promise is enforced — the corporate veil provides no protection from personal guarantee liability.”
This Term in Indian Statutes
Insolvency and Bankruptcy Code, 2016, 2016
"A proceeding of insolvency resolution process or bankruptcy of a personal guarantor of a corporate debtor shall be filed before the Adjudicating Authority dealing with the insolvency resolution or liquidation proceedings of such corporate debtor."
Personal guarantor: Section 60(2) — insolvency filed before same NCLT as corporate CIRP; SBI v. Jagdishkumar Gupta: personal guarantee survives resolution plan
