Corporate Insolvency and Personal Guarantee – Supreme Court Settles the Issue of Jurisprudence

Abstract

The Central Government Notification No.4126 dated 15.11.2019 providing for insertion of a new category of persons - “Personal Guarantors to the Corporate Debtors†(under clause (e) of Section 2 of IBC) against whom the Creditors could initiate proceedings under IBC was subjected to judicial scrutiny on the petition filed by the affected bigwigs of Corporate Houses. Hon’ble Supreme Court examined the issue in the light of Section 126, 128, 129 & 133 of The Indian Contract Act 1872 and Section 2 and 60 of IBC and affirmed the validity and legality of the said Notification. It has thus settled the issue of jurisprudence and paved the way for the Banks/FIs to initiate action against the Corporate Debtors and also their Personal Guarantors simultaneously or even later before NCLT to help take a comprehensive view so as to enhance the value of underlying assets for all the stake-holders leading to improved efficiency and recovery rate.