Experts welcome Supreme Court ruling on IBC, to further strengthen financial sector

Provides relief to lenders whose petitions for insolvency of personal guarantors was getting delayed

  • Experts say promoters should also exercise prudence when extending personal guarantees for the corporate debtor
  • Supreme Court upholds constitutionality of Insolvency and Bankruptcy Code, says no manifest arbitrariness
  • Says role of RP is to collect information about the application by the creditor

The Supreme Court ruling on Thursday upholding the constitutionality of the Insolvency and Bankruptcy Code (IBC) is expected to help lenders of companies under resolution and facilitate hearings in insolvency petitions against personal guarantors, according to experts.

“The judgment passed by the Supreme Court would further strengthen the financial sector as the personal guarantors to corporate debtors are now duty bound to furnish necessary information as may be sought by the Resolution Professional on an application of a creditor. These personal guarantors, who are generally promoter directors of the corporate debtor would now be required to follow the rigours of time lines provided for Insolvency of Individuals and such personal guarantors,” said Ateev Mathur, Partner, SNG & Partners, Advocates & Solicitors.

The promoters and directors now, who have stood as guarantors at the time of availing the facilities, would not be able to hide behind the veil, he further said.

A three-judge bench of Chief Justice of India D.Y. Chandrachud and Justices J.B. Pardiwala and Manoj Misra on Thursday passed the order on a challenge to the constitutional validity of Sections 95 to 100 of the IBC that govern the insolvency resolution process in relation to individuals and partnership firms with respect to Insolvency Process of Personal Guarantors to Corporate Debtors. It was contended that the IBC does not adhere to the principles of natural justice and straightaway a resolution profession is appointed and given unfettered powers to seek information including personal information of the guarantors.

The Supreme Court however, observed that the role ascribed to the RP is to collect information about the application by the creditor to report it to the Adjudicating Authority.  It also observed that it is ultimately the Adjudicating Authority, who has been vested with the function to accept or reject the report of the RP.

Sushmita Gandhi, Partner, INDUSLAW said the judgment has come as relief for lenders whose petitions for insolvency of personal guarantors were often getting stuck and delayed because all the personal guarantors were filing applications at the stage of Section 94/95 to afford them hearing before any recommendation was made by the RP.

“The judgment notably affirms that the principles of natural justice cannot be applied in a straight-jacket manner, their application could vary depending on the situation. It also affirmed that the IBC has sufficient safeguards regarding the functioning of the RP,” she said.

After this judgment, the NCLTs which were otherwise not hearing the personal insolvency matters or had stayed the proceedings at the stage of filing of Report, would now have to start hearing the personal insolvency matters without having to hear the personal guarantors at the stage or before the stage of filing of Report by the RP, which would be a relief to so many creditors whose petitions were otherwise on status quo, she further said.

Abhay Itagi, Partner (Litigation and Arbitration), MV Kini Law Firm said the ruling gives a boost to the financial sector. “At the same time, the Supreme Court’s ruling serves as a compelling reminder for promoters to exercise prudence when extending personal guarantees for the corporate debtor,” he further said, adding that it underscores the need for a meticulous evaluation of such commitments, aligning with the broader aim of fostering financial responsibility in the business landscape.

“A corporate insolvency regime without an effective remedy against promoters is ineffective. The judgement clears the way to proceed against promoters’ guarantors. Now, NCLT can resume cases against many guarantors which are kept in abeyance for a long time,” said Vinod PV, Senior Partner, IndiaLaw.

Over 200 petitioners had been filed in the Supreme Court on various provisions of the IBC. This included a petition by Reliance Group Chairman Anil Ambani in June last year challenging the validity of the IBC with regard to personal guarantors.

Internship & Articleship

[contact-form-7 id="1843" title="Internships/Paralegals"]


By proceeding further and clicking on the “I ACCEPT” button below, you acknowledge that you of your own accord wish to know more about SNG & Partners (“The Firm”) for your own information and use. You further acknowledge that there has been no solicitation, invitation or inducement of any sort whatsoever from SNG & Partners or any of its employees, partners, associates or members to create an attorney-client relationship through this website. You further acknowledge having read and understood this Disclaimer.

This website is a resource for informational purposes only and is intended, but not promised or guaranteed, to be correct, complete, and up-to-date. While SNG & Partners has taken utmost care to ensure accuracy and completeness of the information contained on this website, the Firm does not warrant that the information contained on this website is accurate or complete, and hereby disclaims any and all liability for any loss or damage caused or alleged to have been caused to any person by relying on any information contained on this website. The contents of this website should not be construed as an opinion, legal or otherwise, on any issue or subject. 

SNG & Partners further assumes no liability for the interpretation and/or use of the information contained in this website, nor does it offer a warranty of any kind, either expressed or implied. The owner of this website does not intend links from this site to other Internet websites to be referrals to, endorsements of, or affiliations with the linked entities. The Firm is not responsible for, and makes no representations or warranties about the contents of websites to which links may be provided from this website.

Furthermore, the owner of this website does not wish to represent anyone desiring representation based solely upon viewing this website or in a Country/State where this website fails to comply with local laws and ethical rules of that state. You may note that the use of the internet or email for conveying confidential or sensitive information is susceptible to risks of disclosure associated with sending email over the internet.

The Firm advises against the use of the communication platform provided on this website for exchange of any confidential, business or politically sensitive information. User is expected to use his or her judgment and such information shared will be solely at the user’s risk.

Communication through this website in any form shall be for the purpose of enquiries only and shall not hold good for service of any kind of court proceedings, summons, advance notice, pleadings etc. For service of any such document and/or notice to the Firm and/or to any of its partners under the act or rules including under CPC, Cr. PC and/or any other law shall be served at our concerned office or to the concerned advocate dealing with the matter.