IBC Section 95 Personal Guarantor Insolvency —
What Guarantors Must Know in 2026

Background — Part III of the IBC and the Lalit Kumar Jain Ruling

The Insolvency and Bankruptcy Code, 2016 (IBC) is arranged in five Parts. Part II deals with insolvency resolution and liquidation for corporate persons (companies, LLPs and other corporate persons — the CIRP process, with voluntary liquidation in Chapter V). Part III deals with insolvency resolution and bankruptcy for individuals and partnership firms, including personal guarantors to corporate debtors. Part IV deals with the regulation of insolvency professionals, agencies and information utilities, and Part V with miscellaneous matters.

The Part III provisions were brought into force from 1 December 2019 by notification S.O. 4126(E) dated 15 November 2019 — Section 78 (except with regard to the fresh start process), Section 79 and Sections 94 to 187, among others — only ‘in so far as they relate to personal guarantors to corporate debtors’. From that date, personal guarantors — typically promoters, managing directors, and sponsors who signed personal guarantees on corporate loans — became subject to insolvency proceedings before the NCLT, which Section 60(1) makes their Adjudicating Authority.

The notification was challenged before the Supreme Court. In Lalit Kumar Jain v Union of India (2021) 9 SCC 321, a Division Bench (L. Nageswara Rao and S. Ravindra Bhat JJ., decided 21 May 2021) upheld the notification of 15 November 2019 as valid and not an impermissible delegation of legislative power, and held that approval of a resolution plan for the corporate debtor under Section 31 does not, by itself, discharge the personal guarantor. (Since 26 May 2026, Explanation I to Section 31(6) says so in the Code itself, and Section 96(4) excludes applications against personal guarantors to corporate debtors from the Section 96 interim moratorium.)

After the Lalit Kumar Jain ruling, banks and NBFCs use Section 95 against promoter-guarantors of NPA accounts, particularly where the corporate borrower has few remaining assets or where the CIRP of the corporate debtor has been completed with a haircut.

How Lenders File a Section 95 Application Against Personal Guarantors

A financial creditor (bank, NBFC, ARC) or an operational creditor can file a Section 95 application before the NCLT against a personal guarantor when: (a) there is a valid personal guarantee deed executed by the individual; (b) the corporate borrower has defaulted on the guaranteed debt; and (c) the guarantor has failed to pay within fourteen days of the service of the notice of demand (Section 95(4)(b)).

The bench is fixed by the corporate debtor, not by where the guarantor lives. Under Section 60(1), the Adjudicating Authority for personal guarantors to corporate debtors is ‘the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located’. Where a corporate insolvency resolution process or liquidation proceeding of the corporate debtor is pending, Section 60(2) requires the guarantor application to ‘be filed before such National Company Law Tribunal’. The residence-based test in Section 179 applies to the Debt Recovery Tribunal, which remains the Adjudicating Authority for other individuals and partnership firms.

The Section 95 application must be accompanied by: (a) the personal guarantee deed; (b) the loan agreement and security documents evidencing the guaranteed debt; (c) the NPA notice or SARFAESI demand notice; (d) a demand made to the guarantor for payment; (e) proof of the guarantor’s default on the guarantee; and (f) a statement of the amount claimed.

Importantly, the lender does not need to first exhaust its remedies against the corporate borrower or against the security before invoking the guarantee under Section 95. The co-extensiveness of liability — that the guarantor’s liability arises simultaneously with the principal debtor’s default — is a fundamental principle of guarantee law that applies equally under Part III of the IBC.

Section 96 Interim Moratorium — No Longer Available to Personal Guarantors (2026)

Section 96(1) of the IBC provides that when an application is filed under Section 94 (by the debtor) or Section 95 (by a creditor), ‘an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application’. During it, pending legal actions or proceedings in respect of any debt are deemed stayed and creditors shall not initiate new ones, subject to transactions notified by the Central Government under Section 96(3).

For personal guarantors that rule no longer applies. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 inserted Section 96(4) with effect from 26 May 2026: ‘The provisions of this section shall not apply where an application is filed for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor.’ Section 124(4), inserted at the same time, makes the same exclusion for a bankruptcy application against a personal guarantor to a corporate debtor.

Since 26 May 2026, therefore, filing a Section 94 or 95 application against a personal guarantor to a corporate debtor does not trigger the Section 96 interim moratorium. DRT proceedings, SARFAESI enforcement against the guarantor’s own secured assets, execution and civil suits against the guarantor are not stayed by the filing, and a guarantor’s own Section 94 application no longer pauses them either.

If the application is admitted under Section 100, the Section 101 moratorium applies for up to 180 days from admission or until the Section 114 order on the repayment plan, whichever is earlier. During it, pending legal actions in respect of any debt are deemed stayed, creditors shall not initiate new ones, and the debtor ‘shall not transfer, alienate, encumber or dispose of any of his assets’ (Section 101(2)).

The Resolution Professional’s Role — Section 99 Report

A resolution professional is appointed before admission, under Section 97. Where the creditor files the application himself, the NCLT directs the Board within seven days of filing to nominate a resolution professional, and appoints the professional by order; where the application is filed through a resolution professional, the Board is asked to confirm that appointment. The resolution professional must examine the application ‘within twenty-one days of his appointment’ and report to the NCLT recommending approval or rejection (Section 99(1); the 2026 Amendment Act substituted ‘twenty-one days’ for ‘ten days’).

Under Section 99(6), the resolution professional ascertains that ‘the application satisfies the requirements set out in section 94 or 95’ and that the applicant has provided the information and explanation sought. The report does not test whether the guarantor is solvent. The resolution professional may require the debtor to prove repayment of the debt claimed as unpaid — by evidence of electronic transfer, encashment of a cheque, or the creditor’s signed acknowledgment (Section 99(2)) — and may seek further information from the debtor, the creditor or any other person, which must be furnished ‘within seven days of receipt of the request’ (Section 99(4)–(5)).

Section 99(3) does not give the guarantor a representation window; it cuts the other way: where the debt is registered with an information utility, ‘the debtor shall not be entitled to dispute the validity of such debt’. The guarantor’s opportunity lies in answering the resolution professional’s requests fully and on time, and in placing any objection to the validity of the guarantee or the quantum of the debt on record. A copy of the report goes to the debtor and the creditor (Section 99(10)), and the NCLT passes its order admitting or rejecting the application within fourteen days of the report (Section 100(1)).

After NCLT Admission — Repayment Plan and Bankruptcy Risk

When the NCLT admits the Section 95 application, the formal insolvency resolution process for the personal guarantor begins. The NCLT issues a public notice within seven days inviting claims from all creditors within twenty-one days (Section 102(1)). The guarantor, as debtor, prepares a repayment plan ‘in consultation with the resolution professional’ (Section 105(1)), and the resolution professional submits the plan with a report to the NCLT ‘within a period of twenty-one days from the last date of submission of claims’ (Section 106(1)). If no plan is submitted within that period, the NCLT terminates the process and the debtor or the creditors may apply for bankruptcy (Section 106(1A), inserted in 2026).

The repayment plan contains ‘a proposal to the creditors for restructuring of his debts or affairs’ (Section 105(1)), with a justification for the plan and provision for the resolution professional’s fee (Section 105(3)). For a personal guarantor to a corporate debtor, the resolution professional ‘shall summon the meeting of the creditors’ (Section 106(3A)), to be held not less than fourteen and not more than twenty-eight days from the submission of the report (Section 106(4)(a)). Approval requires ‘a majority of more than three-fourth in value of the creditors present in person or by proxy and voting’ (Section 111). The NCLT then approves or rejects the plan by order under Section 114; an approved plan binds the creditors mentioned in it and the debtor (Section 115(1)).

If the NCLT rejects the repayment plan, the debtor and the creditors may apply for bankruptcy under Chapter IV of Part III (Section 115(2)); the same route opens where a plan comes to an end prematurely (Section 118(4)) or no plan is submitted (Section 106(1A)), with the application under Section 121. Bankruptcy under the IBC has severe consequences: the estate of the bankrupt vests in the bankruptcy trustee (Section 154); the bankrupt is subject to the disqualifications in Section 140, ‘in addition to any disqualification under any other law for the time being in force’; and orders in the process are sent to the Board for recording in the register referred to in Section 196 (for example, Sections 115(3), 119(3) and 138(3)).

Practical Defence Strategy for Personal Guarantors

Personal guarantors facing Section 95 proceedings have a narrow window — the twenty-one days within which the resolution professional must report under Section 99(1) — to mount a substantive defence. The following strategic considerations are critical:

• Engage IBC counsel immediately: Since 26 May 2026, a Section 94 or 95 application against a personal guarantor to a corporate debtor carries no interim moratorium (Section 96(4)), so DRT, SARFAESI and other recovery proceedings against the guarantor continue while the application is examined. There is no statutory breathing space before admission — plan the response in every forum in parallel.
• Audit the guarantee document: Check whether the guarantee was a continuing guarantee or a specific guarantee, whether it was conditional or unconditional, and whether any variation in the principal contract (increase in loan amount, change in interest rate, extension of tenure) was made without the guarantor’s consent. Any such variation without consent discharges the guarantee under Section 133 of the Indian Contract Act, 1872.
• Verify the quantum: The resolution professional may require the guarantor to prove repayment of the debt claimed as unpaid (Section 99(2)). If the bank has overstated the guaranteed amount — by including interest that was not agreed in the guarantee deed — place the correct figure and the supporting documents on record.
• OTS opportunity: In many cases, the filing of Section 95 is a negotiating tool rather than a genuine intent to adjudicate the guarantor bankrupt. Initiating settlement discussions through counsel at this stage — before the repayment plan stage — often produces better outcomes for both parties than contested NCLT proceedings.
• CIRP resolution plan interaction: Approval of the corporate borrower’s resolution plan does not release the guarantor. Section 31(6) extinguishes claims ‘against the corporate debtor and its assets’ unless otherwise provided in the resolution plan, and Explanation I states that ‘nothing in this section shall affect a claim or any proceeding in respect of’ a guarantor of the corporate debtor. Check what the creditor has actually received under the plan when verifying the amount it now claims from the guarantor.

Guarantors who are also promoters of companies facing Section 7 IBC proceedings should co-ordinate the defence strategy across both the corporate CIRP and the personal guarantor proceedings — ideally with the same counsel team to ensure consistency in legal positions taken before both benches.

Settlement and the Repayment Plan Pathway — Sections 105 to 111

Section 97 of the IBC is not a settlement provision: it governs only the appointment of the Resolution Professional (the NCLT appoints the resolution professional, after the Board confirms or nominates one, to examine the Section 95 application). The IBC does not provide for a free-standing “Section 97 settlement” sanctioned by the NCLT before admission.

What the Part III framework does provide is two distinct windows for resolving the matter short of bankruptcy. First, before admission the parties can negotiate a one-time settlement (OTS) directly. Since 26 May 2026 there is no Section 96 interim moratorium for a personal guarantor to a corporate debtor (Section 96(4)), so any negotiation runs alongside the creditor’s other recovery proceedings; an OTS reached at this stage is a private contractual arrangement between the guarantor and the creditor, not an order of the NCLT.

Second, if the application is admitted, the Code’s structured resolution route is the repayment plan, not a pre-admission settlement order. The guarantor prepares a repayment plan in consultation with the Resolution Professional under Section 105. The Resolution Professional reports on the plan within twenty-one days from the last date for submission of claims (Section 106(1)) and, for a personal guarantor to a corporate debtor, summons a meeting of creditors (Sections 106(3A) and 107), where the plan needs ‘a majority of more than three-fourth in value of the creditors present in person or by proxy and voting’ (Section 111). The Adjudicating Authority (NCLT) then approves or rejects the plan by order under Section 114; once approved, it binds the creditors mentioned in it and the debtor (Section 115(1)). On the basis of the plan, the Resolution Professional applies for a discharge order (Section 119). This repayment-plan pathway — preparation under Section 105, the creditors’ meeting and vote under Sections 106 to 111, the NCLT’s order under Section 114 and discharge under Section 119 — is the formal mechanism through which a guarantor can resolve the debt during the insolvency resolution process and avoid adjudication of bankruptcy.

NCLAT Appeal Rights Against NCLT Orders

Orders of the NCLT in Section 95 proceedings are appealable to the National Company Law Appellate Tribunal (NCLAT) under Section 61 of the IBC within 30 days of the order (extendable by 15 days for sufficient cause shown). NCLAT has the power to set aside, modify, or confirm the NCLT order.

Common grounds for NCLAT appeal by guarantors include: challenge to the NCLT’s jurisdiction (wrong bench — under Section 60 the bench is fixed by the corporate debtor’s registered office, or is the bench seized of its insolvency resolution process or liquidation); challenge to the validity of the guarantee deed; and challenge to the NCLT’s admission order on the ground that the resolution professional’s Section 99 report was defective (e.g., it did not address the matters in Section 99(6)).

Unlike DRAT proceedings — where borrowers must deposit 50% of the decree amount under Section 21 RDDB Act (reducible to 25% for recorded reasons) as a pre-condition for the appeal hearing — IBC appellate proceedings before the NCLAT do not have a mandatory pre-deposit requirement. The guarantor can appeal to NCLAT and seek stay of the NCLT admission order without depositing any amount. However, the NCLAT may impose conditions for a stay — such as maintaining the status quo on disposal of assets — as a condition for the interim stay of the admission order.

For advice on NPA recovery strategy or a defence against Section 95 proceedings, contact Unified Chambers and Associates.