PERSONAL GUARANTOR’S FOOTING UNDER INSOLVENCY LAW: AN UPCOMING ERA OF CHANGE

Abstract

The Insolvency and Bankruptcy Code, 2016 has become the most significant change brought about by the Legislature in recent times. By vesting it with the status of  a ‘Code of law’, the legislature has made-clear its intention to exhaustively cover a complete system of laws by a process of codification thereby making the present enactment a consolidating and amending law. The Code provides for a time-bound process whereby the entire rehabilitation process is to be completed in One Hundred and Eighty days excluding a maximum extension of Ninety days, subject to approval of the NCLT. Nevertheless, the Code gained immense fame among the general public owing to various controversies which prevailed over the status of a personal guarantor under the Code. Varying judicial interpretations and differential scenarios, which arose on a daily basis, spiked up the confusion and tension amongst Corporate Guarantors. The various NCLT Benches across the country found it difficult to address the issue even upon constituting Special Benches. Finally, the air was cleared out with the Insolvency and Bankruptcy (Amendment) Ordinance, 2018 on June 2018. It is however, worthwhile to study about what caused this chaotic situation all over the country which forced the Parliament to promulgate an amendment legislation. This article attempts to study about the same in detail. The agenda of the paper can be achieved by going into the actual ambit of the phrase ‘personal guarantor’ and the footing of this guarantor under existing laws. Further, we move on to look into the stand taken by the Reserve Bank of India, in its capacity as the Central Regulatory Authority for Banks. Moving on, we comprehend the Code again, with emphasis on its unnotified provisions and what impact these provisions could possibly have on the legal framework. Finally, we delve into the substance of the article itself by discussing elaborately the controversy regarding the assets of a Personal Guarantor under the I&B Code.