That breathing space is gone with the proposed changes in the Insolvency and Bankruptcy Code (IBC), 2016.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, tabled in Parliament last week, makes it clear that existing moratorium protections under Sections 96 and 124 will no longer apply to personal guarantors.
According to lawyers that Mint spoke to, banks can now immediately attach houses, freeze bank accounts, sell pledged shares, or even push guarantors into bankruptcy—all while the company’s insolvency case is still ongoing.
“This change means guarantors stand exposed from day one, with their personal assets and income streams vulnerable to direct recovery,” said Raheel Patel, partner, Gandhi Law Associates.
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Personal guarantors were first brought under the IBC purview in December 2019, when the government activated provisions on individual insolvency. This allowed lenders to pursue not just defaulting companies but also promoters and directors who had given personal guarantees, making such assurances legally enforceable and carrying real consequences.
The framework was strengthened in 2023, when the Supreme Court upheld key provisions of the IBC—including the appointment of resolution professionals—and rejected around 350 petitions filed by guarantors challenging the constitutionality of IBC provisions related to them.
Since their inclusion in 2019, lenders have sought to recover over ₹2 trillion from personal guarantors. However, recoveries have been slow.
In the past six financial years, about 4,203 cases against personal guarantors involving claims worth ₹2.78 trillion were filed. Of these, resolution professionals were appointed in 1,832 cases, while 664 were admitted. Just 39 cases resulted in approved repayment plans, yielding creditors only ₹129 crore—or 2.49% of admitted claims.
Since 2019, some of India’s biggest insolvency proceedings have pulled in personal guarantors. High-profile names include Reliance ADA Group’s Anil Ambani, Videocon’s Venugopal Dhoot, Bhushan Power & Steel’s former promoter Sanjay Singhal, and Zee Group’s Subhash Chandra.
The country’s largest insolvencies have leaned on guarantees. In the Essar Steel case, promoter guarantees were invoked to cover part of the shortfall after a ₹42,000 crore resolution against claims of ₹54,000 crore. Similarly, in the Videocon case, creditors pursued Venugopal Dhoot and other guarantors after absorbing a haircut of nearly ₹31,000 crore.
Why the moratorium was removed
Experts say the reform was necessary because guarantors—often company promoters—were misusing the moratorium to stall recovery of secured creditors.
“The removal of moratorium protections for personal guarantors shall improve the positioning of the secured creditors, in as much as the moratorium over the period of time was being attempted to be misused by unsecured creditors as well as debtors to march over the rights of secured creditors,” said Varsha Banerjee, partner, Dhir & Dhir Associates.
According to Banerjee, creditors will be entitled to realize their secured interest promptly without being thwarted by other unsecured creditors as well as the guarantors.
Read more: IBC amendments plug a major gap in the insolvency process
With the new changes, creditors can move swiftly: seize and auction properties, freeze bank accounts, invoke pledged shares or deposits, and continue civil recovery suits. Under the SARFAESI Act, they can even take possession of secured assets without court intervention.
If a personal guarantor submits a repayment plan, the resolution professional (RP) is required to summon a meeting of creditors to consider the plan. In other cases, the RP has discretion over whether to convene such a meeting.
Along with that, if no repayment plan is submitted within 21 days, creditors can escalate by filing for personal bankruptcy—causing guarantors to lose control of their estates and face reputational damage.
Still, guarantors are not entirely without defenses. They can propose structured repayment plans, dispute inflated claims, and rely on the rule that liability is capped at the guaranteed amount—meaning banks cannot recover twice from both debtor and guarantor, said Madhav Kanoria, Partner, Cyril Amarchand Mangaldas.
But lawyers warn the proposed changes in the IBC provisions could make individuals think twice before signing guarantees.
“The individuals (especially promoters, directors, and family members) may not be readily willing to offer personal guarantees, given the loss of protection. Further, companies may struggle to secure personal guarantees unless they incentivize guarantors with compensation or reduced liability structures, and the lenders may demand stronger asset-backed security instead of personal guarantees,” Kanoria of Cyril Amarchand Mangaldas added.
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