Tribunal holds initiation of CIRP against principal borrower not a precondition; personal guarantor's joint and several liability upheld in Rs. 3.81 crore loan default case filed by Siemens Financial Services Pvt Ltd
In a significant ruling on 9th October 2026, the National Company Law Tribunal (NCLT), Allahabad Bench, admitted a petition filed by Siemens Financial Services Private Limited under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating a Personal Insolvency Resolution Process (PIRP) against Mr. Rasik Khandelwal, the personal guarantor to Rasik Products Private Limited. The financial creditor sought insolvency proceedings following a default on secured loans amounting to over Rs. 3.81 crore.
The Tribunal, comprising Member (Judicial) Sh. Praveen Gupta and Member (Technical) Sh. Ashish Verma, after examining the detailed submissions and the report of the appointed Resolution Professional (RP), held that the initiation of a Corporate Insolvency Resolution Process (CIRP) against the principal borrower (corporate debtor) is not a mandatory precondition for initiating insolvency proceedings against the personal guarantor. This position aligns with the Supreme Court's precedents in Mahendra Kumar Jajodia v. State Bank of India and Laxmi Pat Surana v. Union Bank of India.
The financial creditor had sanctioned multiple secured loans to Rasik Products Pvt Ltd during 2022, with Mr. Khandelwal providing personal guarantees that were unconditional, irrevocable, joint and several, and co-extensive with that of the corporate debtor. Despite repeated demands and notices-including a Section 13(2) notice under the SARFAESI Act and a statutory demand notice in Form B under IBC-the personal guarantor failed to repay the dues.
The Tribunal noted that the debt and default were substantiated through finance agreements, repayment schedules, statements of accounts, and classification of the account as a Non-Performing Asset (NPA) as of 14.12.2023. It rejected the guarantor's objections regarding the absence of a specific default date in the petition and claimed procedural irregularities, holding such objections to be vague and insufficient to reject the application.
The RP's detailed report under Section 99 of the IBC confirmed that the application met all statutory requirements and recommended admission. The Tribunal also confirmed that the petition was filed within the limitation period of three years under Article 137 of the Limitation Act, 1963.
Upon admission of the petition, the NCLT declared a moratorium on all debts related to the guarantor and appointed Mr. Amit Ojha as the Resolution Professional to manage the PIRP. The RP was directed to publish public notices inviting claims, prepare a list of creditors, assist in framing a repayment plan, and submit periodic reports to the Tribunal.
The judgment emphasizes that personal guarantors' liabilities under the Indian Contract Act, 1872, Section 128, are co-extensive and unconditional unless otherwise contracted. The Tribunal's order clarifies that enforcement of personal guarantees can proceed independently and simultaneously with proceedings against the principal borrower.
This decision marks an important reinforcement of the rights of financial creditors to hold personal guarantors accountable under the IBC framework and streamlines the initiation of insolvency proceedings against guarantors to corporate debtors without procedural delays.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 95 petition against personal guarantor - NCLT held that initiation of CIRP against principal borrower is not a condition precedent for initiating insolvency resolution process against personal guarantor - Debt and default can be established through finance agreements, repayment schedules, statement of accounts, NPA classification and invocation of guarantee; NeSL record is not mandatory - Personal guarantor's liability is co-extensive, joint and several, and unconditional - Petition admitted and PIRP initiated.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 95, 99, 100, 101; Indian Contract Act, 1872 Section 128; SARFAESI Act, 2002 Section 13(2); Limitation Act, 1963 Article 137
