Tribunal holds individual financial creditor can file application under Section 95 of IBC; personal guarantor's liability upheld despite principal debtor's insolvency
In a significant judgment delivered on August 13, 2026, the National Company Law Tribunal (NCLT), New Delhi Bench, has admitted an application filed by State Bank of India (SBI) under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) initiating insolvency resolution proceedings against Mr. Amit Sethi, the personal guarantor for loans extended to M/s Santosh Overseas Limited.
The application was filed for recovery of an outstanding default amount of over Rs. 72.72 crore as of February 8, 2019. The NCLT appointed Mr. Deepak Mittal as the Resolution Professional to oversee the insolvency resolution process against the personal guarantor.
Background:
SBI had extended various loan facilities to the corporate borrower from 2015, which were secured by personal guarantees from Mr. Amit Sethi. After the borrower and guarantor failed to comply with repayment obligations, the account was declared a Non-Performing Asset (NPA) on March 31, 2017. Despite issuance of a demand notice on June 29, 2021, the guarantor did not discharge the dues, leading SBI to invoke Section 95 of the IBC to initiate insolvency proceedings against him.
Key Issues and Findings:
The personal guarantor raised several objections, notably:
1. Limitation Period: The guarantor argued the application was barred by limitation and that the date of default mentioned by SBI conflicted with the date in the SARFAESI Act notice. The Tribunal rejected this, clarifying that the guarantor's liability arises from a distinct legal obligation separate from the principal borrower. Since the guarantee was a continuing guarantee and the demand notice to the guarantor was issued on June 29, 2021, the limitation period starts from that date. SBI's application filed on August 27, 2021, was thus within the prescribed limitation period.
2. Right of Individual Consortium Lender to File: The guarantor contended that only the lead bank or consortium collectively could file the application. The Tribunal held this objection to be misconceived, relying on precedents such as Dheeraj Wadhawan v. Union Bank of India and Amit Dineshchandra Patel v. SBI, which affirm that a financial creditor can file an application under Section 95 individually, jointly with other creditors, or through a resolution professional. There is no statutory mandate requiring all consortium lenders to act collectively.
3. Discharge of Guarantor upon Principal Debtor's Insolvency: The guarantor claimed that insolvency or liquidation proceedings against the principal borrower discharge the guarantor. The Tribunal rejected this contention, citing Supreme Court decisions (Anirudhan v. Thomco's Bank Ltd. and Maharashtra State Electricity Board v. Official Liquidator) that the guarantor's liability is co-extensive with the principal debtor's and continues unless specifically discharged. The guarantee being continuing in nature, the guarantor remains liable despite the principal debtor's insolvency.
4. Natural Justice and Report by Resolution Professional: No violation of natural justice principles was found concerning the report submitted by the Resolution Professional under Section 99 of the IBC. The guarantor was given adequate opportunity to respond to the report.
Consequent Orders and Directions:
The Tribunal admitted the application and initiated the insolvency resolution process against Mr. Amit Sethi with immediate effect. A moratorium under Section 101 of the IBC was imposed for 180 days from the date of the order, restraining any pending or new legal proceedings against the guarantor in respect of the debt.
The Resolution Professional was directed to publish public notices inviting claims from all creditors, prepare a list of creditors, and oversee preparation and submission of a repayment plan within prescribed timelines under the IBC. The financial creditor was also directed to pay Rs. 2,00,000/- as fees to the Resolution Professional for further proceedings.
Significance:
This judgment clarifies key procedural and substantive aspects relating to insolvency proceedings against personal guarantors under the IBC, particularly affirming the rights of individual financial creditors to initiate such proceedings and reinforcing the continuing nature of personal guarantees despite insolvency of the principal debtor. It is expected to have a substantial impact on recovery mechanisms pursued by banks and financial institutions in consortium lending arrangements.
Bottom Line:
Insolvency and Bankruptcy Code (IBC) - Application under Section 95 against a Personal Guarantor can be filed by a financial creditor in its individual capacity, and it is not mandatory for all consortium lenders to collectively file the application.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 95, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112; Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019
State Bank of India v. Shri. Amit Sethi, (NCLT)(New Delhi Bench) : Law Finder Doc Id # 2980726
