Mohali, August 29,
Concerned over reports of a personal insolvency settlement involving admitted creditor claims of ₹22,006.57 crore, approved by the National Company Law Tribunal (NCLT) for a recovery of approximately ₹6.5 crore, retired IAS officer KBS Sidhu has written to Union Finance and Corporate Affairs Minister Nirmala Sitharaman, highlighting what he describes as significant gaps in the statutory and regulatory framework governing personal guarantors under Part III of the Insolvency and Bankruptcy Code (IBC), 2016.
Sidhu, who retired in July 2021 as Special Chief Secretary, Government of Punjab, sent the letter on August 28, 2026. Copies were also marked to the Secretary, Ministry of Corporate Affairs; the Minister of State for Corporate Affairs; and the Chairperson of the Insolvency and Bankruptcy Board of India (IBBI).
In his letter, Sidhu, who holds a Master’s degree in Economics from the University of Manchester, UK, noted that while the law is settled regarding the coextensive liability of a personal guarantor, and the Supreme Court in Lalit Kumar Jain v. Union of India (2021) has reaffirmed that a guarantee survives independently of the underlying company’s resolution, the mechanism for verifying a guarantor’s actual personal assets before approval of a low-recovery repayment plan remains inadequate.
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Lack of adequate asset verification
Sidhu, who has also served as Principal Secretary, Finance, Government of Punjab, said there is a significant difference between the investigative powers available to Resolution Professionals in corporate insolvency proceedings and those available in personal guarantor cases.
He pointed out that Resolution Professionals dealing with corporate insolvency have extensive powers to trace preferential, undervalued and fraudulent transactions. However, there is no comparable mandate to establish the actual assets of a personal guarantor before a repayment plan is placed before creditors.
According to Mr Sidhu, this gap, along with other anomalies in the statutory framework and notifications issued under the IBC, could result in lenders—particularly public-sector banks, as well as institutions with both public and private shareholders such as HDFC Bank Limited and LIC Housing Finance—absorbing substantial losses.
He also raised concerns about guarantors who may hold assets in India and overseas, some of which may be declared while others may not be disclosed.
Six key reforms proposed
Mr Sidhu has proposed six specific changes to strengthen and clarify the legal framework governing personal guarantors:
- Stronger investigative powers: Resolution Professionals should be given asset-verification and investigative powers in personal guarantor cases comparable to those available under Part II of the IBC.
- Asset reconciliation: Before any low-recovery repayment plan is put to a creditor vote, a recorded reconciliation should be undertaken between the guarantor’s declared assets, net-worth certificates and public disclosures.
- Survival of personal guarantees: The resolution-plan format itself should clearly specify how a personal guarantee continues to operate after a corporate resolution plan is approved.
- Clarity on parallel proceedings: The law should clearly establish the sequencing between personal guarantor insolvency proceedings and parallel action under the SARFAESI Act and proceedings before the Debts Recovery Tribunal (DRT).
- Discharge linked to performance: A guarantor’s discharge should be linked to the actual performance of the repayment plan rather than merely to its approval.
- Review of Part III implementation: The seven-year delay in notifying the remaining provisions of Part III of the IBC, covering ordinary individuals and partnership firms, should be reviewed.
‘Concern is structural, not about any individual case’
Clarifying his position, Mr Sidhu said his concerns were not directed at any particular individual or case.
He noted that the matter referred to in his letter remains sub judice, with an appeal reportedly likely before the National Company Law Appellate Tribunal (NCLAT). He said he had deliberately refrained from commenting on the merits of the case.
According to Mr Sidhu, his concern is structural and relates to strengthening the law so that the protection intended to be provided to lenders through a personal guarantee is not weakened by shortcomings in asset verification and enforcement.
He also emphasised that greater discipline and transparency in the system would benefit honest borrowers and guarantors while protecting lenders and, ultimately, depositors’ money.
Sidhu has indicated that he will follow up with a more detailed note and, if the Ministry expresses interest, may also prepare a draft amendment Bill on the subject.
