Section 128 of the Indian Contract Act, 1872 deals with the contract of guarantee. As per Section 128 of the ICA, “The liability of the surety is coextensive with that of the principal debtor unless the contract otherwise provides it.” Part III of the Insolvency and Bankruptcy Code, 2016 (“IBC”) encompasses the provision related to the personal guarantor. However, there have been various ambiguities with regard to the liability of personal guarantors under the IBC which arose in the landmark cases like State of Bank v. V. Ramakrishnan and Another and Piramal judgement.
Recently, Ministry of Corporate Affairs vide its amendment dated 15.11.2019 made the Part III of the Code to the personal guarantor of the corporate debtor. Through this Amendment, sub-sections (e), (f) and (g) were inserted in Section 2 of the Code. Section 2 provides the categorization of entities on whom the Code will be applicable. Section 2(e) of the Code provides that the code shall apply to personal guarantors to corporate debtors, thereby excluding such personal guarantors from the ambit of individuals, which are provided under Section 2(g).
Many petitions were filed before the High court challenging the validity of the said amendment under Article 32 of the constitution on the grounds that it was violative of Section 1(3) of the Code as it restricted the applicability of the provisions of the Code to the specific category of persons, which is personal guarantor to the corporate debtor. A similar question got arose recently in the case of Lalit Kumar v. Union of India, in which the Supreme Court had finally adjudicated all the objections with the regard to the liability and initiation of CIRP against the personal guarantors.
The researcher in this paper will try to analyse all the possible issues that arose after the amendment was passed and the decision of Supreme Court on those issues in the case of Lalit Kumar.