SHIFT IN TREATMENT OF PERSONAL GUARANTOR ASSETS UNDER IBC (AMENDMENT) 2025

The post, the Winning Entry of the 6th RFMLR Freshers' Article Writing Competition, 2025, is authored by Nirav Maini, first-year student of B.A. LL.B (Hons.) at the Rajiv Gandhi National University of Law, Punjab.

INTRODUCTION

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (“The Bill”) introduces a drastic change, a new Section 28A that allows secured creditors to fold a corporate debtor’s guarantor assets into the debtor’s insolvency estate. Traditionally, recoveries from a personal or corporate guarantor required separate enforcement. Now, if a creditor has taken possession of a guarantor’s collateral, it can propose that the asset be transferred into the debtor’s CIRP, but only with the Committee of Creditors’ (CoC) approval. In policy terms, this change aims to “reduce delays, maximise value for all stakeholders” by unifying recovery in one process. The bill highlights that it permits “the transfer of a personal guarantor’s assets to lenders as part of the insolvency resolution process,” making enforcement more integrated. In context, personal guarantors were already brought within IBC in 2019 (a government notification upheld by courts) to allow creditor recovery from guarantors; the 2025 Amendment takes the next step of sharing collateral across debtor and guarantor estates.

This article will describe how this new provision makes recovery easy and reduces litigation. It will also look into how guarantor rights, especially personal guarantors, are protected and fairness is ensured along with the procedural gaps and potential misuse of this section. Lastly, it will look into cross-border insolvency considerations, finally ending it with a conclusion.

STREAMLINING RECOVERY AND REDUCING LITIGATION

A key promise of Section 28A is efficiency. Under the old regime, a lender often had to juggle two parallel battles: initiating a CIRP against the defaulting company, and separately enforcing the guarantee (via SARFAESI sale or a lawsuit) to recover on the guarantor. This meant double costs and delays. Now, with personal and corporate guarantor assets entering the CIRP, creditors can pursue one unified process. Instead of piecemeal auctions outside court, all assets, corporate and guaranteed, may be tendered in a single resolution plan.

A unified pool proceeds flow appropriately to respective estates. If a guarantor’s asset is sold under a CoC-approved plan, the distribution of sale proceeds is built into the plan: corporate debtors and guarantors each get their due share. From a creditor standpoint, this reduces fragmentation: all secured lenders have one forum (the CIRP) rather than many. Consolidating collateral reduces litigation by funnelling enforcement through the resolution process: bids are submitted by resolution applicants, and judicial scrutiny is exercised once by the NCLT, rather than through multiple parallel proceedings and interventions under different forums, which the IBC aims to avoid. In sum, by “pooling personal guarantor assets into the corporate debtor’s CIRP,” the hope is that delays will shrink and overall recoveries rise. Finance Minister Sitharaman has emphasized that the amendment package is meant to “reduce delays [and] maximise value for all stakeholders,” and folding in guarantor assets is one lever to speed up realisation.

PROTECTION OF PERSONAL GUARANTOR RIGHTS AND FAIRNESS

Section 28A raises significant fairness and due-process concerns for personal guarantors. A personal guarantor is a third party and not the debtor himself. Under existing law, guaranteeing a corporate debt is a separate contract: paying off the debt does not erase the guarantor’s liability, nor vice versa. By inserting a personal guarantor’s assets into the debtor’s CIRP without their formal participation, the amendment blurs the debtor-guarantor boundary. Once the CoC controls a guarantor’s property, all uncertainties about valuation, consent and how any surplus proceeds will be accounted for will have been lost. The guarantor has no vote on the corporate CoC, and its unsecured creditors receive no notice. Essentially, a guarantor’s asset could be liquidated under a foreign process, with only the arithmetic guarantee of covering its own debt first. Questions arise whether CoC decisions might effectively end a creditor’s right against the guarantor without that guarantor ever being heard before the adjudicating authority in the corporate debtor’s CIRP or any other independent insolvency proceeding concerning the guarantor.

This is a sharp departure. Before the amendment, National Company Law Appellate Tribunal (NCLAT) clearly held that a corporate CIRP cannot drag in guarantors’ properties without separate proceedings. If a creditor wanted to enforce a guarantee, it had to use older remedies (e.g. Presidency Towns Insolvency Act, SARFAESI, or file a separate CIRP against the guarantor). If the IBC Amendment Bill fructifies, Section 28A would allow the corporate CoC decide the fate of a guarantor’s collateral.

In practice, a guarantor (often a promoter) could be left with uncertainty. If the sale proceeds are insufficient, the guarantor owes the balance (and its other creditors or the guarantor’s own CIRP will have to sort that). If the sale clears the debt, the guarantor still technically remains liable though realistically lenders may not pursue further if satisfied. The key point is that the guarantor loses procedural safeguards: it has no standing to participate in the corporate CIRP, yet its property is now subject to it. Absent additional rule-making (e.g. notices to guarantor-creditors, dispute resolution for valuation), this change tilts power sharply toward secured lenders and the corporate CoC.

PROCEDURAL GAPS AND POTENTIAL MISUSE

The Bill defers many specifics to rules, leaving room for uncertainty. Section 28A references doing things “in such manner and subject to such conditions as may be specified”. Critics warn that essential details, such as how to value guarantor assets, how to notify third-party creditors, or how to handle multiple charges on the same property are left blank. It was observed that many key points will be “pushed off to rules,” creating unpredictability. For example, does a guarantor get an independent valuation or contest the sale? The Bill does not say. No procedure is set for informing a guarantor’s unsecured creditors that a large asset is about to be sold in another proceeding. Without clear rules, aggressive creditors could exploit this gap. One fear is that a dominant lender could seize a guarantor asset and trigger a corporate CIRP mainly to force a quick sale, even if other creditors (corporate or of the guarantor) dissent.

Inter-creditor conflict is another danger. If multiple banks hold charges on the same guarantor property, pooling it into the CIRP could ignite disputes. The Economic Laws Practice analysis notes that “pooling personal guarantor assets into the corporate debtor’s CIRP” is “likely to trigger disputes between secured creditors”. For instance, Bank A might prefer selling the director’s house under one plan, while Bank B might want to enforce it under SARFAESI or keep it for its loan. The amendment’s sequencing is not entirely clear: Section 52 (requiring 66% consent to enforce security outside CIRP) has been amended, but it is uncertain if that voting rule applies before or after assets are transferred under 28A. If misapplied, one lender could attempt to force inclusion over others’ objections, breeding litigation inside the CIRP. Moreover, if the guarantor has no insolvency ongoing, Section 28A does not require convening its creditors at all. A guarantor’s personal creditors, tax authorities, bondholders, etc., have no guaranteed seat at the table, potentially losing their share without consent.

CROSS-BORDER INSOLVENCY CONSIDERATIONS

The Amendment Bill also signals India’s intent to strengthen cross-border insolvency. It empowers the government to frame rules based on the UNCITRAL Model Law and to designate special benches for foreign-related cases. If fully implemented, this could help Indian creditors enforce against foreign guarantor assets. The new cross-border provisions are meant to “protect stakeholder interests in both domestic and foreign proceedings” and align India with international best practice. In practice, this means (for example) an Indian CIRP order might be recognised abroad, so foreign guarantor assets can be realized for the resolution.

However, India’s current cross-border regime remains limited (chiefly letters rogatory and bilateral agreements). Without concrete rules, a guarantor’s overseas assets may still require local court action. Critics point out that India’s framework is a work in progress: while Section 28A boldly stretches domestic reach to guarantor properties, enforcement overseas depends on future legislation. In contrast to jurisdictions like the US or EU (with automatic recognition or Chapter 15 regimes), India’s route is to gradually adopt rules similar to those of UNCITRAL. Thus, a person guaranteeing an Indian company but holding a house abroad may face uncertainty: the Indian CoC can plan to sell it, but doing so will require cooperation from the foreign jurisdiction. Until those cross-border rules are in force, Section 28A’s benefits apply mainly to collateral within India. Aligning with global best practices (through UNCITRAL adoption) could amplify the amendment’s power, but that’s a parallel reform yet to arrive.

CONCLUSION

Section 28A of the IBC Amendment Bill 2025 represents a bold pivot in India’s insolvency law. By permitting a secured creditor to channel a guarantor’s assets into the corporate debtor’s CIRP (with CoC approval), the Bill seeks to unify recovery efforts and maximise value. In many cases, this could translate into higher total recoveries and faster resolution timelines, since all collateral is auctioned under one process rather than fighting over pieces separately. Lenders and advisers welcome the efficiency, noting that it gives a single forum and standardized process for enforcing guarantees.

The change does not come without its defects. It effectively hands a corporate CoC power over a non-debtor’s property, blurring the line between debtor and guarantor and sidelining guarantor-creditor rights. Observers warn that without careful rules, this may simply shift litigation rather than eliminate it. To mitigate these concerns, Section 28A should come with rules which mandate prior notice, an opportunity of hearing, and independent valuation for personal guarantors before their assets are transferred into a corporate CIRP. Further, creditors’ rights against personal guarantors should remain unaffected unless discharged through independent insolvency proceedings or if any express consent is given, consistent with the pre-amendment NCLAT stance on the separateness of guarantees. Valuation methodology and surplus distribution must be codified in Insolvency and Bankruptcy Board of India (IBBI) regulations rather than left to CoC discretion, which will reduce arbitrariness and disputes. Finally, embedding these safeguards aligns the amendment with international insolvency norms emphasising due process alongside efficiency, as reflected in UNCITRAL’s Model Law framework. Whether Section 28A ultimately “reduces delays” or merely creates a new battleground in the CIRP will depend on implementation details. Courts and regulators will have to balance the efficiency gains against the need for fair treatment of guarantors and their creditors.

In essence, the Amendment redraws the recovery map; it offers a powerful new tool to maximize value, but one that must be wielded carefully. As the Bill’s advocates argue, a unified asset pool can improve outcomes for creditors. At the same time, vigilance is needed to protect the procedural rights of guarantors and ensure equitable distribution. Stakeholders will be watching closely as Section 28A takes effect, a test case in how India balances creditor efficiency with traditional fairness norms in insolvency.