A Supreme Court ruling has given personal insolvency a fresh start in India

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₹9.33 trillion were withdrawn before their admission, according to data from the Insolvency and Bankruptcy Board of India (IBBI). The threat of losing ownership has changed the behaviour of debtors, many of which are opting for pre-IBC-process deals to resolve distress. When personal insolvency provisions were introduced in December 2019, personal guarantors challenged the notification at the Supreme Court (SC) in Lalit Kumar Jain vs Union of India.

While upholding the notification, the SC in May 2021 held that the liability of such a guarantor is not discharged on the discharge of the company, paving the way for initiation of insolvency resolution proceedings for guarantors. A further challenge was mounted at the SC on the constitutional validity of Sections 95 to 100 of the IBC. Its focus was the appointment and role of a resolution professional (RP) before adjudicatory hearings by the National Company Law Tribunal or Debt Recovery Tribunal (NCLT/DRT).

The RP is required to recommend whether to admit or reject the application, after which the NCLT/DRT makes a judicial determination of the appropriate choice. The main grounds of that attack were: (a) violation of natural justice on account of a lack of debt determination by a judicial body and no hearing being offered before an RP’s appointment; (b) invasion of privacy, since the RP is empowered to seek information from third parties; and (c)personal insolvency being distinct from corporate in the context of RP appointment and a hearing before the admission of an application. The SC dismissed the challenge in Dilip B.