CITES RECENTLY REPORTED ₹22,006-CRORE NCLT DEBT-RESOLUTION ORDER AS ILLUSTRATING A WIDER STRUCTURAL GAP; SUGGESTS SIX SPECIFIC AMENDMENTS TO STRENGTHEN ASSET VERIFICATION BEFORE LOW-RECOVERY PLANS ARE APPROVED
Face2News/Mohali
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 roughly ₹6.5 crore, KBS Sidhu, IAS (Retd.), who superannuated in July 2021 as Special Chief Secretary, Government of Punjab, has written to Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman, pointing out 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.
In his letter, dated 28 August 2026, and copied 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), Mr Sidhu, who holds a Master’s degree in Economics from the University of Manchester, UK, notes that while the law is settled on a personal guarantor’s coextensive liability, and on the principle, reaffirmed by the Supreme Court in Lalit Kumar Jain v. Union of India (2021), that a guarantee survives independently of the underlying company’s own resolution, the machinery to verify a guarantor’s actual personal assets before a tribunal approves a low-recovery plan remains conspicuously underdeveloped.
“Unlike the extensive investigative powers available to a Resolution Professional in a corporate insolvency, to trace preferential, undervalued and fraudulent transactions, there is no comparable mandate to verify what a personal guarantor’s assets actually are before a repayment plan is put to creditors,” said Mr Sidhu, who has himself served as Principal Secretary, Finance, Government of Punjab. “This gap, and other anomalies in the statutory framework and notifications issued under the Code, mean that lenders, mainly public-sector banks, but equally institutions with both public and private shareholders, such as HDFC Bank Limited and LIC Housing Finance, end up absorbing enormous losses, while guarantors with assets both in India and abroad, some declared and some not, can effectively go scot-free. That cannot be what Parliament intended when it built a personal-guarantor insolvency framework in the first place.”
Mr Sidhu’s letter suggests six specific, clarificatory changes: empowering Resolution Professionals with asset-verification and investigative powers in guarantor cases comparable to those already available under Part II of the Code; requiring a recorded reconciliation of a guarantor’s declared assets against net-worth certificates and public disclosures before any low-recovery plan is put to a creditor vote; codifying, in the resolution-plan format itself, how a personal guarantee survives a corporate resolution plan; clarifying the sequencing between guarantor-insolvency proceedings and parallel action under the SARFAESI Act and before the Debts Recovery Tribunal; fixing discharge to actual performance of a plan rather than its mere approval; and reviewing the seven-year delay in notifying the remainder of Part III of the Code, covering ordinary individuals and partnership firms.
“None of this is about any one case or individual,” Mr Sidhu clarified. “The matter I have referred to remains sub judice, with an appeal reportedly likely before the NCLAT, and I have deliberately not commented on its merits. My concern is structural — tightening the law so that the comfort a personal guarantee is meant to provide a lender is not quietly hollowed out by gaps in verification and enforcement. Greater discipline in this space would serve honest borrowers and guarantors just as much as it protects lenders and, ultimately, depositors’ money.”
Mr Sidhu has indicated he will follow up with a more detailed note, and, should the Ministry express interest, a draft amendment Bill on the subject.
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