A Statutory Gap in the Personal Guarantor Insolvency Framework under Insolvency and Bankruptcy Code, 2016
Introduction
The Insolvency and Bankruptcy Code, 2016 (“IBC”/ “Code”) was enacted with the objective of providing a unified framework for the resolution of financial distress of not only corporate debtors (“CDs”), but also individuals, including those who stand as personal guarantors (“PGs”) for the debts of CDs. Part III of the Code r/w the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, lay down a structured framework for the Personal Guarantor Insolvency Resolution Process (“PGIRP”),which broadly entails the appointment of a resolution professional (“RP”), collation and verification of the claims of creditors, preparation of are payment plan by the PG, deliberation on the repayment plan by the committee of creditors (“CoC”), and the placement of the plan before the Adjudicating Authority/ National Company Law Tribunal (“NCLT”) for its approval.
To facilitate this process and to shield the PG from parallel recovery proceedings during the pendency of the PGIRP, the Code provides for a moratorium u/S. 101,i.e., a period during which no fresh legal action in respect of any debt canbe initiated against the PG, and any pending action remains stayed. The structure of this moratorium, however, differs materially from that available to CDs U/s. 14 of the Code. Whereas the moratorium U/s. 14 subsists for the entire duration of the corporate insolvency resolution process (“CIRP”),the moratorium U/s. 101 terminates upon the earlier of: (a) the expiry of 180 days from the date of the PG’s admission into insolvency, or (b) the date onwhich the NCLT passes an order U/s. 114 of the Code on the repayment plan,whether approving or rejecting it.
In a scenario where the repayment plan has not been approved by the NCLT within the said 180-day period, the moratorium would automatically lapse, even though the PGIRP may continue. This may give rise to an anomalous situation where creditors may begin initiating/ resuming individual recovery proceedings the moment moratorium expires. Such a situation exposes both the PG and the ongoing PGIRPto fragmented recovery proceedings.
This piece aims to examine Section 101 of the Code in light of recent judicial interpretations, analyze the consequences which flow from the expiry of the moratorium prior to the conclusion of the PGIRP, and explore potential reforms to address the inadequacies in the existing framework.
Judicial Treatment
The question of whether the moratorium U/s. 101 of the Code may be extended beyond the statutory ceiling of 180 days was considered by the National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, New Delhi, in the matterof Anil Kumar vs. Mukund Choudhary.[1]In this matter, the RP contended that the absence of moratorium during thependency of the PGIRP would render the entire process futile, as the creditors would be at liberty to pursue individual recovery actions and enforce security interests the moment the moratorium ceases. The NCLAT, however, held that thelanguage of Section 101 of IBC was clear and unambiguous and that neither the NCLTnor the NCLAT had the jurisdiction to extend the moratorium beyond the statutory ceiling.
It is important to note that while the moratorium itself cannot be extended, thetimeline for completion of the PGIRP may be extended in appropriate cases, asheld by the NCLAT in Purusottam Behera vs. SBI.[2]The NCLAT observed that although Regulation 19 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors toCorporate Debtors) Regulations, 2019 (“PG Regulations”) requires the repayment plan, as approved by the CoC, to be filed before the NCLT within 120 days from the commencement of the PGIRP, neither the Code nor the PG Regulations prescribe any outer limit for completion of the process, unlike the CIRP framework which prescribes a maximum period of 330 days.[3] Accordingly, NCLAT held that Regulation 19 is directory rather than mandatory in nature and that the time for submission of the repayment plan, and consequently the overall duration of the PGIRP, may be extended.
Suchan interpretation gives rise to an inconsistency within the IBC framework. Section 106 of the Code r/w Regulation 19 of the PG Regulations (which prescribes the timeline for submission of the repayment plan), and Section 101 (which prescribes the duration of the moratorium), all employ the word “shall”, indicating their mandatory nature, yet they have been accorded differential treatment.
When the constitutionality of Section 101 was challenged before the Hon’ble SC in Mukund Choudhary vs. Union of India,[4]the Apex Court dismissed the challenge while observing that moratorium servesdistinct purposes in the corporate and individual insolvency contexts: while inthe former it is intended to facilitate rehabilitation and revival of the CD,in the latter it serves a different purpose - which the Court did not elaborate upon. The SC however, took note of the appellant’s submission that the expiry of the moratorium prior to conclusion of the PGIRP creates a risk where one ofthe creditors may “seek to take a march over the others” and that thiswould run contrary to the entire object of the insolvency framework, andaccordingly issued notice in the connected civil appeal. This indicates thatthe Apex Court itself considers the concern raised by the appellant to be onethat warrants closer scrutiny.
While the aforesaid decisions dealt with the issue largely at a theoretical level,the practical implications thereof came to be examined in a recent judgment ofthe Delhi High Court in Vistra ITCL (India) Ltd. vs. Pranav Ansal.[5]In the said matter, a decree-holder/ creditor had filed an execution petition seeking attachment and sale of certain properties of the judgment-debtor, whowas also a PG undergoing PGIRP. The PG had already submitted a repayment plan,which included the said properties, and the said plan was at the stage of consideration by the CoC. The PG contended that allowing such enforcement by an individual creditor would prejudice other creditors and disturb the principleof pari passu treatment amongst them. It was further argued that granting the relief sought could result in an inconsistency between the decisionof the NCLT and the executing court.
The Delhi HC however, held that Section 101 of the Code must be interpreted strictly, and that the moratorium automatically comes to an end upon occurrence of either of the contingencies prescribed under the provision. Accordingly, the High Court allowed the execution petition and ordered attachment and sale ofthe said properties.
Now, the common thread which runs through the aforementioned line of judgments isthe strict interpretation of Section 101 as it stands. The courts have, in unison, refused to read into the said provision any room for extension of themoratorium. The problem, however, is that such a position may produce consequences which run contrary to the objectives of the IBC itself, and it isto those consequences that this piece now turns.
Practical Implications
Inpractice, the PGIRP requires longer than 180 days, i.e., the maximum duration of moratorium U/s. 101 for completion of the entire process, including collation,verification, and admission of claims, preparation of the repayment plan,conduct of CoC meetings, and approval or rejection of the said plan by the NCLT. As per the IBBI data,[6]the PGIRPs which have culminated in approval of a repayment plan have taken, onan average, well over one year. This indicates that, in most cases, themoratorium U/s. 101 would lapse long before the repayment plan is even placed before the NCLT for approval. The consequences flowing from such a disconnectare discussed hereinbelow:
A. Defeat ofthe collective mechanism envisaged by the Code through individual recoveries:
First, and most fundamentally, the expiry of the moratorium prior to the completion ofthe PGIRP defeats the very objective which the Code was conceived to achieve, i.e.,the resolution of insolvency in a structured and collective manner. Once the moratorium comes to an end, creditors are free to pursue their individual remedies. Thus, secured creditors, mostly banks and financial institutions, mayinitiate recovery proceedings and seek attachment or sale of assets under the relevantlaws, including the SARFAESI Act, 2002 and the Recovery of Debts and BankruptcyAct, 1993 (“RDB Act”). Furthermore, it is not uncommon for multiple creditors to hold security interests over the same asset of the PG. In suchcases, the expiry of the moratorium would give rise to a race amongst such creditors to secure orders in respect of the asset.
Such fragmented recovery actions by creditors would also have an adverse effect onthe PG. The IBC framework is intended to provide the PG with a pathway back tosolvency through the restructuring of his debts. However, separate enforcementactions would require the PG to defend multiple proceedings before differentforums and possibly across jurisdictions, effectively subjecting him to an uncoordinated liquidation of his assets. This would not only increase the financial burden on the PG but may also foreclose the possibility of a successful resolutional together.
Itmay be pertinent to note here that while both Sections 14 and 101 of the Code are intended to facilitate insolvency resolution, the scope of protection under the two moratoriums differs significantly. While a CD continues to enjoy protection U/s. 14 throughout the CIRP, the moratorium protecting a PG ceases muchearlier. Such differential treatment between a CD and a PG, both of whom fallwithin the insolvency framework under the Code, warrants reconsideration forall practical purposes, and the gap needs a fix sooner than later.
B. Frustration of the repayment planand erosion of stakeholder confidence:
Let us consider a scenario wherein the CoC, after conducting multiple rounds of negotiation, approves a repayment plan of the PG incorporating certain properties, and the same is pending before the NCLT forapproval. Meanwhile, upon expiry of the moratorium U/s. 101 of the Code, anexecuting court orders attachment and sale of some of the most high-value properties forming part of the repayment plan. By the time the plan comes upfor consideration before the NCLT, the assets forming its very foundation mayalready stand depleted.
In such a scenario, the entire exercise undertaken bythe CoC in negotiating, formulating and approving the repayment plan becomes largely futile, resulting in wastage of time, stakeholder resources and commercial effort invested in the resolution process. The cumulative effect ofsuch consequences is the erosion of stakeholder confidence in the PGIRP framework.
C. Unequalrecovery of similarly placed creditors:
The expiry of the moratorium may also lead to unequal recoveries amongst creditors. Once the moratorium lapses and individual enforcement begins, a creditor’s recovery is no longer governed by the equitable distribution framework under the IBC, but by the speed and forum ofits enforcement proceedings. For instance, in Vistra ITCL (supra),the creditor’s claim of INR 385,00,00,000/- (Indian Rupees Three Hundred Eighty-Five Crore) fell within the original civil jurisdiction of the Delhi HC underthe Commercial Courts Act, 2015. However, by contrast, a creditor holding aclaim of INR 1,00,00,000/- (Indian Rupees One Crore) against the same PG would ordinarily file for execution before a District Commercial Court, where proceedings may move at a slower pace.
Therefore, despite being similarly placed creditorsholding claims against the same PG, their recoveries would ultimately dependupon the relative speed at which their claims are enforced. Such individualenforcement outside the PGIRP framework also runs contrary to the principle ofparity amongst creditors that the Code seeks to preserve through its unifiedinsolvency resolution mechanism.
The Way Forward
A. Legislative Amendment:
Courts have consistently held that Section 101 does not permit extension of the moratorium beyond the stipulated 180-day period. The issues identified above can therefore be addressed only through legislative intervention by Parliament.
Atthis juncture, it is important to note that creditors’ concerns cannot be ignored. An open-ended moratorium could indefinitely delay the proceedings, anda PG may misuse it by avoiding submission of the repayment plan or refusing to cooperate with the RP while continuing to enjoy protection from enforcement proceedings. This concern is especially significant in the context of PGIRP, since, unlike the CIRP, the repayment plan is submitted by the PG himself, andnot by independent resolution applicants.
Therefore,to balance these interests in line with the objectives of the Code, Section 101of the Code may be amended to empower the NCLT to grant case-to-case extensionsof the moratorium upon a reasoned application by the RP. The NCLT may grantextensions in cases where the RP’s progress reports demonstrate cooperation onpart of the PG and progress in the resolution process. Conversely, where theNCLT finds that the PG is delaying the process, the moratorium may be permittedto lapse upon expiry of the statutory period.
B. Role ofthe stakeholders in the interim:
Until the law is amended, the burden of holding the framework together falls upon thestakeholders. The following measures merit consideration:
1. RP:
Ascustodian of the PGIRP, the RP has a key role in mitigating this lacuna. Fromthe outset, the RP should:
(i)Monitor the statutory timelines and structure the process so that milestones,such as collation and verification of claims, formulation of the repaymentplan, and CoC meetings, are completed within the 120-day period underRegulation 19 of the PG Regulations, enabling the NCLT to pass an order on theplan before the 180-day moratorium expires;
(ii)Apprise the PG and creditors, at the outset, of the applicable timelines andthe consequences of the moratorium expiring before the plan is approved, toencourage timely participation and, where feasible, standstill arrangements;
(iii)Monitor recovery and enforcement proceedings initiated by creditors under theSARFAESI Act, the RDB Act, and other relevant laws, so that any contingency maybe factored into the plan and disruption to the PGIRP may be minimized; and
(iv)Where the CoC-approved repayment plan is pending before the NCLT and the assetsit includes are threatened with attachment, sale or other enforcement measures,promptly seek expedited listing so as to obtain an order on the plan before themoratorium expires.
2. NCLT:
Afterthe claims’ submission timeline in the public notice expires, parties often seekcondonation of delay by seeking recourse to the NCLT’s inherent powers underRule 11 of the NCLT Rules, 2016. While dealing with such applications, the NCLTought not to grant condonation as a matter of course, but only in exceptionalcases where the applicant demonstrates circumstances that prevented timelysubmission of the claim. Adopting such a strict approach would fosterdiscipline amongst creditors and preserve the time-bound nature of the process.
3. Creditors:
Creditor sshould actively monitor the public announcements published on the IBBI website and submit their claims to the RP within the prescribed timeline.
4. PG:
Since the repayment plan, i.e., the very foundation of the PGIRP, is required to be submitted by the PG himself, timely submission of the plan is essential. Such cooperation by the PG is also in his own interest as it improves the prospects of a collective resolution of his debts rather than exposing him to bankruptcy proceedings or multiple enforcement actions across forums.
Conclusion
Section 101 of the Code, as it presently stands, leads to the creation of a gap between the duration of the moratorium and the actual time required for completion of the PGIRP. While courts have rightly interpreted the provision in accordance with its plain language and declined to extend the moratorium beyond the statutory limit, the practical consequences that follow reveal a lacuna that needs to be addressed urgently.
The auto-expiry of the moratorium before the PGIRP concludes may cause fragmented recovery proceedings by creditors, frustration of the repayment plan, unequal recoveries amongst similarly placed creditors, and ultimately erosion of stakeholder confidence in the collective mechanism that the IBC framework contemplates.
There is a need for legislative intervention. An amendment to Section 101 empowering the NCLT to extend the moratorium in appropriate cases would address this gap, while a safeguard requiring the NCLT to satisfy itself as to the PG’s cooperation and the progress of the resolution process before granting any extension would prevent misuse by non-cooperative PGs and ensure that the moratorium is not used as an instrument for indefinite delay.
Until such reform is introduced, the responsibility of preserving the framework falls on the RP, NCLT, creditors, and the PG. While the measures outlined above may ease some practical difficulties, they cannot substitute a statutory amendment. Ultimately, preserving the credibility of the PGIRP will require aligning the duration of the moratorium with the resolution process itself.
[1] AnilKumar vs. Mukund Choudhary, 2025 SCC OnLine NCLAT 34.
[2] Purusottam Behera vs. SBI, 2026 SCC OnLine NCLAT 177.
[3] Insolvency andBankruptcy Code, 2016, § 12, No. 31, Acts of Parliament, 2016 (India).
[4] MukundChoudhary vs. Union of India, 2025 SCC OnLine SC 413.
[5] Vistra ITCL (India) Ltd. vs. PranavAnsal, 2026 SCC OnLine Del 2447.
[6] The QuarterlyNewsletter of the Insolvency and Bankruptcy Board of India, January - March2024, Volume 30, Page 20, ibbi.gov.in/uploads/publication/21aa7620a9e809f7a20b432eec89888b.pdf;The Quarterly Newsletter of the Insolvency and Bankruptcy Board of India, July- September 2023, Volume 28, Page 20, ibbi.gov.in/uploads/publication/b4ce3516920836e9ff9b1e816137bf97.pdf;The Quarterly Newsletter of the Insolvency and Bankruptcy Board of India, October- December 2022, Volume 25, Page 20, ibbi.gov.in/uploads/publication/138597264c97f5fe167e1250e1e1e4bf.pdf.