"Extending the IBC to personal guarantors has changed promoter behaviour in India." Critically examine this with reference to recent judicial pronouncements.

In November 2019, Part III of the IBC, 2016 was extended to personal guarantors of corporate debtors. The NCLT Mumbai has now declared Videocon's V.N. Dhoot bankrupt over a ₹12,668-crore SBI default and appointed a Bankruptcy Trustee [1]. Courts have made the law hard to escape. Whether promoter behaviour has truly changed is less certain.

How judicial pronouncements strengthened the deterrent

• Lalit Kumar Jain v. UoI (2021): The Supreme Court upheld the 2019 notification. Approval of the company's resolution plan does not discharge the guarantor [2].
• Dilip B. Jiwrajka v. UoI (2023): The Court upheld Sections 95–100 against an Article 14 challenge. The resolution professional only facilitates, and the NCLT hears the guarantor before deciding, so natural justice is met [3].
• 2024 ruling (2024 INSC 548): The NCLT that handles the corporate debtor also hears its personal guarantors. This avoids split litigation in DRTs [4].
• Behavioural effect: Once promoters sign guarantees, they lose the comfort of limited liability. Fear of personal bankruptcy encourages earlier settlement and weakens the "sick company, rich promoter" moral hazard.

Why the change is limited

• Low recovery: IBBI data show lenders recovered only about 1% of admitted claims from guarantor resolutions by June 2026 [5]. The law deters more than it recovers.
• Debtor-led process: At the resolution stage, the guarantor drafts the repayment plan and creditors only accept or reject it [3]. This leaves creditors little leverage.
• Delays: Too few NCLT benches, vacancies and frivolous applications by promoters slow cases down [6]. Assets can lose value or be moved in the meantime.
• Interim moratorium misuse: Guarantors used the Section 96 interim moratorium to stall recovery until it was withdrawn in 2026 [7].
• No distinction between honest business failure and fund diversion. This may discourage genuine entrepreneurial risk.

Judicial pronouncements have made personal guarantees enforceable, and promoters now negotiate under real personal risk. However, low recoveries and long delays mean behaviour has changed more in perception than in outcomes. Several steps can make this new credit culture last:

• more NCLT benches and filled vacancies, as the Standing Committee on Finance recommended [6]
• quick completion of IBBI's guarantor rules
• action against the company and its guarantor at the same time

Together these would serve the Code's aim of time-bound, value-maximising resolution.