Lenders See Modest Recovery from Personal Guarantors Amid Rising Claims

New Delhi, India Aug 28, 2026 ALN: Lenders are witnessing a gradual improvement in recovering dues from personal guarantors, primarily majority shareholders who have guaranteed corporate debts. However, the recovery figures remain low compared to the total amounts owed by these companies, according to the latest data from the Insolvency and Bankruptcy Board of India (IBBI). This situation highlights the complexities and challenges involved in the insolvency resolution process, particularly for personal guarantors.

As of June 2026, lenders have managed to recover ₹234.56 crore from 64 instances of debt resolution involving personal guarantors since their inclusion under the bankruptcy code in FY20. This amount represents a mere 1% of the total claims admitted by bankruptcy tribunals. In comparison, the recovery figure for March 2026 stood at ₹102.78 crore from 44 cases, accounting for 2.16% of the total claims up to that point. This increase in recovery during the June quarter indicates a growing number of claims being admitted by tribunals, suggesting that lenders are becoming more proactive in pursuing recoveries.

The data reflects lenders' increasing determination to pursue shareholder guarantors for debt recovery, marking a positive step, albeit with significant challenges ahead. A recent National Company Law Tribunal (NCLT) decision involving Zee Group Founder Subhash Chandra highlighted these challenges. Chandra, who guaranteed certain corporate borrowings, was approved for a repayment plan that would see creditors receive only ₹6.5 crore against admitted claims of approximately ₹22,006.57 crore. This stark difference between the claims and the recovery amount raises concerns about the efficacy of the current system in ensuring that creditors are adequately compensated.

Chandra contended that the claims against his personal guarantee were actually ₹3,992 crore, not the higher figure cited in the tribunal's order. This situation has sparked criticism regarding the substantial haircut taken by banks in such cases, as the recovery amounts fall significantly short of the original debts. Such scenarios have led to calls for a reevaluation of the existing insolvency framework to better protect the interests of creditors while also considering the rights and obligations of personal guarantors.

Navod Prasannan, a partner at King Stubb & Kasiva, pointed out that the near-1% recovery rate against personal guarantors as of June 2026 exposes a structural flaw in the IBC's framework for guarantors. He noted that repayment plans are often debtor-proposed settlements rather than court-enforced obligations, limiting creditors' ability to secure meaningful payouts. This situation underscores the need for a more robust legal framework that can ensure fair treatment for all parties involved in insolvency proceedings.

Since the provisions for insolvency resolution and bankruptcy concerning personal guarantors came into effect on December 1, 2019, the number of applications for individual insolvency has surged. In the April-June 2026 quarter alone, 163 applications were filed, bringing the total to 5,186. However, as the number of cases increases, the percentage of recovery has declined. This trend raises questions about the effectiveness of the insolvency process and whether it is achieving its intended goals of facilitating timely recoveries for creditors.

Out of these applications, 971 were filed by debtors and 4,215 by creditors under sections 94 and 95 of the Insolvency and Bankruptcy Code. While the IBBI has not released the latest figures for claims admitted against individual insolvencies, data from December 2025 indicated that the total debt amount for personal guarantors stood at ₹286,441 crore. This substantial figure highlights the significant financial burden that personal guarantees can impose on individuals, particularly when corporate entities fail to meet their obligations.

The Code was amended to empower banks and creditors to recover dues from guarantors if their claims were not fully satisfied through the corporate insolvency resolution process. Most personal guarantees were provided by company promoters to secure loans or loan restructuring for businesses they once controlled but later failed to repay. This dynamic raises important questions about the responsibilities of promoters and the extent to which they should be held accountable for corporate debts.

Amit Kumar Nag, a partner at AQUILAW, emphasized that the recovery process is lengthy and complicated. Until recently, an interim moratorium allowed guarantors to shield personal assets from enforcement for extended periods while proceedings were ongoing at the National Company Law Tribunal. This moratorium, while designed to protect the rights of guarantors, has also contributed to delays in the recovery process, leading to frustration among creditors who are eager to resolve outstanding debts.

In summary, while there is a slight uptick in recoveries from personal guarantors, the overall situation remains challenging, with lenders facing a long road ahead in securing meaningful repayments. The current recovery rates highlight the need for a comprehensive review of the insolvency framework to better balance the interests of creditors and guarantors. As the landscape of corporate debt and personal guarantees continues to evolve, stakeholders will need to engage in constructive dialogue to ensure that the insolvency process remains effective and equitable for all parties involved.