Your guarantee was invoked by another bank. You're still disqualified.

One Guarantee, Two Words, and the Supreme Court’s Purposive Pivot

When Anjanee Kumar Lakhotiya founded MBL Infrastructures in the 1990s, he built a company that would borrow from a consortium of banks. When MBL defaulted, those banks invoked his personal guarantees. Then RBL Bank filed insolvency proceedings against MBL in 2017. Lakhotiya submitted a resolution plan. The plan got 78.5% approval from creditors. Bank of Baroda, a member of the consortium, cried foul. The question: was Lakhotiya disqualified from being the resolution applicant because his personal guarantee had been invoked — even though the bank that invoked it was not the bank that filed the insolvency application?

The answer turned on two words in Section 29A(h) of the Insolvency and Bankruptcy Code, 2016: “such creditor.” The Supreme Court of India, in Bank of Baroda & Anr. v. MBL Infrastructures Limited & Ors., 2022 LiveLaw (SC) 62, gave those two words a meaning that will change how every personal guarantor reads the IBC.

The Consortium, the Default, and the Guarantee

MBL Infrastructures Limited took loans from a consortium of banks. Lakhotiya gave personal guarantees. When MBL defaulted, some banks invoked those guarantees. RBL Bank, one of the lenders, filed a Section 7 application before the NCLT, Kolkata on March 30, 2017. The NCLT admitted the application, appointed an Interim Resolution Professional, and imposed a moratorium under Section 14.

Then came Section 29A, introduced by amendment to the IBC. The provision barred certain persons from submitting resolution plans. Clause (h) disqualified anyone who “has executed a guarantee in favour of a creditor, in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this code and such guarantee has been invoked by the creditor and remains unpaid in full or part.”

Lakhotiya moved an application before the NCLT on December 18, 2017, seeking a declaration that he was eligible. The NCLT ruled in his favour. The reasoning: the guarantee had been invoked by creditors other than RBL Bank, the creditor that filed the Section 7 application. Since “such creditor” in Section 29A(h) referred only to the applicant creditor, Lakhotiya was not disqualified.

PNB and RBL Bank appealed to the NCLAT. They withdrew their appeals. Bank of Baroda, which had not been impleaded earlier, tried to enter the fray. The NCLAT did not consider its impleadment application. On April 18, 2018, the NCLT approved the resolution plan with 78.5% of the Committee of Creditors voting in favour. The NCLAT confirmed the order, holding that the eligibility issue had attained finality.

Bank of Baroda appealed to the Supreme Court.

What Each Side Argued

Bank of Baroda argued that the NCLT and NCLAT had misread Section 29A(h). The provision, it said, was meant to bar any person whose personal guarantee had been invoked by any creditor from submitting a resolution plan. The words “such creditor” could not be read to mean only the creditor who filed the Section 7 application. That would defeat the purpose of the provision — to keep out persons responsible for the corporate debtor’s insolvency.

Lakhotiya and the other respondents countered that the language was clear. “Such creditor” referred back to the creditor who made the application for insolvency resolution. Since RBL Bank had not invoked the guarantee, the condition was not triggered. They also pointed to the commercial wisdom of the Committee of Creditors, which had approved the plan with a 78.5% vote share, citing the Supreme Court’s decision in Committee of Creditors, Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531.

The Witness Rule the Supreme Court Applied

The Bench of Justice Sanjay Kishan Kaul and Justice M.M. Sundresh (who authored the judgment) did something that every litigator should watch: it refused to read Section 29A(h) in isolation. It read the entire provision, the statute, and the legislative purpose together.

Justice Sundresh began with first principles. He cited Lord Denning’s famous formulation in Seaford Court Estates Ltd. v. Asher, (1949) 2 KB 481: a judge must find Parliament’s intention and supplement the written word to give force and life to legislative intention. He then quoted the Supreme Court’s own words from Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd., (1987) 1 SCC 424: interpretation depends on text and context; a statute must be read as a whole to discover the meaning of each word.

The Court then turned to the precedents that had shaped Section 29A. In Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, the Supreme Court had held that the IBC is beneficial legislation for revival and that Section 29A prevents undesirable persons from re-entering the resolution process. In ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, the Court had applied a purposive interpretation to Section 29A(c), holding that disqualification attaches at the time of submission of the resolution plan. In Chitra Sharma & Ors. v. Union of India, (2018) 18 SCC 575, the Court had said Section 29A was enacted in the larger public interest to prevent persons responsible for insolvency from participating in resolution. And in Arun Kumar Jagatramka v. Jindal Steel & Power Limited, (2021) 7 SCC 474, the Court had reinforced that the primary aim of the IBC is to revive the corporate debtor, with liquidation as a last resort.

The Court also drew on Phoenix Arc (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475, which approved creative and purposive interpretation of IBC provisions, noting that the same word may bear different meanings in different contexts.

The Doctrine That Mattered

The Supreme Court held that the words “such creditor” in Section 29A(h) must be interpreted to mean similarly placed creditors after the insolvency application is admitted. It is not limited only to the creditor who filed the Section 7 application. Any creditor who has invoked the personal guarantee can trigger disqualification.

The Court put it plainly: “What is required for disqualification under Section 29A(h) is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by any other creditor seeking initiation of CIRP.”

In other words, the disqualification does not depend on which creditor invoked the guarantee. It depends on whether the guarantee has been invoked at all. The moment any creditor invokes a personal guarantee of a person who is otherwise eligible to submit a resolution plan, that person is disqualified — provided the corporate debtor is already in CIRP on an application by any creditor.

The Court also made an observation that will resonate beyond this case: “The purpose of Section 29A is to achieve sustainable revival and ensure that a person who is the cause of the problem either by design or default cannot be part of the solution.” And it noted that Section 29A encompasses conduct not only in relation to the corporate debtor but in relation to other companies as well, evident from clauses (c), (e), (f), (g), (h), and (i).

THE PLAY: If you are a personal guarantor of a corporate debtor in CIRP, and any creditor — not just the one who filed the Section 7 application — has invoked your guarantee, you are disqualified under Section 29A(h). Do not assume the literal words “such creditor” protect you.

Why This Matters in Practice

For advocates, this judgment is a masterclass in statutory interpretation. The Supreme Court did not rewrite the provision. It read the provision in its context, with the purpose of the statute, and gave the words a meaning that serves the legislative intent. The key takeaway: when a provision uses a referential phrase like “such creditor,” do not assume it refers only to the immediately preceding noun. Read the entire provision, the statute, and the legislative history.

For CFOs and founders, the message is stark. If you have given a personal guarantee for a company that goes into insolvency, and any bank invokes that guarantee, you are out of the resolution process. You cannot submit a plan. You cannot buy back your own company. The only way to avoid disqualification is to ensure the guarantee is not invoked — or to pay it off before the resolution plan is submitted.

For startup founders who have given personal guarantees for venture debt or bank loans, this judgment is a warning. If your startup defaults and a creditor invokes your personal guarantee, you lose the right to submit a resolution plan. You cannot be the one to rescue your own company. The IBC, as interpreted by the Supreme Court, treats you as the cause of the problem, not part of the solution.

The Bottom Line

If you are a personal guarantor of a corporate debtor in CIRP, and any creditor has invoked your guarantee, you are disqualified under Section 29A(h) — regardless of which creditor filed the insolvency application. The Supreme Court has closed the literal loophole. The only safe harbour is to ensure the guarantee is never invoked, or to pay it off before the plan is submitted.