A personal guarantee survives the resolution plan that saved the company

He signed one page. It cost him ₹84 Cr after the company was already saved.

A Rs. 120 Cr facility. A manufacturing company. A CFO who had been with the promoter family for 19 years.

The bank wanted a personal guarantee before releasing the limit. The CFO gave his. So did the promoter. Standard, everyone said. A formality. The business was sound.

Three years later the business was not sound. A large customer collapsed and took the working capital cycle with it. The company entered CIRP.

A resolution applicant came in. A plan was approved. The lenders took a haircut, the company survived under new ownership, employees kept their jobs. By every measure that makes the news, this was a success.

The CFO believed his exposure ended there. The company was resolved. The debt was settled in the plan. He had moved on to another role.

Then the demand notice arrived. The bank invoked his personal guarantee for the shortfall the resolution plan had not covered.

He came to me with one sentence. “The company was saved. How am I still liable?”

This is the part most people who sign guarantees do not know.

In Lalit Kumar Jain, the Supreme Court held that approval of a resolution plan does not automatically discharge a personal guarantor. The guarantee is an independent contract. When the company is released from its debt by an involuntary process like insolvency, the guarantor is not released with it. His liability is co-extensive with the company’s, and it survives the very plan that saved the company.

There is a second cut that is crueller. He also lost the right of subrogation. He could not recover from the company he had personally guaranteed, because the law gives the rescued business a clean slate. He paid, and he had no one to recover from.

A personal guarantee is not a formality at the end of a sanction letter. It is the one obligation that outlives the company it was meant to protect.