2019 stood out as a year of landmark judgements, with the Supreme Court of India emphatically ruling in favour of greater certainty in enforcement of contractual rights through arbitration and progressive restructuring legislation recognising the primacy of the commercial wisdom of creditors.
2019 also witnessed several legislative changes brought about to facilitate effective resolution of corporate, commercial and consumer disputes in India. While a majority of the legislative amendments are curative in nature, a few amendments are changing the Indian legal landscape.
The Insolvency and Bankruptcy Code, 2016 (Code) was amended twice to enable a faster resolution of insolvency disputes by protecting the interests of creditors. The Arbitration and Conciliation Act, 1996, was also amended to introduce, among other things, a nodal arbitration agency to make arbitration procedures more robust and friendly. Sweeping amendments to the Consumer Protection Act, 1986 were also introduced to provide for timely and effective administration and settlement of consumer disputes.
Chapter III of the Code (relating to the insolvency and bankruptcy of individuals and partnership firms), to the extent that it relates to personal guarantors of a Corporate Debtor, was made effective from 1 December 2019. The government also notified the attendant rules and regulations governing the insolvency and bankruptcy of personal guarantors.
The relevant rules define ‘Guarantor‘ asadebtor who is a personal guarantor to a corporate debtor.The prerequisites for initiation of insolvency against a Guarantor are (i) invocation of the guarantee by a creditor; and (ii) default in payment under such guarantee, either in part or full. The minimum default threshold for initiating insolvency is Rs. 1000.
Insolvency of Guarantors has several distinctive features that set it apart from the insolvency of Corporate Debtors, some of which are listed below:
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