Personal guarantors and the IBC: what Dilip Jiwrajka settled about the Section 96 moratorium and the right to be heard

On 9 November 2023, a three-judge bench of the Supreme Court of India led by Chief Justice D.Y. Chandrachud delivered its judgement in Dilip B Jiwrajka v Union of India, reported as 2023 INSC 1018. The ruling decided 384 petitions together, and almost all of them came from people in the same position: promoters, directors and family members who had signed personal guarantees for company loans and then found lenders filing insolvency applications against them personally under Part III of the Insolvency and Bankruptcy Code, 2016 (IBC).

The petitioners argued that Sections 95 to 100 of the IBC were unconstitutional because a resolution professional could be appointed, and could start gathering information about a guarantor's finances, before any adjudicator had heard the guarantor. The Supreme Court rejected that challenge and upheld the provisions (para 81). But the judgement did far more than dismiss a constitutional attack. It clarified three points that every personal guarantor facing a lender's application needs to understand:

1. The Section 96 interim moratorium attaches to the debt, not to the debtor — and, unlike the Section 101 moratorium, it does not stop the guarantor from transferring assets.
2. The resolution professional's report under Section 99 is purely recommendatory (para 54). It binds nobody.
3. There is no adjudicatory hearing when the resolution professional is appointed under Section 97(5), but the guarantor must be heard before the Adjudicating Authority admits or rejects the application under Section 100 (para 80).

This Oquilia Research Desk playbook explains the statutory position, walks through the procedure one step at a time, sets out the defences that remain open after Jiwrajka, and answers the questions guarantors ask most often. It is general information on the law as declared in the judgement, not legal advice on any individual matter.

The Statutory Position

Insolvency of individuals and partnership firms sits in Part III of the IBC, 2016. A personal guarantor to a corporate debtor is one of the categories of individual to which Part III has been applied, and the provisions at the centre of Jiwrajka are Sections 95 to 100, which govern the "insolvency resolution process" for such individuals. The full text of the Act is available on India Code, the Government of India's official repository of central legislation.

The table below summarises what each provision does, drawn from the statute as interpreted in the 2023 judgement.

Two points follow from this structure. First, Sections 95 to 99 are a facilitative, fact-gathering phase: the resolution professional's job is to look at the application and the guarantor's response and report, not to decide anything. Second, the only adjudicatory decision in the sequence is the Section 100 order, and Jiwrajka confirms that natural justice applies at exactly that point.

The judgement also separates the two moratoria clearly, and the difference matters in practice:

The Oquilia moratorium glossary entry explains the general concept, and our guarantee glossary entry covers how a contract of guarantee works between the lender, the borrower and the surety.

Procedure Step by Step

The sequence below follows Sections 95 to 100 as the Supreme Court described them in its 9 November 2023 judgement. It covers the creditor-initiated route under Section 95, which is the route nearly all of the 384 petitions in Jiwrajka arose from.

1. Default by the corporate borrower and invocation of the guarantee. The lender invokes the personal guarantee, typically after the company's loan has turned bad. The guarantee glossary entry explains why the surety's liability is generally co-extensive with that of the principal borrower.
2. Creditor files a Section 95 application. The lender applies to the Adjudicating Authority to start the insolvency resolution process against the guarantor personally.
3. Section 96 interim moratorium starts on the filing date. The Oquilia section brief records that the Section 96 interim moratorium "begins on date of application" and protects the guarantor from coercive proceedings. Jiwrajka adds the crucial qualification: it operates in respect of the debt, not the debtor.
4. Resolution professional appointed under Section 97(5). The Adjudicating Authority appoints a resolution professional. Jiwrajka held that no adjudicatory hearing is required at this stage, because the appointment does not decide any right.
5. Resolution professional examines and reports under Section 99. The professional examines the application, can seek information and explanations, considers the guarantor's response and submits a report recommending acceptance or rejection. Para 54 of Jiwrajka holds the report is purely recommendatory.
6. Hearing before admission or rejection under Section 100. The Adjudicating Authority must hear the guarantor before deciding whether to admit or reject the application (para 80). This is the guarantor's main opportunity to contest the debt, the guarantee and the application on the merits.
7. Admission triggers the Section 101 moratorium. If the application is admitted, the Section 101 moratorium applies and, as Jiwrajka records, it does restrain the debtor from transferring assets. The process then moves on to the repayment-plan stage.

Guarantors facing a lender's demand often need to model what a settlement or a part-payment would look like before the matter reaches step 6. The Oquilia loan foreclosure calculator shows the outstanding principal and interest saved if a loan is closed early, and the debt consolidation calculator helps compare the monthly outgo of combining several loans into one.

Borrower Defences Available

Jiwrajka closed one door — the argument that Sections 95 to 100 are unconstitutional — but it confirmed or opened several others. The defences below flow directly from the holdings in the 2023 judgement.

1. Insist on the Section 100 hearing

Para 80 of Jiwrajka is unambiguous: the guarantor must be heard before the Adjudicating Authority admits or rejects the application under Section 100. A guarantor who is not given that hearing has a ground to challenge any admission order. In practice, this means filing a full response, with documents, before the Section 100 stage rather than waiting for the outcome.

2. Treat the Section 99 report as contestable, not final

Because the Section 99 report is purely recommendatory (para 54), the Adjudicating Authority is not bound to follow it. A guarantor whose arguments were not accepted by the resolution professional can and should repeat them, in full, at the Section 100 hearing. The report is one input; it is not a finding.

3. Engage with the resolution professional at the Section 99 stage

The flip side of Section 99 being a fact-finding exercise is that the record built there travels to the Section 100 hearing. Guarantors should use the Section 99 stage to put their documents on record: the terms of the guarantee deed, any discharge or release, any restructuring of the principal loan that was done without their consent, and the actual amount the lender claims against the company. Gaps in the creditor's case are best identified on paper at this stage.

4. Use the Section 96 moratorium accurately

The Section 96 interim moratorium pauses legal action in respect of the debt from the date the Section 95 application is filed. But because Jiwrajka held that it does not restrain the debtor from transferring assets, it is not a general freeze on the guarantor's estate. Equally, guarantors should not assume it shields every liability they have. It relates to the debt that is the subject of the application.

5. Do not over-rely on asset freedom before admission

The Supreme Court's observation that the Section 96 moratorium, unlike Section 101, does not stop transfers is a statement about the scope of the moratorium. It is not an invitation to move assets out of reach. Once an application is admitted under Section 100, the Section 101 moratorium applies, and conduct in the run-up to admission will be examined in the later stages of the process. Guarantors should take advice before any significant asset transfer during the pendency of a Section 95 application.

6. Contest the underlying debt and guarantee on the merits

Nothing in Jiwrajka prevents a guarantor from arguing that the debt claimed is wrong, that the guarantee was not validly invoked, or that the guarantee does not cover the liability alleged. Those are merits questions for the Section 100 hearing.

The table below maps each stage to what the guarantor can realistically do, based on the judgement.

For context on how secured recovery against the company itself usually runs alongside guarantor proceedings, see our SARFAESI glossary entry and the DRT glossary entry. A guarantor weighing whether a refinance could fund a settlement can test monthly affordability on the loan eligibility calculator and the personal loan EMI calculator.

Recent Tribunal/HC Position

The controlling authority is Dilip B Jiwrajka v Union of India, 2023 INSC 1018, decided by a three-judge bench of the Supreme Court headed by CJI D.Y. Chandrachud on 9 November 2023. The full text is available on Indian Kanoon. Because it is a Supreme Court judgement, its holdings bind the National Company Law Tribunal, the National Company Law Appellate Tribunal, the Debts Recovery Tribunals and every High Court under Article 141 of the Constitution.

The four holdings that matter most for borrowers and guarantors are these:

• Constitutionality (para 81). Sections 95 to 100 of the IBC are constitutionally valid. Challenges to the scheme itself, which formed the core of the 384 petitions, were rejected.
• Nature of the Section 99 report (para 54). The resolution professional's report is purely recommendatory. The resolution professional is a facilitator, not an adjudicator.
• Scope of the Section 96 moratorium. The interim moratorium operates in respect of the debt and not the debtor. Unlike Section 101, it does not restrain the debtor from transferring assets.
• Right to be heard (para 80). No adjudicatory hearing is needed before the resolution professional is appointed under Section 97(5), but the debtor must be heard before the Adjudicating Authority admits or rejects the application under Section 100.

The reasoning that ties these together is that natural justice must be observed at the point where rights are actually decided. Because the Section 97(5) appointment and the Section 99 report decide nothing, the Supreme Court held that a hearing at those stages was not constitutionally required. Because the Section 100 order does decide whether the process goes ahead, a hearing is required there.

For guarantors who had been hoping for the scheme to be struck down, the 2023 ruling ended that line of argument. Since 9 November 2023, lenders have been able to pursue Section 95 applications with the constitutional question settled, and the litigation focus for guarantors has shifted to the merits stage under Section 100.

FAQ

Did Jiwrajka strike down any part of the personal guarantor insolvency scheme?

No. In its 9 November 2023 judgement, reported as 2023 INSC 1018, the Supreme Court upheld the constitutional validity of Sections 95 to 100 of the IBC (para 81) and dismissed the challenge across all 384 petitions.

Does the Section 96 interim moratorium freeze all of my assets?

No. Jiwrajka held that the Section 96 interim moratorium operates in respect of the debt and not the debtor, and that, unlike the Section 101 moratorium, it does not restrain the debtor from transferring assets. That is a statement about scope; it is not advice to move assets, and conduct before admission can be examined later.

Can I object when the resolution professional is appointed under Section 97(5)?

The Supreme Court held that no adjudicatory hearing is required at the Section 97(5) appointment stage, because the appointment does not decide any right. Your opportunity to be heard arises before the Section 100 order (para 80).

Is the resolution professional's Section 99 report binding on the tribunal?

No. Para 54 of Jiwrajka describes the Section 99 report as purely recommendatory. The Adjudicating Authority decides the matter under Section 100 after hearing you, and it can depart from the report's recommendation.

When exactly do I get a hearing?

Before the Adjudicating Authority admits or rejects the application under Section 100. Para 80 of the 2023 judgement makes that hearing mandatory, so an admission order passed without hearing the guarantor is open to challenge.

What changes once the application is admitted?

Admission under Section 100 brings in the Section 101 moratorium. According to Jiwrajka, unlike the Section 96 interim moratorium, the Section 101 moratorium does restrain the debtor from transferring assets.

Where can I read the full judgement?

The full text of Dilip B Jiwrajka v Union of India, 2023 INSC 1018, is on Indian Kanoon at indiankanoon.org/doc/190934281/, and the IBC, 2016 itself is on India Code at indiacode.nic.in.

This article is general information prepared by the Oquilia Research Desk from the Supreme Court's judgement of 9 November 2023. It is not legal advice. Guarantors facing a Section 95 application should consult an advocate enrolled with a State Bar Council.