The Insolvency and Bankruptcy Board of India (IBBI) has proposed excluding related parties of personal guarantors from voting on repayment plans to enhance transparency and accountability. According to the IBBI Discussion Paper, related parties would be assigned zero voting share on repayment plans, with creditors required to record their deliberations and reasons for approving or rejecting payment plans. The proposal aims to prevent parties connected to the debtor from influencing votes on matters that benefit their connected debtor. The regulator has suggested a more foolproof definition of related parties and explicitly deprives them of any voting rights, addressing the current gap where associates can vote while related parties cannot. The IBBI has found that several safeguards available in corporate insolvency proceedings had no equivalent in the resolution process for personal guarantors, prompting these enhanced safeguards. As per the IBBI Discussion Paper, the list of creditors prepared by the resolution professional should separately indicate whether a creditor is a related party of the guarantor as defined in clause (24A) of section 5 of the Code. However, the regulator notes that the legal definition of an associate remains comparatively narrow, consequently certain connected creditors may vote despite having close relationships with the personal guarantor.
The IBBI is proposing independent valuation of guarantor's assets by registered valuers to determine fair and realisable value, with reports placed before creditors along with repayment plans. This would help creditors compare the recovery offered under the plan with what they could recover through bankruptcy. Where the amount proposed to be paid to creditors under the repayment plan is significantly lower than the amount of their admitted claims or the estimated realisable value of the guarantor's assets, creditors must specifically record the commercial rationale for considering approval of the repayment plan as a better alternative to bankruptcy process initiation. As reported by The Hindu BusinessLine, this requirement would promote transparency, accountability and informed decision-making by creditors, ensuring approval of repayment plans rests on objective assessment of recovery prospects. The fair value, realisable value and valuation report should be placed before the creditors, along with the repayment plan, for their consideration, enabling creditors to make an informed and commercially prudent assessment.
The IBBI is proposing closer scrutiny of preferential, undervalued, fraudulent and extortionate (PUFE) transactions that may have reduced money available to lenders. Resolution professionals would examine such transactions before creditors vote on a repayment plan, with the board seeking to allow RPs to take action against them during the insolvency process, with lenders' approval. This change would allow money or assets lost through PUFE transactions to be recovered before creditors vote on the plan. The proposals also include identification and reporting of avoidance transactions in the insolvency resolution process of the debtor, and valuation of assets of the personal guarantor in the resolution process. The watchdog has proposed that the resolution professional shall examine whether the personal guarantor has been party to any avoidance transactions and provide information to the creditors before they vote on the repayment plan. The regulator wants registered valuers to assess the assets of personal guarantors during the resolution process, with the proposed framework requiring a registered valuer to determine the fair value and realisable value of the guarantor's assets before the repayment plan is placed before creditors.
The IBBI is proposing creditors must explain their commercial assessment of every repayment plan and provide detailed justification for their decisions. Meeting minutes would record deliberations and reasons supporting approval, rejection, or other decisions, with creditors required to consider admitted claims, proposed payments, timelines, assets, liabilities, and repayment capacity. They must also examine transaction history, future income, feasibility, and payment certainty. Additional justification would be required when proposed recoveries remain significantly below admitted claims, with creditors then explaining why the plan offers better commercial outcomes than bankruptcy. The regulator expects these changes to improve transparency, accountability, and informed creditor decision-making, ensuring that repayment plans are approved only when they represent the best commercial outcome for creditors. Under the current framework, there is no specific requirement that the substance of creditors' own assessment of the plan be mandatorily recorded in meeting minutes, leaving gaps in transparency and accountability.
The proposal follows a NCLT (New Delhi Bench) September 1 order that barred Essel Group Chairman Subhash Chandra from alienating his assets and stayed an earlier order allowing him to settle claims arising from personal guarantees on group borrowings for ₹6.5 crore against ₹22,006 crore claims. According to the IBBI Discussion Paper, resolution professionals would now identify 'related-party creditors' under Section 5(24A) of the Insolvency and Bankruptcy Code and flag them separately in the creditor list. The IBBI has planned these amendments to strengthen safeguards in the Insolvency Resolution Process for Personal Guarantors to Corporate Debtors, with appeals against the plan currently pending before the tribunal. The case is now also before the National Company Law Appellate Tribunal (NCLAT), after dissenting lenders challenged the repayment plan. Chandra has argued that the widely cited ₹22,006-crore figure does not represent money he personally borrowed, instead comprising claims arising from guarantees he gave for loans raised by Essel Group companies, putting his personal guarantee claims at about ₹3,990 crore. The proposals assume significance as the NCLT deals with the Chandra case, with the tribunal earlier failing to arrive at a majority view on his repayment plan and referring the matter back to the NCLT President. Stakeholders' comments have been sought on the proposed amendments to the rules till October 3.
