'Law Shows Greater Sympathy To Debt-Trapped Individuals': NCLAT Gives Guarantors Fresh Chance For Relief

The National Company Law Appellate Tribunal (NCLAT), Chennai, has observed that the law shows greater sympathy towards debt-trapped individuals than debt-trapped companies. It held that this approach gives tribunals greater flexibility to consider relief from bankruptcy.

It has given a family of personal guarantors a fresh opportunity to work towards repayment and seek relief from bankruptcy despite their earlier failure to submit a repayment plan.

The bench of Judicial Member Justice N. Seshasayee and Technical Member Jatindranath Swain made the observation while considering the tribunal's power under Section 142 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The provision allows a bankruptcy order to be recalled or a bankrupt to be discharged when the debt and bankruptcy expenses are paid or secured

“Sec.142 goes as far as to vest jurisdiction in the tribunal to exercise suo motu powers to discharge the bankrupt or recall the order of bankruptcy when it inter alia finds that the bankrupt pays or offers security for repayment of the debt along with bankruptcy expenses. Very Obviously, the legislature shows greater sympathy to debt trapped individuals than it is to the debt trapped companies,” the bench observed.

The ruling came in appeals filed by Nuzhat Aisha Naseer, Naseer Ahmed, and their son Awaiz Ahmed, who were personal guarantors against separate orders dated June 8, 2026, initiating bankruptcy proceedings against them.

The tribunal described the three appellants as a family comprising parents and their son.

Personal insolvency resolution proceedings against them had been initiated on June 7, 2022 under Section 100 of the IBC. None of the appellants submitted a repayment plan.

The Committee of Creditors (CoC), at a meeting on September 19, 2022, referred to the situation as a “deemed repayment plan” with “NIL” value. On February 26, 2024, the tribunal held that the concept of a deemed repayment plan was alien to the Code and directed the CoC to proceed in accordance with law.

On March 6, 2024, the CoC recorded that the appellants had not submitted repayment plans and resolved to apply for initiation of bankruptcy proceedings.

The resolution professional thereafter filed separate applications seeking leave to file applications under Section 121 of the IBC. These applications were allowed on December 11, 2024. Appeals against those orders were dismissed by the NCLAT on June 3, 2025. No interim stay had been granted against the orders in the meantime.

The lender banks then filed separate applications under Section 121 on March 17, 2025, seeking initiation of bankruptcy proceedings in respect of an alleged liability of about ₹1,455 crore.

The impugned bankruptcy orders were passed on June 8, 2026.

Before the NCLAT, the guarantors argued that the banks' applications were barred by limitation. They relied on Section 121(2), read with Section 121(1)(b), which requires a bankruptcy application to be filed within three months from the date of the order rejecting a repayment plan under Section 115.

They also relied on Section 142(1), which gives the tribunal power, either suo motu or on an application, to modify or recall a bankruptcy order if there is an error apparent on its face or if the debt and bankruptcy charges have been paid or secured to the satisfaction of the Adjudicating Authority.

The guarantors argued that their initial failure to submit a repayment plan should not prevent them from invoking Section 142 if they could later repay the debt or offer security for it.

The banks opposed this, arguing that any settlement would have to comply with the Code.

They stressed the requirement for personal guarantors to disclose information concerning their affairs under Section 150 and the role of the CoC under Section 153.

The bankruptcy trustee also pointed to the appellants' conduct. He submitted that they had not contacted him either at the stage of preparation of a repayment plan under Section 105 or thereafter. He also informed the Tribunal that some of their personal assets had already been sold.

The NCLAT acknowledged that the appellants had failed to act when they had the opportunity under Section 105. However, the bench observed that Section 142(1)(b) reflects the legislative intent to extend “optimum opportunities” to personal guarantors.

“Sec.142(1)(b) reflects the legislative intent to extend optimum opportunities to the personal guarantors to save their honour and dignity, an aspect ingrained in the right to life under Article 21 of the Constitution,” the bench observed.

The Tribunal further observed that Section 142 gives it jurisdiction to exercise suo motu powers to discharge a bankrupt or recall a bankruptcy order when the bankrupt pays or offers security for repayment of the debt along with bankruptcy expenses.

It contrasted this approach with the treatment of companies, observing that “the legislature shows greater sympathy to debt trapped individuals than it is to the debt trapped companies.”

The bench also observed that the “elasticity” with which Parliament designed the personal insolvency resolution process (PIRP) indicates how tribunals should approach Section 142.

At the same time, the NCLAT observed that the appellants' conduct was “not very encouraging”. It nevertheless observed that, for the present, respecting the legislative intent behind Section 142(1)(b) was more important than judging their previous conduct.

The tribunal therefore directed Naseer Ahmed, who is the husband of Nuzhat Aisha Naseer and father of Awaiz Ahmed, to contact the bankruptcy trustee by the afternoon of July 30, 2026. The Tribunal was subsequently informed that he had done so and observed that this was “a positive sign”.

The NCLAT has now directed the appellants to work out a plan of action for repayment of their debts with the bankruptcy trustee if they intend to qualify for relief under Section 142. It observed that the first step was to abide by their obligations under Section 150 of the Code.

The tribunal said it would monitor how effectively the proceedings move forward. In the meantime, it directed the bankruptcy trustee not to alienate any of the appellants' assets.

The matter has been listed for further hearing on August 17, 2026.