The Unnotified Repeal: Section 243 of the Insolvency and Bankruptcy Code and Its Implications for Individual Insolvency in India

Introduction to India’s Insolvency Framework

When India introduced the Insolvency and Bankruptcy Code in 2016, the legislative intent was clear: create a unified, time-bound mechanism to resolve insolvency for all entities, whether corporate bodies, partnership firms, or individuals. Before the Code came into force, India’s insolvency landscape suffered from fragmentation. Multiple statutes governed different aspects of insolvency, with the Sick Industrial Companies (Special Provisions) Act of 1985 proving particularly ineffective in addressing financial distress. This older legislation lacked market-based mechanisms and failed to incentivize stakeholders toward timely resolution. The Code sought to remedy these deficiencies by establishing a creditor-in-control framework designed to maximize asset value while balancing stakeholder interests.

The Presidency Towns Insolvency Act of 1909 [1] and the Provincial Insolvency Act of 1920 [2] have historically governed individual insolvency in India. The former applied exclusively to the three presidency towns of Calcutta, Bombay, and Madras, while the latter covered the rest of the country. These colonial-era statutes, though functional, reflected outdated procedural norms unsuited to modern commercial realities. As early as 1964, the Law Commission of India recommended merging these laws into a single insolvency code, but successive governments never implemented this suggestion. When Parliament finally enacted the Insolvency and Bankruptcy Code, it included provisions to repeal both acts, marking what appeared to be the end of an antiquated dual system.

However, appearances proved deceptive. While the Code was enacted with much fanfare, the specific provision repealing the old insolvency acts has never been brought into force. This peculiar situation has created legal uncertainty, particularly for individuals who stand as personal guarantors to corporate borrowers.

Understanding Section 243 of the Insolvency and Bankruptcy Code and Its Provisions

The Insolvency and Bankruptcy Code contains within it Section 243, titled “Repeal of certain enactments and savings.” Subsection (1) states unequivocally: “The Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 are hereby repealed.” [3] This language appears absolute, yet the section has never been notified, rendering it inoperative. Under the Code’s Section 1(3), different provisions can be brought into force on different dates through Central Government notification. This phased implementation approach allows the government to test and refine the machinery before full-scale deployment.

Subsection (2) of Section 243 of the Insolvency and Bankruptcy Code provides important safeguards even after the repeal takes effect. It ensures that all proceedings pending under the old acts would continue under those frameworks, as if they had never been repealed. Any orders, rules, notifications, or instruments created under the repealed enactments would remain valid and enforceable. This preservation clause prevents chaos that might otherwise result from an abrupt legislative transition. The section further stipulates that actions taken under the old laws would not be invalidated simply because new legislation has arrived.

The drafters included these saving provisions to ensure continuity, recognizing that insolvency proceedings often span years. Parties who initiated cases under the 1909 or 1920 acts would not suddenly find themselves in legal limbo. Courts that began hearing matters under the old framework would retain jurisdiction to conclude them. This careful balance between change and stability reflects legislative prudence, yet it creates an awkward interim period where dual systems operate simultaneously.

Part III of the Code and Its Current Status

Part III of the Insolvency and Bankruptcy Code deals exclusively with “Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms.” This section mirrors many provisions found in Part II, which addresses corporate insolvency, but adapts them to individual circumstances. The framework establishes procedures for both fresh starts and orderly bankruptcy. It recognizes that individuals require different treatment than corporations, particularly regarding exempt assets and discharge from liabilities.

Despite being part of the original 2016 legislation, Part III remains largely dormant. The government has brought into force only those provisions relating to personal guarantors of corporate debtors, following a notification dated November 15, 2019. [4] This selective activation represented a strategic choice by policymakers. Financial institutions had pressed for tools to pursue guarantors even while corporate insolvency processes proceeded against principal borrowers. The government responded by carving out this specific category from the broader individual insolvency framework.

For all other individuals, partnerships, and partnership firms, Part III remains unnotified. This means that proprietors of businesses, partners in traditional firms, and ordinary individuals cannot access the resolution mechanisms theoretically available under the Code. They remain bound by the provisions of the Presidency Towns Insolvency Act and the Provincial Insolvency Act, assuming those acts still have legal force given that their repeal has also not been notified. This creates a curious legal situation where old laws that were supposedly repealed continue to govern because the repeal itself never took effect.

The Regulatory Framework for Personal Guarantors

The notification of November 15, 2019 specifically brought into operation certain sections of Part III, but only insofar as they relate to personal guarantors to corporate debtors. The Code defines a personal guarantor under Section 5(22) as an individual who serves as surety in a contract of guarantee to a corporate debtor. Typically, these are promoters, directors, or other persons closely connected with the borrowing company who have pledged their personal assets to secure corporate loans.

Following the 2019 notification, the Insolvency and Bankruptcy Board of India issued the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019. [5] These rules established procedural frameworks for initiating insolvency proceedings against guarantors. Significantly, the adjudicating authority for such cases became the National Company Law Tribunal, the same forum that handles corporate insolvency. This unified approach allows creditors to pursue both the corporate borrower and its guarantors in a coordinated manner, potentially before the same bench.

Prior to this notification, creditors seeking to proceed against personal guarantors had to approach different forums, typically the Debt Recovery Tribunals or civil courts, depending on the nature of the debt. This fragmentation often led to inconsistent outcomes and delayed recoveries. The 2019 notification aimed to streamline the process while ensuring that corporate insolvency proceedings did not inadvertently shield guarantors from their obligations. It reflected a policy choice to prioritize creditor rights over concerns about overburdening individuals with liability for corporate failures.

The State Bank of India v. V. Ramakrishnan Case

In August 2018, the Supreme Court of India delivered a landmark judgment in State Bank of India v. V. Ramakrishnan & Anr., addressing whether the moratorium under Section 14 of the Code applied to personal guarantors. [6] The National Company Law Tribunal had initially held that guarantors enjoyed protection under the moratorium, reasoning that since resolution plans bind guarantors under Section 31, they must be considered part of the insolvency process. The National Company Law Appellate Tribunal upheld this view, but the Supreme Court reversed both lower forums.

The Supreme Court observed that a plain reading of Section 14 indicated that the moratorium protected only the corporate debtor, not its guarantors. The Court noted that Part III of the Code, which governs individual insolvency including that of personal guarantors, had not been brought into force. More importantly, Section 243, which would repeal the Presidency Towns Insolvency Act and Provincial Insolvency Act, also remained unnotified. The Court concluded that personal guarantors would continue to be governed by the old insolvency acts, not the Code.

Justice Nariman, writing for the bench, emphasized that Parliament’s intent was clear: personal guarantors should not escape independent liability to pay debts merely because the corporate debtor entered insolvency. The moratorium under Section 14 was designed to give corporate debtors breathing space for restructuring, not to shield guarantors who possessed separate assets and could satisfy debts independently. This interpretation aligned with principles under the Indian Contract Act, where a guarantor’s liability is co-extensive with that of the principal debtor but arises from an independent contract.

The judgment had immediate practical implications. Creditors could pursue guarantors through suit, arbitration, or other recovery mechanisms even while corporate insolvency resolution processes proceeded against the principal borrower. This dual-track approach maximized creditor recoveries but raised questions about fairness to guarantors, who often found themselves liable for debts that might be partially or wholly forgiven in the corporate resolution plan.

The Lalit Kumar Jain v. Union of India Judgment

The constitutional validity of the November 2019 notification came under scrutiny in Lalit Kumar Jain v. Union of India & Ors., decided by the Supreme Court on May 21, 2021. [7] Multiple petitions challenged the notification on various grounds, but the Court consolidated them for hearing. The petitioners argued that the Central Government had exceeded its statutory authority by selectively notifying provisions only for personal guarantors while leaving other categories of individuals outside the Code’s ambit. They contended that this differential treatment violated constitutional equality guarantees.

Petitioners also raised the issue of Section 243’s non-notification. They argued that the failure to bring the repeal provision into force created two contradictory legal regimes for personal guarantors. Under the old acts, certain procedures and protections existed that the Code’s framework did not replicate. This inconsistency, they claimed, led to arbitrary outcomes depending on which legal route creditors chose to pursue. Furthermore, petitioners asserted that when a resolution plan is approved for a corporate debtor under Section 31, the guarantor’s liability should also be extinguished, given that the guarantor’s obligation is co-extensive with the principal’s debt.

A two-judge bench comprising Justice L. Nageswara Rao and Justice S. Ravindra Bhat rejected these arguments. The Court held that Section 1(3) of the Code explicitly permitted phased implementation, allowing the government to bring different provisions into force at different times. The amendment to the Code in 2018 had specifically carved out personal guarantors to corporate debtors as a distinct category, recognizing their unique position. Unlike ordinary individuals or partnership firms, personal guarantors have an intimate connection with corporate entities, often serving as promoters or key managerial personnel.

The Court further addressed the Section 243 concern by noting that the non-obstante clause in Section 238 gives the Code overriding effect over all other laws. Even without formally repealing the old insolvency acts, the Code’s provisions would prevail in case of conflict. Additionally, if Section 243 were notified, its subsection (2) would save pending proceedings under the old acts. Notifying the repeal might actually create complications by requiring the transfer of ongoing cases from one forum to another, potentially causing delays rather than efficiency.

On the question of whether resolution plan approval automatically discharges guarantors, the Court firmly held that it does not. Relying on principles of contract law and previous precedents, the bench emphasized that the release of a principal debtor through insolvency proceedings, being an involuntary process imposed by law, does not absolve the surety of independent obligations. The guarantor’s liability arises from a separate contract with the creditor, and creditors retain the right to pursue either the principal or the surety or both, even after resolution plan approval.

This judgment effectively validated the government’s approach to implementing personal guarantor provisions while postponing broader individual insolvency reforms. It provided creditors with powerful tools to pursue guarantors without waiting for complete operationalization of Part III. However, it left personal guarantors in a potentially precarious position, facing liability under a partially implemented statutory framework.

Legal and Practical Implications of Section 243 of the Insolvency and Bankruptcy Code

The current state of Section 243 of the Insolvency and Bankruptcy Code creates several practical challenges for stakeholders. Individuals seeking insolvency relief must still approach courts under the Presidency Towns Insolvency Act or Provincial Insolvency Act, assuming those forums accept jurisdiction given the ambiguous status of these statutes. These century-old laws contain procedures designed for a different economic era, lacking modern provisions for expedited resolution or creditor committees. The forums handling these cases, typically civil courts rather than specialized tribunals, may not possess the expertise that National Company Law Tribunals have developed in handling insolvency matters.

For personal guarantors specifically, the selective notification approach means they face insolvency proceedings under the Code while other individuals do not. This creates an asymmetry where guarantors are subject to the time-bound, creditor-friendly mechanisms of the Code, but cannot invoke its complete framework, including provisions relating to fresh starts or the treatment of excluded debts. The Debt Recovery Tribunals, which previously handled guarantor cases, have been sidelined in favor of National Company Law Tribunals, changing both procedural expectations and substantive outcomes.

Creditors benefit from the current arrangement in the short term. They can pursue corporate insolvency resolution while simultaneously proceeding against personal guarantors, maximizing recovery prospects. The unified forum under the National Company Law Tribunal allows for coordinated proceedings, where the same bench considers both the corporate debtor’s resolution plan and the guarantor’s personal insolvency. This coordination can prevent forum shopping and ensure that resolution plans account for guarantor assets and liabilities.

However, the long-term uncertainty surrounding Section 243’s notification hampers legal certainty. Parties entering into guarantee arrangements cannot predict whether future changes in the legal framework might alter their rights and obligations. The government’s press release dated August 28, 2017, advised stakeholders to continue approaching appropriate authorities under existing enactments rather than Debt Recovery Tribunals, acknowledging the unresolved status of individual insolvency provisions. [8] This guidance, while practical, highlights the incomplete state of insolvency reform.

Policy Considerations and Future Directions

The Insolvency Law Committee, in reports addressing Code implementation, has recognized the challenges posed by the non-notification of individual insolvency provisions. Committee members have suggested that while corporate insolvency directly affects commercial markets and job creation, individual bankruptcy carries social implications requiring careful calibration. In India, insolvency still carries significant social stigma. Families may suffer ostracism, and bankrupt individuals face obstacles in accessing credit or employment even after discharge. These concerns have likely contributed to the government’s cautious approach to implementing Part III comprehensively.

Another consideration involves the infrastructure required for handling individual insolvency cases. Corporate insolvency already strains the capacity of National Company Law Tribunals, with thousands of cases pending. Adding individual insolvency to this burden without adequate judicial appointments and administrative support could overwhelm the system. The government may be building institutional capacity before fully activating individual insolvency provisions, learning from the corporate insolvency rollout’s challenges.

International best practices suggest that effective individual insolvency regimes balance creditor rights with debtor rehabilitation. Systems that impose punitive measures without offering genuine fresh start opportunities often drive debtors underground, reducing overall recoveries. Conversely, overly lenient discharge provisions can undermine credit discipline and raise borrowing costs. Finding this balance requires careful policy design, informed by cultural context and economic conditions.

The treatment of personal guarantors raises particular policy questions. On one hand, promoters and directors who benefit from corporate operations should bear responsibility when those ventures fail, especially if their decisions contributed to distress. Allowing them to escape liability through corporate insolvency alone would create moral hazard and discourage careful lending. On the other hand, imposing unlimited personal liability may discourage entrepreneurship, particularly in sectors requiring significant capital investment where business failure carries high but unavoidable risk.

Comparative Perspectives

Examining how other jurisdictions address personal guarantors and individual insolvency offers instructive contrasts. The United States Bankruptcy Code treats individual and corporate debtors under a single statutory framework but with different chapters addressing their distinct circumstances. Chapter 7 provides liquidation for both, while Chapter 11 (reorganization) and Chapter 13 (individual repayment plans) recognize that individuals require different treatment than corporations. Personal guarantees survive corporate bankruptcy, but guarantors themselves can seek bankruptcy protection if their personal financial situation warrants it.

The United Kingdom’s Insolvency Act similarly maintains parallel tracks for corporate and individual insolvency, with distinct procedures but common principles. The Enterprise Act 2002 reforms reduced the discharge period for individual bankrupts from three years to one year, reflecting a policy shift toward encouraging entrepreneurship and providing quicker fresh starts. However, guarantors of corporate debts remain liable unless they too enter bankruptcy proceedings and obtain discharge, a process requiring full disclosure and potentially significant loss of assets.

These jurisdictions demonstrate that while recognizing guarantor liability as independent from principal debtor obligations is standard, providing guarantors with access to their own insolvency relief mechanisms is equally important. India’s current approach offers the former without fully implementing the latter, creating an imbalance that may require correction as the Code matures.

Section 238 and the Overriding Effect

Section 238 of the Code provides that its provisions shall have effect notwithstanding anything inconsistent contained in any other law currently in force. [9] This non-obstante clause gives the Code supremacy over conflicting provisions in other statutes. In the context of Section 243 of the Insolvency and Bankruptcy Code, courts have interpreted this to mean that even without notifying the repeal of the old insolvency acts, the Code’s provisions would prevail where they have been activated, particularly regarding personal guarantors to corporate debtors.

This interpretation solves some immediate practical problems but creates theoretical inconsistencies. If the Code overrides the old acts through Section 238, why bother with Section 243 at all? The answer lies in legislative completeness and avoiding constitutional challenges. A formal repeal provides clarity and prevents arguments that multiple laws govern the same subject matter, which could lead to forum shopping or inconsistent interpretations. The saving provisions in Section 243(2) also serve important purposes that Section 238 alone cannot achieve, particularly regarding the transition of pending proceedings.

The reliance on Section 238 to justify not notifying Section 243, while legally sustainable, reflects pragmatic accommodation rather than ideal legislative design. It allows the government to proceed incrementally with Code implementation while maintaining flexibility to adjust course based on emerging challenges. However, this flexibility comes at the cost of certainty, leaving stakeholders to navigate ambiguous legal terrain.

Conclusion

Section 243 of the Insolvency and Bankruptcy Code stands as a peculiar example of enacted but inoperative legislation. While the provision clearly states that the Presidency Towns Insolvency Act of 1909 and the Provincial Insolvency Act of 1920 are repealed, the absence of notification means these colonial-era statutes technically remain in force for most individuals. Only personal guarantors to corporate debtors have been brought within the Code’s framework, following the selective implementation strategy adopted through the November 2019 notification.

This situation creates a bifurcated insolvency regime where corporate debtors and their personal guarantors operate under modern, time-bound procedures, while other individuals and partnerships remain subject to century-old laws of uncertain applicability. The Supreme Court judgments in State Bank of India v. V. Ramakrishnan and Lalit Kumar Jain v. Union of India have clarified that this arrangement is constitutionally permissible and serves legitimate policy objectives, particularly creditor protection and debt recovery.

Looking ahead, complete implementation of individual insolvency provisions under Part III will require not only notification of Section 243 of the Insolvency and Bankruptcy Code but also development of institutional capacity and public education about insolvency as a financial management tool rather than a stigma. The government’s cautious approach reflects legitimate concerns about social impacts and administrative readiness, but prolonged delay risks perpetuating an inefficient dual system that serves neither debtors nor creditors optimally.

Until Section 243 is notified and Part III becomes fully operational, India’s insolvency landscape will remain incomplete. The promise of a unified, modern code for resolving financial distress across all categories of debtors remains partially fulfilled. Stakeholders must navigate this transitional period with awareness of both the Code’s stated provisions and the practical reality of their selective implementation. The challenge for policymakers lies in completing the reform agenda while managing the social, economic, and institutional complexities that have slowed progress thus far.

References

[1] Presidency Towns Insolvency Act, 1909 (Act No. 3 of 1909). Available at: https://indiankanoon.org/doc/108877772/ 

[2] Provincial Insolvency Act, 1920 (Act No. 5 of 1920). Available at: https://indiankanoon.org/doc/393016/ 

[3] Insolvency and Bankruptcy Code, 2016, Section 243. Available at: https://ibclaw.in/section-243-repeal-of-certain-enactments-and-savings/ 

[4] Ministry of Corporate Affairs, Notification dated November 15, 2019. Available at: https://www.iiipicai.in/notifications/ 

[5] Insolvency and Bankruptcy Board of India, Rules and Regulations. Available at: https://www.ibbi.gov.in/legal-framework/notifications 

[6] State Bank of India v. V. Ramakrishnan & Anr., (2018) 17 SCC 394. Available at: https://indiankanoon.org/doc/163084985/ 

[7] Lalit Kumar Jain v. Union of India & Ors., Transfer Case (Civil) No. 245/2020, decided on May 21, 2021. Available at: https://indiankanoon.org/doc/60477445/ 

[8] Ministry of Finance, Press Release dated August 28, 2017. Available at: https://taxguru.in/income-tax/no-repealment-of-presidency-towns-insolvency-act-1909-provincial-insolvency-act-1920.html 

[9] Insolvency and Bankruptcy Code, 2016, Section 238. Available at: https://www.indiacode.nic.in/handle/123456789/2154