The National Company Law Tribunal, Principal Bench, has officially admitted an insolvency petition filed by Yes Bank Limited against Rajesh Madan, the personal guarantor for Johnson Watch Company Private Limited, signaling the start of a formal personal insolvency resolution process. The tribunal’s decision, delivered by a bench comprising President Justice Anupinder Singh Grewal and Member (Technical) Ravindra Chaturvedi, underscores the viability of insolvency proceedings against personal guarantors regardless of the current status of the corporate debtor’s insolvency resolution.

The proceedings were initiated after the corporate debtor, Johnson Watch Company, defaulted on substantial credit facilities. The bank had sanctioned various credit facilities, including cash credit limits that were adjusted from an initial sum to approximately ₹25.5 crore by late 2022. Rajesh Madan, acting as a personal guarantor, had executed multiple deeds of personal guarantee between 2013 and 2018 to secure these credit lines. Following the classification of the borrower’s account as a non-performing asset in March 2023, and the subsequent failure of the company to meet its financial obligations, Yes Bank sought to trigger the personal insolvency resolution process under Section 95 of the Insolvency and Bankruptcy Code, 2016.

Throughout the adjudication, Rajesh Madan contested the petition on several procedural and substantive grounds. Central to his defense was the argument that there was no valid invocation of the personal guarantee, as he claimed required demand notices were either not issued or improperly served in accordance with the specific clauses of the guarantee agreements. Madan further suggested that the petition was premature because a Corporate Insolvency Resolution Process was already pending against the principal borrower, and he posited that the financial creditor’s ongoing discussions to assign its debt to an Asset Reconstruction Company should preclude the initiation of current legal action.

The tribunal thoroughly addressed these objections, focusing on the legal principles governing the invocation of personal guarantees and the maintainability of Section 95 petitions. Regarding the sufficiency of the invocation, the court clarified that the specific terms of the guarantee agreement are paramount. Relying on settled precedents, the tribunal noted: “The invocation of personal guarantee has to be in accordance with the terms of the Guarantee Agreement which is a settled law.” The bench ruled that the notice issued by the financial creditor under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, clearly demanded payment from the personal guarantor, thereby satisfying the requirements for a valid invocation.

The tribunal also dismissed the argument that the pendency of insolvency proceedings against the principal debtor barred the action against the guarantor. Referencing established judicial interpretation, the court observed: “The application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable.” Consequently, the bench rejected the claim that the guarantor’s liability remained uncertain or contingent upon the finalization of a resolution plan for the corporate entity.

Furthermore, the tribunal addressed the guarantor’s contention regarding the potential assignment of the bank’s debt. It found no merit in the assertion that future negotiations could serve as a legal barrier to current enforcement actions. The court stated: “The mere expectation/possibility of the future assignment of a debt by the FC cannot operate as a bar or disentitle the FC from initiating insolvency proceedings.” This clarification reaffirms the bank's right to pursue recovery measures under the current legal framework without being constrained by speculation regarding future debt transfer agreements.

With the petition now admitted, the tribunal has imposed a mandatory moratorium under Section 101 of the Insolvency and Bankruptcy Code. This moratorium, which remains in effect for 180 days or until an order under Section 114 is passed, stays all pending legal actions against the guarantor’s debts and restricts the transfer or disposal of the guarantor’s assets. Mavent Restructuring Services LLP, which was previously appointed as the Resolution Professional by the court, has been directed to proceed with the next stages of the resolution process.

The Resolution Professional is tasked with issuing a public notice within seven days to invite claims from all creditors. Following this, the professional will compile a list of creditors and work closely with Rajesh Madan to prepare a comprehensive repayment plan. The guarantor is under a strict obligation to cooperate fully with the Resolution Professional, which includes providing a detailed, audited disclosure of all assets and liabilities as of the order date, alongside supporting documentation such as income tax returns and net worth certificates from the time the guarantees were originally furnished.

The tribunal has mandated that a status report be submitted by the Resolution Professional to ensure oversight and compliance throughout the process. Rajesh Madan is required to disclose any sale of assets conducted within the last two years, providing full transparency on the nature of the assets, the consideration received, and the mode of transfer. The matter is currently listed for a progress report on 25 November 2026, marking the beginning of a rigorous, court-monitored resolution timeline aimed at addressing the outstanding financial defaults while adhering to the statutory mandates of the insolvency framework.