Personal insolvency repayment plan failure permits bankruptcy proceedings despite settlement proposals and quantum objections

In personal insolvency proceedings under the Insolvency and Bankruptcy Code, failure by personal guarantors to submit a repayment plan despite opportunity was treated as statutory rejection of the plan, permitting the creditor to initiate bankruptcy proceedings. The Tribunal held that one-time settlement proposals could not replace the required repayment plan. It also found that objections based on allegedly inflated dues, prior recovery steps, or amounts recovered from the corporate debtor did not displace the bankruptcy process, especially where guarantor status and co-extensive liability under the guarantee deed were admitted and earlier proceedings had attained finality.

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Issues: (i) Whether non-submission of a repayment plan by the personal guarantors justified treating the plan as rejected and permitted the creditor to seek bankruptcy proceedings under the Insolvency and Bankruptcy Code, 2016; (ii) Whether the bankruptcy orders could be interfered with on the grounds that the quantified dues were inflated or that earlier one-time settlement proposals and recovery from the corporate debtor should preclude bankruptcy against the personal guarantors.

Issue (i): Whether non-submission of a repayment plan by the personal guarantors justified treating the plan as rejected and permitted the creditor to seek bankruptcy proceedings under the Insolvency and Bankruptcy Code, 2016.

Analysis: The statutory scheme for personal insolvency requires the debtor to prepare a repayment plan in consultation with the resolution professional. The Tribunal found that the appellants never submitted any repayment plan at any stage, despite opportunity, and that mere one-time settlement proposals could not substitute the statutory repayment plan. On that basis, the absence of a repayment plan was treated as the equivalent of rejection under the statutory framework, enabling the creditor to move for bankruptcy.

Conclusion: The issue was answered against the appellants and in favour of the respondent creditor.

Issue (ii): Whether the bankruptcy orders could be interfered with on the grounds that the quantified dues were inflated or that earlier one-time settlement proposals and recovery from the corporate debtor should preclude bankruptcy against the personal guarantors.

Analysis: The Tribunal held that the appellants had admitted their status as personal guarantors and the co-extensive nature of their liability under the guarantee deed. It further held that the computation of dues did not defeat the bankruptcy action at this stage, and that attempts to reopen earlier SARFAESI and corporate insolvency stages could not unsettle proceedings that had already attained finality. The statutory consequence of non-submission of a repayment plan was therefore not vitiated by these objections.

Conclusion: The issue was answered against the appellants and in favour of the respondent creditor.

Final Conclusion: The bankruptcy initiation against the personal guarantors was upheld as a statutory consequence of their failure to submit a repayment plan, and the appeals were dismissed.

Ratio Decidendi: In personal insolvency proceedings, failure of the debtor to submit a repayment plan despite opportunity operates as a statutory basis for bankruptcy proceedings, and objections to quantum or prior settlement efforts do not displace that consequence once liability and default are established.

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