Bankruptcy law has emerged as purely economic legislation. Personal bankruptcy, however, is, if not primarily, social legislation. Unlike in western countries, in India, the stigma of personal bankruptcy is not easy to wash off and the unpleasant implications of personal insolvency makes it a formidable deterrent for erring individuals.
The contract of guarantee is dealt with in the Indian Contract Act, 1872. "A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default." The person who gives the guarantee is called the 'surety.' Guarantor to a contract with a financial institution can be called upon to bear out the unpaid liability of the corporate debtor. The Insolvency and Bankruptcy Code provides a channel to realise the said unpaid liability from the Personal Guarantors from their estate.
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