The Six-Day Paradox: How Surana Dismantles the Procedural Premise of Section 28A's Coordinated Realisation Framework

[Anagh is a student at National Law Institute University Bhopal, and Mansi is a student at School of Law, Christ (Deemed to be University).]

On 27 May 2026, Justices Pardiwala and Viswanathan referred in Dineshchand Surana v. UCO Bank whether the Part III moratorium bars Section 138 of the Negotiable Instruments Act 1881 (NI Act) prosecutions against personal insolvents. Six days later, the Insolvency and Bankruptcy Board of India (IBBI) notified regulations under Section 28A of the Insolvency and Bankruptcy (Amendment) Act 2026, operationalising a dual-estate asset-transfer mechanism that treats the corporate debtor and personal guarantor as a single economic unit for realisation purposes.

Parliament, through Section 28A, drives economic consolidation of two insolvency estates, demanding coordinated creditor voting, synchronized dual-professional oversight, and a procedurally stable guarantor as non-negotiable inputs. This consolidation is economic rather than juridical: both estates retain legal distinctness, consistent with the juridical estate-separation preserved by Lalit Kumar Jain v. Union of India, and the "remedial asymmetry" critique advanced here operates entirely within that framework. The Surana referral simultaneously fractures the one statutory guarantee that makes guarantor participation possible: Part III moratorium under Sections 96 and 101 of the Insolvency and Bankruptcy Code 2016 (IBC). Remedial asymmetry is an incompleteness in the primary statute that Parliament must correct; no larger Bench ruling or IBBI notification can cure it.

Personal guarantors are typically the promoters of distressed companies who issued cheques as security for credit facilities. Section 138 prosecutions against them are the secured creditor's dominant post-default enforcement instrument. Since P Mohanraj v. Shah Brothers Ispat Private Limited, the Part III moratorium was understood to cover those proceedings. Surana has placed that understanding in live judicial contest at the precise moment the Section 28A framework depends on it most.

The Statutory Architecture of Coordinated Realisation and its Hidden Premise

Before the amendment, a creditor that had enforced security over a guarantor's asset during a corporate insolvency resolution process (CIRP) straddled two legally isolated regimes: the guarantor's asset was absent from the information memorandum and outside the deliberative field of the committee of creditors (CoC). Section 28A closes that gap. 

Before the amendment, a creditor that had enforced security over a guarantor's asset during a CIRP straddled two legally isolated regimes: the guarantor's asset was absent from the Information Memorandum and outside the CoC's deliberative field. Section 28A closes that gap. Under Section 28A(1), a creditor in possession of a guarantor's asset may transfer it within the corporate resolution subject to CoC approval; Section 28A(2) adds a three-fourths guarantor-creditor approval gate where Part III proceedings run concurrently, with proceeds credited to the guarantor's estate.

The IBBI (Bankruptcy Process for Personal Guarantors to Corporate Debtors) (Second Amendment) Regulations 2026 operationalise Section 28A at the bankruptcy stage through a sequentially locked process: trustee-led valuation, three-fourths guarantor-creditor approval, and corporate CoC sanction must occur in strict order, with approved transfers mandatorily incorporated into the information memorandum and request for resolution plans under Regulation 14B. The IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations 2026 replicate this at the insolvency resolution stage via a dual-RP structure: neither proceeding advances without the other's procedural delivery.

Every procedural output Section 28A requires presupposes a guarantor whose Part III proceedings run without collateral criminal disruption. There is absence of a suspension clause pausing Section 28A timelines when the guarantor manages criminal summons or bail conditions across multiple Magistrate's courts, nor is there any guidance on dual-RP coordination obligations when the moratorium's scope is concurrently contested under a separate statute. This is the predictable cost of building sophisticated secondary legislation on a statutory foundation a Division Bench has publicly called into question.

Decoupling Liabilities: How Surana Converts Settled Law into a Litigation Tactic

The "civil sheep in criminal wolf's clothing" formulation in P Mohanraj v. Shah Brothers Ispat Private Limited was a purposive doctrinal construction: the bench located Section 138's dominant legislative object in compensatory protection of commercial paper rather than penal vindication, and held that Section 138 proceedings fell within the moratorium's reach under Sections 96 and 101 of the IBC extending the collective-protection logic of Section 14 to the personal guarantor context. That holding governed five years of creditor litigation strategy and IBBI regulatory design.

In Dineshchand Surana v. UCO Bank, the bench referred two questions: first, whether Section 138, NI Act is quasi-criminal in dominant purpose, contesting P Mohanraj's civil characterisation; second, whether the Part III moratorium covers Section 138 proceedings in their entirety or only compensatory enforcement, leaving prosecution, bail obligations, and detention risk outside the moratorium's reach. If the larger Bench accepts the second framing, a guarantor formally subject to Section 28A’s coordinated asset-transfer process remains simultaneously exposed to criminal prosecution by the very creditors whose three-fourths approval it requires. Substantive coordination runs on paper; procedural siege continues in practice.

Parliament's failure to legislate this intersection is exposed by contrast with Section 32A of the IBC, which expressly immunises approved resolution applicants from prior criminal liability, demonstrating Parliament's capacity to address the criminal-insolvency overlap when it chooses. Sections 96 and 101 were drafted in 2016 before Part III was stress-tested in adversarial litigation. In Dilip B Jiwrajka v. Union of India, the court confirmed the Part III moratorium is textually narrower than Section 14 and doctrinally independent of it; Surana adds a commercially consequential layer of indeterminacy to an already fragile provision.

Systemic Fractures: Three Vectors of Market Harm Without a Statutory Remedy

Remedial asymmetry is not a theoretical concern awaiting a larger Bench verdict. It is a live commercial distortion producing three categories of measurable harm, each implicating a different participant class in the personal guarantor insolvency ecosystem.

The dominant financial creditor in most promoter-guarantor matters simultaneously holds CoC voting rights at the three-fourths threshold that Section 28A makes indispensable and active Section 138, NI Act complainant status against the same guarantor. With P Mohanraj's moratorium legally uncertain, the complainant status becomes a negotiating instrument: sustaining the prosecution imposes criminal appearances, bail obligations, and personal liberty uncertainty on the guarantor simultaneously with demanding that guarantor's substantive engagement in a sequentially locked coordination process.

This coercive duality persists because neither IBBI/2026/17 or IBBI/2026/18. contains any conflict-of-interest disclosure or voting-restriction mechanism. In the CIRP context, Parliament addressed exactly this friction through Section 21(2) of the IBC and Regulation 27 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, where a creditor's dual role as CoC voter and active recovery claimant is a recognised conflict subject to mandatory disclosure norms. Parliament failed to carry that learning into the Part III framework, leaving a practitioner-acknowledged friction in CIRP entirely unaddressed in personal insolvency proceedings.

Regulation 14B of  IBBI/2026/17 requires guarantor-linked assets to be priced into every resolution bid, tying corporate recovery values directly to the procedural stability of concurrent Part III proceedings. The IBBI Annual Report 2024-25 records average financial-creditor realisations at approximately 32% of admitted claims, with haircuts in cases involving personal guarantor components historically exceeding that average. A legally indeterminate moratorium converts this existing valuation risk into systematic bid withdrawal, defeating the recovery improvement Section 28A was enacted to deliver. For insolvency professionals, advising on Section 28A timelines while the moratorium's durability is concurrently litigated makes compliance with the IBBI Code of Conduct structurally impossible.

The Way Forward: Two Corrections Only Parliament Can Make

The IBBI cannot fix this by issuing revised regulations. The larger Bench will adjudicate on the text of Sections 96 and 101 as Parliament left them in 2016. Two targeted legislative interventions are required.

First, Sections 96 and 101 require an express provision, modelled on the Section 32A criminal-liability carve-out mechanism and adapted for Part III, specifying that Section 138 NI Act proceedings are stayed during the moratorium to the extent of compensatory enforcement, while strictly penal prosecution may continue only where the Adjudicating Authority is satisfied that the compensatory and penal components can be ring-fenced from the insolvency estate. This bifurcation is analytically consistent with the Surana bench's own two-tier framing and equips the larger Bench with a statutory architecture to apply rather than a legislative vacuum to interpret.

Second, the Section 28A approval process requires a conflict-of-interest disclosure gate grounded in Article 14 of the Constitution of India. A creditor simultaneously holding CoC voting rights and weaponising active Section 138, NI Act proceedings against the same guarantor exercises a structurally coercive dual-role that violates the guarantor's right to equal treatment in a collective deliberation process Parliament designed to function in good faith. The protections conferred on CIRP participants through Section 21(2) constitute a reasonable classification; their complete absence in Part III creates an arbitrary distinction between two classes of insolvent without constitutional justification. Mandatory disclosure of dual-role status at the outset of the Section 28A coordination process is the minimum correction required; the current default, no disclosure and no structural constraint, is constitutionally indefensible.

Second, the Section 28A approval process requires a conflict-of-interest disclosure gate grounded in Article 14 of the Constitution of India. A creditor simultaneously holding CoC voting rights and prosecuting the same guarantor under Section 138, NI Act exercises a structurally coercive dual-role that distorts equal treatment in a collective process Parliament intended to function in good faith. A narrow counter-position is available: these may be characterised as distinct statutory rights arising from distinct legal capacities, CoC participant under the IBC and complainant under the NI Act. That formal distinction, however, does not cure the coercion, because mandatory disclosure alone cannot prevent a disclosed prosecution from shaping bargaining power and voting conduct. The protections conferred on CIRP participants through Section 21(2) show that Part III’s silence creates an arbitrary distinction between two classes of insolvent that Article 14 cannot sustain.