[By Vanshika Kamboj]
The author is a student of Rajiv Gandhi National University of Law
Introduction
The Insolvency and Bankruptcy Code (“IBC” or “the Code”) has reshaped India’s approach to insolvency aiming to strike a balance between creditor recovery and fair treatment of debtors and other stakeholders. At its core, the Code is built on the ideas of value maximisation and equitable, efficient, and transparent processes. The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (“the Amendment”), although builds on the same principles, marks a significant shift by introducing Section 28A which allows pooling of assets of corporate and personal guarantors (“guarantors”) with the Corporate Insolvency Resolution Process (“CIRP”) or liquidation estate.
The Amendment aims to remove complexities and reduce delays by aligning with the Transfer of Property Act 1882 (“ToPA”) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (“SARFAESI”). However, the real effect may be less about “harmonisation”, and more about legislative dominance, potentially overriding existing substantive provisions under other laws.
While the Amendment may appear to be well-intentioned, it raises important questions about how far the law can stretch without weakening the existing statutory and constitutional safeguards available to the guarantors. Section 28A gives the Resolution Professional (“RP”) the power to bring guarantors’ assets into the ongoing CIRP or liquidation estate. It allows the RP to use or transfer them as part of a resolution plan – which marks a significant expansion of its authority. This approach marks a shift from the inter-partes framework of the ToPA (where rights arise between specific parties) to the in-rem nature of IBC proceedings (which bind all stakeholders without explicit exceptions). Hence, the real concern is whether pooling third-party assets effectively converts a single-entity, inter-party process into a collective exercise of resolution – which transgresses the existing protections.
Notably, the Parliamentary Select Committee in its report on the Amendment bill dated December 17, 2025 left the issues unaddressed. Instead, it adopted the ministry’s view that 28A is merely a facilitative provision and does not override any substantive rights under any other statute, mainly ToPA and SARFAESI.
This analysis interrogates this legal fiction by examining the legislative reasoning, procedural implications, and potential constitutional and jurisprudential tensions it creates. It also analyses whether Section 28A genuinely advances value maximisation or risks deepening inequities.
The analysis first discusses the intent and the procedure under section 28A. Second, it critically analyses the potential conflicts with current substantive laws, especially ToPA and SARFAESI and determines their implications on guarantors’ rights. Last, the analysis examines constitutional and jurisprudential implications of the amendment, and outlines the safeguards that should be included to guarantee equitable enforcement.
I. RATIONALE AND CONTEXT OF SECTION 28A
Section 28A aims to simplify insolvency processes and allow greater creditor recovery by pooling the assets of the guarantors with the CIRP or liquidation estate. Before this amendment, third-party security holders (creditors in whose favour an asset is pledged or provided as security for another borrower’s borrowing) had to pursue recoveries pursuant to ToPA or SARFAESI, which usually resulted in delays, piecemeal recoveries, and increased litigation.
Section 28A allows the creditor to pool the guarantor’s assets, whether personal or corporate, in the ongoing CIRP or liquidation proceedings. This inclusion is subject to the sanction by the Committee of Creditors (“CoC”) or creditors representing a specified majority, i.e. in case of a corporate guarantor going through CIRP, then at least 66% of CoC approval, and in case of a personal guarantor’s insolvency or bankruptcy, then by a majority of 75% in value of creditors. This is applicable when the creditor has the lawful possession of those assets. Once approved, the RP integrates the asset into the estate. Then, the Resolution Applicants (“RA”) can bid on the bundled package, with proceeds first adjusting the CD’s debt (after preservation costs), and any surplus is then returned to the guarantor.
Further, Section 28A (2) creates a legal fiction by deeming that, once the assets are transferred into the estate, the buyer (potential RAs) acquires the title as though the transfer was made by the real owner i.e., the guarantor. It provides for an unencumbered title, overriding prior encumbrances, third-party claims, or inter partes rights under ToPA/SARFAESI.
II. INFRINGEMENT OF GUARANTORS’ RIGHTS
While Section 28A aligns with the core objectives of IBC, i.e., value maximisation and safeguarding the interests of stakeholders, it undermines the statutory rights of the guarantors under ToPA and SARFAESI. This also results in a violation of Article 300A of the Constitution of India (“COI”). In Lalit Kumar Jain v. UOI (2021), the Hon’ble Supreme Court (“SC”), while upholding the inclusion of personal guarantors into the IBC framework, stressed that their liability remains distinct. Contrarily, Section 28A dilutes this by letting guarantors’ assets commingle with CIRP or liquidation estate, effectively subsuming the guarantee contract into the debtor’s insolvency, and hence, leaving the guarantor with far less control. The following violations are apparent:
1.Under ToPA
Section 28A (2) provides that “the transfer of an asset referred to in sub-section (1) under a resolution plan shall vest in the transferee all rights in, or in relation to the asset, as if the transfer had been made by the owner of such asset.” This effectively grants ownership rights over a mortgaged asset. This position conflicts with ToPA as it limits a mortgagee’s interest to possession and enforcement only, and not ownership. Further, under Section 60 of the ToPA, the guarantor retains a statutory right of redemption, and even in the case of default, no right of ownership is transferred to the mortgagee. The only right a mortgagee gets is the right to file a suit of foreclosure u/s 67 of the ToPA. Ownership of the property can only be claimed through a suit of foreclosure, and once an order for sale or transfer of the ownership is passed, it must be followed by execution of a registered deed. The SC, in Narandas Karsondas v. S.A. Kamtam and Anr, reiterated that a mortgagee’s rights are limited, and ownership of a property can only be claimed through judicial intervention. However, the proposed amendment goes against this settled position of law.
2.Under SARFAESI
Furthermore, u/s 13(8) of SARFAESI, the borrower’s right to redemption only ceases after a public auction notice which is served 30 days before such auction. In Seth Gangadhar v. Shankarlal, the SC noted that a mortgagor’s right to redeem only extinguishes by a proper sale under the authority of law, and any stipulation against such provisions will be void ab initio.
Section 28A compromises the SARFAESI framework by allowing transfer of third-party secured assets under a resolution plan without adhering to the its mandatory procedures. This makes SARFAESI’s protective framework ineffective and upsets the careful balance between creditor recovery and protection offered by substantive property laws.
3.Under Article 300A of the COI
Article 300A of the COI guarantees that no person shall be deprived of their property without due process of law. It mandates that deprivation of property must be authorised by law and not be arbitrary, unjust or against public interest. In contrast, Section 28A allows transfer of third-party secured property under a resolution plan without any compensation, any option for redemption, any meaningful opportunity to challenge, and in violation of existing safeguards and substantive law provisions. Section 28A risks this violation by allowing permanent divestiture of ownership simply for the purpose of maximising recoveries.
III.POTENTIAL SAFEGUARDS
A balanced approach is essential to implement Section 28A in a manner that does not interfere with substantive rights of the guarantors or conflict with existing mandatory laws and settled positions. To achieve this, specific legislative measures can be adopted. Some suggestions include:
First, the Code should recognise a limited right of first refusal (“RoFR”) in favour of the guarantor. When the pooling of guarantor’s assets is suggested under section 28A, the guarantor is to be given time, such as a 30 days window, in which the guarantor can redeem the asset during the period at the same value or alternatively, choose to participate in a competitive procedure, say an auction to acquire the property. This will ensure that the guarantor has a reasonable chance to safeguard their interests and avoid uncompensated deprivation. This will harmonize the insolvency regime with substantive property law principles and constitutional protections.
Second, since Section 28A (3) provides for the re-transfer of assets to the guarantor after settling the creditor’s debt in principal proceedings, there should be a valuation of the guarantor’s assets for such transfer. This can be done by the previously appointed two registered valuers for the CIRP or liquidation purposes. Further, there must be mandated disclosure of these valuation reports to the guarantor to afford an opportunity to object to such transfer. This should be done with sufficient procedural safeguards, such as CoC oversight. This will uphold the right to redemption, while allowing creditors to realise value efficiently.
Eventually, such safeguards will help in unchallenged implementation of the proposed amendment, which will prevent delays and maximise asset value.
IV. CONCLUSION
Although the aim of the Amendment is to increase efficiency and ensure fair treatment of all the stakeholders, the extent to which it can practically done through Section 28A is disputed, especially given the structural tension it creates in the broader framework of financial recovery and asset protection. Pooling of third-party asset without due process, compensation or procedural protections, creates uncertainty and undermines existing, substantive, property, and contractual rights. Counterintuitively, Section 28A will tend to increase litigation, complicate insolvency processes, and eventually hinder value maximisation.
Therefore, the Code should grant RoFR to guarantors. This will give them a brief window to recover their assets or participate in auction proceedings. Further, to protect the right of redemption, any further re-transfer should be accompanied with proper valuation, full disclosure with a right to object, and under supervision.
These calibrations would solidify Section 28A’s intent of effective recovery and maximisation of value of the asset pool, while ensuring that the rights of guarantors and third-party security holders are safeguarded.