Supreme Court Refuses To Frame Guidelines On Parallel Insolvency Against Borrower and Guarantor
The Supreme Court on Thursday observed that while simultaneous Corporate Insolvency Resolution Processes (CIRPs) against principal borrowers and corporate guarantors are legally permissible, it will not frame additional judicial guidelines regulating such proceedings, leaving any reform to Parliament and the Insolvency and Bankruptcy Board of India (IBBI).
“We, however, decline to lay down guidelines as proposed; and for good reason. IBC is a product of a well-thought, deliberated, and extensively researched policy framework. To venture into unchartered territories, wearing the legislative hat, would be nothing short of judicial exploration, which we do not propose to do. We leave it to the wisdom of the legislature and the IBBI to frame appropriate policy framework and guidelines with an inclusive consultative process of all the stakeholders, if so required,” the court observed.
Justice Dipankar Datta and Justice Augustine George Masih delivered the judgment in a batch of appeals arising from orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), which had either rejected or permitted initiation of CIRP against principal borrowers and corporate guarantors for the same debt.
The lead matters involved ICICI Bank Ltd, which had extended loans to group entities of Era Infra Engineering Pvt Ltd. Corporate guarantees had been furnished securing the credit facilities. Following defaults, CIRP was initiated against Era Infra Engineering Pvt Ltd on May 8, 2018. ICICI lodged its claim based on the guarantee, which was initially rejected by the resolution professional but was later admitted pursuant to orders of the NCLT.
The bank subsequently filed applications under Section 7 of the Insolvency and Bankruptcy Code (IBC) seeking initiation of CIRP against the principal borrowers, including ERA Infrastructure (India) Ltd and Hyderabad Ring Road Project Pvt Ltd.
These applications were rejected by the NCLT relying on the NCLAT's decision in Vishnu Kumar Agarwal v. Piramal Enterprises Ltd, which had held that once a Section 7 application for the same claim was admitted against one corporate debtor, a second application could not be admitted against another.
The Supreme Court said the question was no longer open for debate, noting that it had already settled the issue in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. & Anr(2025). That ruling makes it clear that a financial creditor can initiate separate or simultaneous proceedings under Section 7 against both the corporate debtor and the corporate guarantor.
The court also dealt with the argument that creditors should be compelled to restrict or split their claims between the principal borrower and the guarantor. It rejected that submission, making it clear that the doctrine of election has no application in such situations.
“Restricting the claim of a creditor against a debtor or a guarantor is likely to defeat the purpose of a guarantee.Since a guarantor'sliability is co-extensive, forcing the creditor to elect would essentially make it sacrifice part of its claim. This is not how a guarantee works, particularly when the Code does not provide for such election,” the court said.
The court also rejected concerns that allowing simultaneous CIRPs would result in double recovery. It noted that the IBC and the 2016 CIRP Regulations contain safeguards, including Regulation 12A, which obligates a creditor to update its claim when satisfied partly or fully from any source, and Regulation 14, which requires the resolution professional to revise admitted claims upon receipt of additional information.
The judgment reiterates that while the IBC is not a recovery proceeding, that by itself cannot be a ground to prohibit initiation of CIRP against a guarantor if the statutory conditions of default and legally enforceable debt are satisfied. Applications under Section 7, the court observed, must be assessed independently by the adjudicating authority in accordance with the Code.
Declining to impose additional judicial safeguards against claim duplication or double enrichment, the court held that any structured reform, including modalities for coordinated or group insolvency proceedings, must come from the legislature or the IBBI.
The batch of appeals was disposed of in terms of these findings, affirming that simultaneous CIRPs against principal borrowers and corporate guarantors are maintainable under the IBC.