IBC Permits Parallel CIRP Against Debtor & Guarantor For Same Debt : Supreme Court

The Supreme Court on Thursday (February 26) observed that there's no bar under the Insolvency and Bankruptcy Code to initiate simultaneous CIRP against the corporate debtor and guarantor for the same debt. The bench of Justices Dipankar Datta and Augustine George Masih endorsed the findings of BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. & Anr that "consistent with the basic principles of the Contract Act that the liability of the principal borrower and surety is coextensive, the IBC permits separate or simultaneous proceedings to be initiated under Section 7 by a financial creditor against the corporate debtor and the corporate guarantor.”, The bench observed that “the question, whether simultaneous proceedings against the corporate debtor and/or the guarantor(s) can be maintained or not, is no longer res integra,” after BRS Ventures Investments Ltd (supra). In the lead matter, ICICI Bank had extended credit facilities to ERA Infrastructure (India) Ltd., backed by corporate guarantees. While CIRP had already been admitted against the guarantor entity, the NCLT rejected ICICI Bank's Section 7 application against the principal borrower, following NCLAT's decision of Vishnu Kumar Agarwal v. M/s Piramal Enterprises Ltd (2019). Similar orders in other matters lead to the filing of a batch of appeals before the Supreme Court, against NCLAT's decision. Setting aside the NCLAT's decision, the judgment authored by Justice Datta held that simultaneous insolvency proceedings are permissible and legally sustainable. Relying on Section 60(2) of the IBC, the Court observed that the statute itself contemplates parallel proceedings against a corporate debtor and its guarantor before the same adjudicating authority. The Court reaffirmed that the liability of a guarantor under Section 128 of the Indian Contract Act, 1872, is co-extensive with that of the principal debtor, and nothing in the IBC curtails this substantive right of creditors. Importantly, the Court declared that the contrary NCLAT ruling in Vishnu Kumar Agarwal is no longer good law, and that the binding precedent is BRS Ventures Investments Ltd., which had already settled the issue. Doctrine Of Election Is Absent Under IBC, Creditor Is Free To Initiate CIRP Against Both Borrower & Guarantor The Court rejected arguments that creditors must “elect” whether to proceed against the debtor or the guarantor, holding that such remedies are concurrent, not inconsistent. Forcing an election, the Bench noted, could permanently extinguish part of a creditor's claim due to the “clean slate” principle that operates once a resolution plan is approved. “Restricting the claim of a creditor against a debtor or a guarantor is likely to defeat the purpose of a guarantee. Since a guarantor's liability 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 conspicuous absence of any such provision in the IBC implies that no such restriction can be imposed on the creditor. The effect of imposing a mandatory election of claims upon the creditor would effectively take away the statutorily vested right to approach the NCLT against one or both. In the absence of any statutory proscription against filing such a claim, it would be unwarranted for this Court to impose such a restriction.”, the court observed. Safeguards Against Double Enrichment An argument was made that “if a creditor is permitted to initiate CIRP against multiple debtors, an apprehension is raised that it might lead to recovery of dues more than what it is entitled and, thereby, doubly enriching itself.” Rejecting this argument, the Court pointed out that adequate measures are already incorporated under CIRP Regulations, particularly Regulation 12A, which sets up an obligation upon the creditor to update its claim as and when it is satisfied, either partly or fully, from any other source, thereby ruling out any possibility of receiving double benefit. “the contention that simultaneous proceedings must be necessarily barred apprehending double enrichment is far-fetched and stands rejected…”, the court said. Cause Title: ICICI BANK LIMITED VERSUS ERA INFRASTRUCTURE (INDIA) LIMITED (and connected matters)Citation : 2026 LiveLaw (SC) 203Click here to download judgmentAppearance: For Appellant(s) : Ms. Surabhi Khattar, Adv. Mr. Shivansh Vishwakarma, Adv. Mr. Vikash Kumar Jha, Adv. Ms. Komal Mundhra, AOR Mr. Anant Merathia, Adv. Mr. Saurabh Agrawal, Adv. 3 Mr. Aniket Bhattacharyya, Adv. Mr. Ashutosh Singh Rana, Adv. Mr. Rishay Raj, Adv. Ms. Laxita Upadhyay, Adv. M/S. Cyril Amarchand Mangaldas, AOR Mr. Karun Mehta, AOR Mr. Diwakar Maheswari, Adv. Mr. Pratiksha Mishra, Adv. Mr. Rajiv Shakdher, Sr. Adv. Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Mahima Kapur, Adv. Mr. Abhishek Tiwari, Adv. Mr. Gopal Sankaranarayanan, ...

IBC Permits Parallel CIRP Against Debtor & Guarantor For Same Debt : Supreme Court

Yash Mittal

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