The Supreme Court has clarified that a financial creditor is entitled to initiate and maintain simultaneous Corporate Insolvency Resolution Processes (CIRPs) under the Insolvency and Bankruptcy Code, 2016, against both the principal debtor and its corporate guarantor(s) for the same debt. This right stems from the principle of co-extensive liability of the surety as enshrined in Section 128 of the Indian Contract Act, 1872, which is not contradicted by the IBC.
The Apex Court held that a creditor cannot be forced to elect its remedy or apportion its claim between the principal debtor and the guarantor. The Court affirmed that the legal framework, particularly Section 60(2) of the IBC, envisages the possibility of concurrent proceedings and that any apprehension of unjust or double enrichment is addressed by existing regulatory safeguards that mandate the updating and revision of claims by the creditor and the Resolution Professional.
A Two-Judge Bench comprising Justice Dipankar Datta and Justice Augustine George Masih observed that the question of whether simultaneous proceedings can be maintained is no longer res integra and is squarely covered by the decision in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. [(2025) 1 SCC 456]. The Bench noted that Section 60(2) of the IBC itself contemplates separate or simultaneous insolvency proceedings against a corporate debtor and its guarantor. This provision, which requires that an application against a guarantor be filed before the same NCLT where the debtor’s CIRP is pending, implicitly permits concurrent proceedings.
The Bench reiterated that while recovery is not the primary object of the IBC, it is central to the insolvency resolution process. It observed that if an application under Section 7 or 9 meets the statutory requirements of ‘debt’ and ‘default’, its admission is inevitable, irrespective of the applicant’s motive, such as recovery. While acknowledging the discretionary power of the Adjudicating Authority under Section 7(5)(a) as held in Axis Bank Ltd. v. Vidarbha Industries Power Ltd. [(2022) 8 SCC 352], the Bench clarified that this discretion cannot be exercised arbitrarily and that admission should be the ordinary course unless there are good reasons not to.
On the doctrine of election of claims, the Bench found no merit in the argument that a financial creditor must be compelled to elect its claim, i.e., to claim a part of the debt from the principal debtor and the rest from the guarantor. It observed that forcing a creditor to elect would defeat the purpose of a guarantee, as the guarantor’s liability is co-extensive with the principal debtor. The Bench pointed out that the IBC contains no express provision for such an election, and imposing such a restriction would be an unwarranted judicial limitation on a statutory right.
On the apprehension of double enrichment, the Bench addressed the concern that allowing simultaneous proceedings could lead to a creditor recovering more than its due. It found this apprehension to be far-fetched and observed that sufficient safeguards already exist within the IBC framework to prevent such an outcome. Specifically, Regulation 12A of the CIRP Regulations, 2016, obligates a creditor to update its claim upon satisfaction from any source, and Regulation 14 requires the Resolution Professional to revise the admitted claims based on new information.
Lastly, while acknowledging the submissions urging the Court to lay down guidelines for group insolvency and simultaneous proceedings, the Court declined to do so. It observed that the IBC is a well-researched policy framework and that venturing into laying down modalities would amount to judicial exploration and encroaching upon the legislative domain. The Bench left it to the wisdom of the legislature and the IBBI to frame any necessary policy or guidelines.
Briefly, the judgment addresses a batch of appeals raising a common legal question regarding the maintainability of simultaneous insolvency proceedings against a principal debtor and its corporate guarantor. The factual matrix of the key appeals i.e., Civil Appeal No. 6094 of 2019, is that the ICICI Bank had advanced loans to ERA Infrastructure (India) Limited, for which its parent company, Era Infra Engineering Private Limited, provided a guarantee. After a default, CIRP was initiated against the guarantor, Era Infra Engineering, and ICICI Bank’s claim was admitted. Subsequently, ICICI Bank filed a Section 7 application under the IBC to initiate CIRP against the principal debtor, ERA Infrastructure (India) Limited. The NCLT rejected this application, on the grounds that a fresh application based on the same facts and documents could not be filed once a claim was admitted against the guarantor.
Appearances:
Senior Advocates Gopal Sankaranarayan, and Abhijeet Sinha, AORs Komal Mundhra, Karun Mehta, Sanjay Kapur, Soayib Qureshi, Suresh Dutt Dobhal, M/S. Cyril Amarchand Mangaldas, along with Advocates Saurabh Agrawal, Aniket Bhattacharyya, Ranghasayee, Poornima Devi, Diwakar Mishesmori, Pratiksha Mishra, Surya Prakash, Shubhra Kapur, Mahima Kapur, Mansi Kapur, Santha Smruthi, Anuraj Mishra, Vipul Jai, Saikat Sarkar, Vishal Sinha, Neha Nagpal, Puneet Singh Bindra, Anirudh Purshottaman, Saumya, Surabhi Khattar, Sriharsh Raj, Shivansh Vishwakarma, Pallavi Agarwal, Shikhar Kumar, and Abhinav Sharma, for the Appellant
Senior Advocate Tapesh Kumar Singh, Advocate General Lalima Das, AORs Ankur Mittal, Capt. Karan Singh Bhati, Vaibhav Manu Srivastava, K. V. Mohan, Tungesh, Soumya Dutta, Prabhat Ranjan Raj, Prabhat Kaushik, M/S. Dua Associates, Samar Vijay Singh, Snehasish Mukherjee, Brijesh Kumar Tamber, Rajesh Kumar Gautam, Vinayak Mehrotra, Kaushik Poddar, Siddharth Sharma, B. K. Satija, Shashwat Anand, Ms. Pallavi Pratap, and Pankaj Bhagat, along with Advocates Nidhi Mittal, Muskan Jain, Nithin Chowdary Pavuluri, Soubhagyavalli Vedantam, Vijaya Bhaskar Reddy Kandhala, Subham Saurabh, Devender Singh, Hitesh Kumar Sharma, Amit Kumar Chawla, Akhileshwar Jha, Varun Varma, Shreya Jha, Savita Nangare, T. Ravichandran, K.V. Balakrishnan, Devesh Kr. Khanduni, Siddhant Upmanyu, Abhijeet Pandey, Indrani Dey, Anil Kumar, Gunjesh Ranjan, Amarjeet Gupta, Mannoneet Dwidedi, Abhishek Kumar, Prakash Kumar Mangalam, Venkata Subramanian, Prabhat Kaushik, Paramvir Singh Narang, Vinay Tomar, Pratibha Kaushik, Harshita Lulla, Shruti Jangid, Maneesh Arora, Lakhan Singh, Shashwat Parihar, Sabarni Som, Keshav Mittal, Aman Dev Sharma, Gaj Singh, Amit Ojha, Azeem A Dost, Prashant Sharma, Mayank Sapra, Sulaiman Bhimani, Anant Gautam, Deepanjal Choudhary, Vibhu Sharma, Likivi Jakhalu, Aman Gahlot, Rishi Chauhan, Azal Aekram, Amjid Maqbool, Prachi Pratap, Dr. Prashant Pratap, Yashvi Aswani, Anupriya Dixit, Ashish Aggarwal, Ramya Aggarwal, Tanya Aggarwal, Ishika Chauhan, Rishab Kumar, Shashank Singh, Kanishk Khetan, Dharampal Singh, Prem Sagar Keshri, Mayank Rajan Joshi, Ravi S Gupta, and Dolly Nair, for the Respondent
