Simultaneous CIRP Against Principal Borrower & Corporate Guarantor Permissible: Supreme Court Clarifies No Mandatory ‘Election’ of Claims [Read Order]

In a major ruling, the Supreme Court held that simultaneous CIRP proceedings under the Insolvency and Bankruptcy Code (IBC) can be started against both the principal borrower and the corporate guarantor for the same debt. The court said that a financial creditor is not required to split or elect its claim between them and there is no mandatory “election” of claims under the IBC.

The batch of appeals came from different NCLT and NCLAT orders where some applications under Section 7 were rejected only because CIRP was already admitted against another corporate debtor for the same debt. In the lead case, ICICI Bank had given loans to group companies of Era Infra Engineering Pvt. Ltd. and guarantees were also executed.

After default, CIRP was initiated against one company and the bank’s claim was admitted. Later, the bank filed another Section 7 application against another company connected through guarantee. This was rejected relying on Vishnu Kumar Agarwal case.

The parties opposing simultaneous proceedings argued that the IBC is not a recovery law but a resolution law. They said allowing multiple CIRPs for the same debt can lead to unfair voting power in different Committees of Creditors and may result in double recovery. They also argued that the creditor should choose how much to claim from each debtor.

The creditors argued that the issue is already settled in BRS Ventures case, where the Supreme Court allowed simultaneous proceedings. They relied on Section 60(2) of the IBC and Section 128 of the Contract Act, saying that liability of guarantor is co-extensive with the principal borrower. They said forcing a creditor to split its claim will defeat the purpose of guarantee.

The Bench comprising Justice Dipankar Datta and Justice Augustine George Masih observed that the issue is no longer open and simultaneous proceedings are permitted under the IBC. The court explained that the Code does not require a creditor to divide its claim. It also said that the same amount cannot be recovered twice, and regulations already require updating of claims if money is received from another source.

The court refused to lay down new guidelines for group insolvency and said such reforms should be done by the legislature or IBBI. Finally, the Supreme Court allowed the appeals where CIRP was wrongly rejected on this ground and dismissed the others. All other issues on merits were kept open.

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