Guarantee as a form of collateral protection is popular in financing deals because the guarantor’s liability and the essential debtor are coextensive. Thus, the creditor has a remedy towards both the important debtor and the surety without exhausting the treatment towards one of the events before proceeding against the opposite. Despite this well-set up precept, the question of whether simultaneous complaints can be initiated in opposition to the principal debtor and guarantor was the challenge of debates beneath the Insolvency and Bankruptcy Code, 2016 (code).
The National Company Law Appellate Tribunal (NCLAT), inside the Vishnu Kumar Agarwal v Piramal Enterprises Ltd case, did not permit simultaneous complaints in opposition to corporate guarantors for the equal debt. Piramal Enterprises, a monetary creditor, had instituted a corporate insolvency resolution method (CIRP) towards the 2 company guarantors – Sunrise Naturopathy and Resorts and Subsystem Institute of Information Technology for a debt owed to it by using All India Society for Advance Education and Research. It had not initiated a CIRP against the borrower. The NCLAT became faced with two questions – whether or not a CIRP may be initiated against company guarantors without starting up one in opposition to the major borrower, and whether or not a CIRP can be initiated against two corporate guarantors simultaneously.
The NCLAT replied to the first question in the affirmative. However, almost about the second query, the NCLAT held that although there is no bar inside the code for filing packages simultaneously, as soon as one of the programs is admitted, the financial creditor cannot continue against the others. The motive changed into what the code does now not have the availability for filing a joint software towards a couple of company debtors except they may be mixed in a joint task employer. The NCLAT held that for the identical set of money owed, a declaration could not be filed by the equal monetary creditor in separate CIRPs. In this method, the lender is barred from pursuing parallel complaints. It can’t take part within the CIRP of each the borrower and the guarantor, although such court cases or one of them had been initiated through some other creditor or by way of the debtor itself.
The NCLAT disregarded the CIRP towards the first guarantor as a CIRP in opposition to the second guarantor had already been admitted. The NCLAT held that once a CIRP is admitted against the second guarantor, the first guarantor can say that the debt in question is not due because it is not payable in law, as it has been shown that the debt is payable by the second guarantor. This reasoning goes against the law relating to guarantees, in which the guarantors can be mutually or severally liable for the debt. The admission of claim in opposition to one cannot represent extinction of the proper in opposition to the other.
The NCLAT had, within the ICICI Bank v Vista Steel Private Limited case, allowed a CIRP towards the respondent guarantor despite a CIRP being admitted in opposition to the borrower and a resolution plan accepted for the borrower. Thus, it seems that the NCLAT has been taking opposite positions on the question of simultaneous complaints against guarantors and borrowers.
The Insolvency Law Committee (ILC), in a report, located that having a remedy towards each the surety and the debtor without the duty to exhaust the remedy against one earlier than proceeding in opposition to the other, is of extreme significance for the creditor and is the hallmark of a assure agreement. The availability of this type of treatment is, in maximum instances, the idea on which the loan may be offered. The ILC’s commentary was additionally relied upon with the aid of the Supreme Court in the State Bank of India v V Ramakrishnan & Ors case, albeit within the context of segment 14 of the code, while arriving on the choice that a moratorium on a company debtor has not to constitute a bar to the institution of complaints towards the non-public guarantor.