SC allows simultaneous CIRP proceedings against principal debtor & corporate guarantor

Supreme Court allows simultaneous CIRP proceedings against principal debtor and its corporate guarantor, declines to frame any guidelines

In a recent judgment, the Hon’ble Supreme Court allowed appeals against order of Adjudicating Authorities (NCLT/NCLAT) holding that simultaneous proceedings for Corporate Insolvency Resolution Process under IBC against the principal debtor as well as its corporate guarantor are not maintainable.

ABCAUS Case Law Citation:
5057 (2026) (02) abcaus.in SC

In the instant batch of appeals, certain appellants were aggrieved by the initiation of CIRP, whereas others were against the denial of CIRP. The arguments were advanced both in favour of and against the simultaneous CIRP against the principal debtor as well as its corporate guarantor.

The Hon’ble Supreme Court noted that whether simultaneous proceedings against the corporate debtor and/or the guarantor(s) can be maintained or not, is no longer res integra and all the arguments canvassed had been considered by the coordinate bench of the Court.

The Hon’ble Supreme Court though approving that the IBC is not a recovery proceeding, negated the contention that CIRP can be prohibited against a guarantor or co-borrower only on that ground.

The Hon’ble Supreme Court opined that it seems prudent that the rationale of a creditor obtaining a guarantee for its debt must be realized to its fullest. A financial creditor, vested with rights under the Code, must be able to exercise it. Equally so, the adjudicating authority has the obligation to examine the application independently, on its own merits.

The Hon’ble Supreme Court observed that it is settled law that a creditor can pursue proceedings against multiple debtors, simultaneously.  The question is how the debt gets split. Can the creditor be compelled to claim part against the debtor and the rest against the guarantor?

The Hon’ble Supreme Court opined that 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 IB Code does not provide for such election.

The Hon’ble Supreme Court pointed out that when election of remedies or claims is intended by the statute, such a provision must be expressly provided for as under Motor Vehicles Act, 1988, claimants must choose between seeking compensation under Section 163A (structured formula) or Section 166 (fault-based claim), as both are alternative and not cumulative remedies.

The Hon’ble Supreme Court held that 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.

AT the same time Hon’ble Supreme Court observed that the legislature as well as the Insolvency and Bankruptcy Board of India are aware of the pitfalls and lacunae that follow. The Insolvency Law Committee in its Report of February, 2020 had also noted the issue. As per the report the Committee recommended that a creditor should not be prevented from proceeding against both the corporate debtor and its sureties under the Code. However, the Committee noted that the Appellate Authority has, in certain cases, taken a view contrary to its decision. Therefore, the Committee decided that no legal changes may be required at the moment, and this issue may be left to judicial determination. The Committee report further stated that as the right to simultaneous remedy is central to a contract of guarantee, the Committee suggested that in cases were both the principal borrower and the surety are undergoing CIRP, the creditor should be permitted to file claims in the CIRP of both of them. Since, as the Code does not prevent this, the Committee recommended that no amendments were necessary in this regard.

The Hon’ble Supreme Court observed that jurisprudence of the IBC, including concepts such as simultaneous proceedings and group insolvency has flowed from judgments of the Apex Court as well as of the NCLAT and the NCLT, the legislature as well as the IBBI has been receptive to the judicial nudges and has brought out necessary policy changes from time to time.

The Hon’ble Supreme Court however declined to lay down nay guidelines and to leave it to the wisdom of the legislature and the IBBI to frame appropriate policy framework and guidelines.

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