Written By: Apoorv Agarwal, Vaibhav Manu Srivastava, Malika Luthra, Suvangana Agarwal
The Hon’ble Supreme Court of India, in a landmark batch of matters, was called upon to decide questions of law arising out of conflicting orders passed by various benches of the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”). The batch of Civil Appeals entailed the question of law as to whether simultaneous Corporate Insolvency Resolution Process (“CIRP”) proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) could be initiated against both the principal borrower and its corporate guarantor for the same debt.
In the lead appeal, ICICI Bank had advanced loans to a group of companies of Era Infra Engineering Private Limited. The parent company, Era Infra Engineering, provided corporate guarantees for the facilities extended to its subsidiaries, including ERA Infrastructure (India) Limited. However, upon default by both the entities in complying with the repayment obligations, a Joint Lenders’ Forum was formed and ultimately Era Infra Engineering was declared as a Non-Performing Asset
Thereafter, in May 2018, ICICI Bank first initiated CIRP against Era Infra Engineering, wherein its claim was admitted. Subsequently, ICICI Bank then filed a fresh application under Section 7 of the IBC to initiate CIRP against ERA Infrastructure (India) Limited, the principal borrower. However, the NCLT rejected such application holding that once a claim was admitted against one corporate debtor, a fresh application on the same facts could not be filed against the other, while placing reliance on the decision of NCLAT in Vishnu Kumar Agarwal v. M/s Piramal Enterprises Ltd., 2019 SCC OnLine NCLAT 81.
Similar factual patterns arose in the connected appeals. In some cases, CIRP had already been initiated against the principal borrower, and creditors subsequently initiated proceedings against guarantors. In others, proceedings against guarantors were challenged on the ground that CIRP was already pending against the principal borrower. Therefore, conflicting orders across different benches, necessitated a clarification from the Hon’ble Apex Court.
In essence, the question of law before the Hon’ble Apex Court was:
“Whether simultaneous proceedings for Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 against the principal debtor as well as its corporate guarantor, or vice-versa, are maintainable in law?”
Albeit this issue had been settled by the judgement delivered in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. &Anr., (2025) 1 SCC 456(“BRS Ventures”), however, while the matter was being argued, further ancillary issues were also raised. These issues included whether the IBC is purely a recovery mechanism, whether the doctrine of election of claims applies to IBC proceedings, and whether simultaneous CIRP proceedings can result in impermissible double enrichment of the creditor.
It was argued by the parties opposing simultaneous proceedings was that the IBC is not a recovery mechanism but a resolution framework intended to maximize asset value and balance stakeholder interests.
On the aspect of Doctrine of Election, the parties argued at length that a financial creditor must elect whether to proceed against the principal debtor or against the guarantor. In a situation where the creditor is allowed to proceed against both, permitting full claims in both proceedings would lead to duplication of claims and create inequitable financial consequences.
In extension, the creditors in the absence of the doctrine of election, might recover more than the debt due by filing claims in multiple CIRPs, leading to double or unjust enrichment. As a consequence, financial creditors will also be able to obtain disproportionate and inflatedvoting rights in the Committee of Creditors if they are allowed to file claims for the same debt due in multiple CIRPs.
Lastly, it was also argued that allowing simultaneous proceedings would reduce IBC to a coercive recovery mechanism, which is against the very spirit of the Code.
Moving to the arguments made by the parties supporting simultaneous proceedings, it was argued that the issue at hand was already settled by way of the judgement in BRS Ventures, which upheld the maintainability of simultaneous proceedings.
The parties placed reliance on Section 60(2) of the IBC which permits proceedings to be initiated against both the corporate debtor and its guarantor, for the same debt, indicating legislative intent to allow parallel actions. Further, reliance was also placed on Section 128 of the Indian Contract Act, 1872, wherein the liability of a guarantor is co-extensive with that of the principal borrower unless otherwise provided by contract. Therefore, the parties argued that creditors are entitled to proceed against either or both.
Further, the parties also brought to the Court’s notice that in light of the Clean Slate Doctrine, if creditors are not permitted to file full or complete claims in a CIRP, the unpaid portion stands extinguished upon approval of the resolution plan. Thus, compelling the doctrine of election would unjustly deprive creditors of recovery, which could have been possible. Additionally, it was also argued that the Doctrine of Election would not be applicable to the present case as the doctrine applies only where remedies are inconsistent. Proceedings against a borrower and guarantor are not inconsistent but cumulative.
Lastly, it was argued that Regulations 12A and 14 of the CIRP Regulations mandate updating of claims and revision by the Resolution Professional, preventing excess recovery and that the IBC contains no provision requiring creditors to elect between remedies or split claims.
The Court’s Analysis
At the outset, the Court emphasized that by way of Section 60(2) of the IBC and particularly Sub-section (3) expressly contemplates insolvency proceedings against guarantors when CIRP is pending against the corporate debtor, and further provides for transfer of proceedings to the same NCLT, reinforcing legislative intent to allow parallel or concurrent proceedings to run .therefore, the absence of any express prohibition in the Code against simultaneous proceedings was considered decisive.
Further, it was also held that by way of the judgement delivered in BRS Ventures, the issue of simultaneous proceedings was no longer res integra. In the same light, the Court reaffirmed that the IBC permits separate or simultaneous proceedings against the principal borrower and the corporate guarantor.
On the aspect of Co-extensive Liability, the Court reaffirmed that a guarantor’s liability is co-extensive with that of the principal debtor. The object of a guarantee would be defeated if creditors were forced to await the outcome of proceedings against one party before proceeding against another.
On the aspect of spirit of the Code, the Court opined that the IBC is not purely a Recovery Mechanism and is deeply linked to resolution. If statutory conditions of the existence of debt and default are satisfied, an Application under Section 7 stands allowed. The Court rejected the argument that simultaneous proceedings convert IBC into a recovery tool.
On the aspect of Doctrine of Election, the Court held that the doctrine of election was inapplicable because the remedies available are not inconsistent, proceedings initiated against a debtor and guarantor are cumulative and not mutually exclusive.Further, the IBC does not mandate claim-splitting andimposing election on the creditor would effectively curtail statutory rights.
On the aspect of possibility ofdouble or unjustenrichment, while acknowledging such concerns regarding double recovery, the Court held that Regulation 12A would operate as a safeguard, as it requires creditors to update claims upon realization from any source and the Resolution Professional would then admit claims accordingly.
Conclusion
In conclusion, the Hon’ble Supreme Court of India conclusively held that simultaneous CIRP proceedings against the principal borrower and its corporate guarantor are legally maintainable under the IBC. The doctrine of election does not apply, and concerns regarding double enrichment are sufficiently addressed by regulatory safeguards.
