Co-Extensive Liability Under Contract Act, No Statutory Bar In IBC To Initiate Parallel CIRP Against Corporate Debtor And Guarantor For Same Debt: Supreme Court
Kiran Raj
The Supreme Court of India Division Bench of Justice Dipankar Datta and Justice Augustine George Masih, on Thursday (February 26), held that the Insolvency and Bankruptcy Code places no bar on initiating simultaneous Corporate Insolvency Resolution Processes against a corporate debtor and its guarantor for the same debt. Resolving a batch of appeals arising from conflicting tribunal orders, the Court endorsed the position in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd., affirming that co-extensive liability under the Contract Act permits concurrent proceedings against both. It further rejected the doctrine of election and found existing safeguards sufficient to prevent double recovery.
The cases arose from a series of applications filed by financial creditors before the National Company Law Tribunal seeking initiation of Corporate Insolvency Resolution Process against principal borrowers and their corporate guarantors for the same underlying debt. In each instance, the financial creditors had advanced loans or credit facilities to corporate borrowers, against which parent companies or related entities had extended corporate guarantees. Upon default, the creditors initiated insolvency proceedings against both the principal debtor and the guarantor, either simultaneously or sequentially.
The corporate debtors and their directors contended that once a CIRP application based on the same debt was admitted against one entity, a fresh application could not be maintained against the other.
The financial creditors, in turn, argued that the co-extensive nature of a guarantor's liability entitled them to proceed against both parties concurrently. They relied on Section 128 of the Indian Contract Act and Section 60(2) of the Insolvency and Bankruptcy Code in support of simultaneous proceedings.
The Court addressed the central question of whether simultaneous insolvency proceedings against a corporate debtor and its guarantor were permissible under the Insolvency and Bankruptcy Code. On the question of simultaneous proceedings, the Court noted that the matter stood settled by the coordinate bench in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd., which had held that "consistent with the basic principles of the Contract Act that the liability of the principal borrower and surety is coextensive, the IBC permits separate or simultaneous proceedings to be initiated under Section 7 by a financial creditor against the corporate debtor and the corporate guarantor." The Court observed that "the question, whether simultaneous proceedings against the corporate debtor and/or the guarantor(s) can be maintained or not, is no longer res integra" after BRS Ventures Investments Ltd.
On the nature of IBC proceedings, the Court observed that recovery is not the sole object of the Code, recording that the process is "primarily focused on insolvency resolution of the debtor whether corporate or otherwise and although recovery is incidentally effected, the proceeding is actually not meant to facilitate recovery of dues only of the person who initiated the proceeding." On the argument that CIRP could not be initiated against a guarantor on the ground that the IBC is not a recovery proceeding, the Court stated that "whilst approving that the IBC is not a recovery proceeding, we negate the contention that CIRP can be prohibited against a guarantor or co-borrower only on that ground."
On the doctrine of election, the Court observed 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 Code does not provide for such election." It further stated that "the conspicuous absence of any such provision in the IBC implies that no such restriction can be imposed on the creditor. 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."
On the concern of double enrichment, the Court noted the argument that "if a creditor is permitted to initiate CIRP against multiple debtors, an apprehension is raised that it might lead to recovery of dues more than what it is entitled and, thereby, doubly enriching itself." Rejecting this, the Court pointed to Regulation 12A of the 2016 Regulations, which obliges a creditor to update its claim as and when it is satisfied, either partly or fully, from any other source, as a sufficient existing safeguard. It further cited Maitreya Doshi v. Anand Rathi Global Finance Ltd., where it was held that "the same amount cannot be realised from both the Corporate Debtors" and that "once the claim of the Financial Creditor is discharged, there can be no question of recovery of the claim twice over." Conclusively, the Court stated that "the contention that simultaneous proceedings must be necessarily barred apprehending double enrichment is far-fetched and stands rejected."
The Court directed: "Civil Appeal Nos. 6093 of 2019, 6094 of 2019, and 2715 of 2020 are allowed and the orders impugned therein are set aside. Leave is granted in SLP (C) No. 21778 of 2019 and the appeal stands allowed. Civil Appeal Nos. 827-828 of 2021, 4018 of 2023 and 7231 of 2024, however, stand dismissed. Keeping in mind that a settlement was entered by the impugned order in Civil Appeal No. 40 of 2020 before the NCLAT, and the civil appeal hinges on the narrow compass of constitution of CoC which approved the withdrawal of petition filed by ICICI, we are inclined to dismiss the civil appeal. Accordingly, the civil appeal stands dismissed.
“However, if so advised, the appellant may pursue independent proceedings before the Adjudicating Authority in accordance with law. Since we have restricted ourselves to the point of law while deciding the appeals, all contentions on merits are kept open to be adjudicated by the adjudicating authority. Pending interim applications stand disposed of. Interim orders, if any, stand vacated."
Case Title: ICICI Bank Limited v. Era Infrastructure (India) Limited and Connected Matters
Neutral Citation: 2026 INSC 201
Case Number: Civil Appeal No. 6094 of 2019 and Connected Matters
Bench: Justice Dipankar Datta and Justice Augustine George Masih
