NCLAT Delhi Rules, When There Is More Than One Guarantor, Creditor Has Discretion To Proceed Against All Or Any One Of Them
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that when there are multiple personal guarantors for a corporate debtor, it is entirely within the creditor’s discretion to proceed against one, some, or all of them under Section 95 of the Insolvency and Bankruptcy Code, 2016. The Tribunal ruled that an application under Section 95 cannot be rejected merely because the creditor chooses to proceed against only one guarantor. The decision came in an appeal challenging the order of the NCLT, Mumbai Bench–I, which had admitted a Section 95 application filed by Cosmos Co-operative Bank against a personal guarantor.
The appellant argued that the ₹44-crore facility mentioned in the guarantee deed dated 02.03.2016 had never been disbursed after the date of execution of the guarantee. It was submitted that no debt or default could be attributed to him since the alleged loan amount had not been advanced. He contended that the guarantee deed pertained only to a new proposed facility and could not cover earlier credit facilities granted in 2014–15 to the corporate debtor. The appellant also claimed that the Bank could not proceed against him alone when other co-guarantors were available. He further argued that proceedings before the Debt Recovery Tribunal, in which he had filed a counterclaim, precluded the bank from initiating a parallel proceeding under Section 95.
The Bank, however, submitted that the guarantee dated 02.03.2016 expressly covered facilities “agreed to grant and/or continue to grant and/or granted” to the borrower. The Bank produced the loan agreement dated 02.03.2016, which clearly reflected credit facilities aggregating to ₹44 crore, including a ₹22-crore term loan and a ₹21-crore cash credit limit, all of which had already been disbursed. It also relied on the promissory note and accompanying documents executed by the appellant on the same day, demonstrating that he was fully aware of the existing facilities. The Bank argued that the appellant's attempt to claim that the guarantee was executed only for future facilities was untenable, particularly since “repayment was to begin on 04.03.2016,” reflecting prior disbursement. The Bank also contended that invocation of the guarantee stood proved through the call-back notice dated 31.08.2018 and the Section 13(2) notice issued under the SARFAESI Act.
After examining the record, the NCLAT rejected the appellant’s core contention that no liability could arise because no portion of the ₹44-crore facility had been disbursed post-execution of the guarantee. The Tribunal noted that both the loan agreement and the guarantee deed reflected that the guarantee extended to facilities already granted to the borrower. The loan agreement explicitly provided that repayment of the ₹22-crore term loan would commence on 04.03.2016, which conclusively indicated that the loan had been disbursed even before the guarantee was executed. The Tribunal held that “the facility of ₹44 crore has already been received by the borrower which is amply proved,” dismissing the appellant’s argument that the guarantee was for a fresh proposed facility.
The Tribunal also rejected the submission that the pendency of the DRT proceedings or the appellant’s counterclaim could bar the creditor from invoking Section 95 against the personal guarantor. It held that proceedings under the IBC constitute a “separate remedy” and that the existence of recovery proceedings cannot curtail a creditor’s statutory rights.
On the issue of selective initiation of proceedings, the NCLAT delivered a clear finding that a creditor is free to proceed against “one or all personal guarantors” of a corporate debtor. The Tribunal held that the creditor’s choice to proceed against only one guarantor cannot be a ground to dismiss a Section 95 application. It observed that the appellant’s financial solvency was irrelevant to the question of admission and that he would have the opportunity to present a repayment plan before the Resolution Professional in accordance with the Code.
While the appellant and the Bank later entered into a settlement and sought closure of the personal insolvency proceedings, the Tribunal clarified that once a Section 95 application has been admitted, withdrawal can only be considered in accordance with Rule 11(1)(b) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. This withdrawal can be permitted only if 90% of the creditors consent. The Tribunal therefore directed the Resolution Professional to publish and update the list of creditors and ascertain whether the threshold of 90% consent was met.
Ultimately, the NCLAT upheld the NCLT’s order dated 01.07.2025 admitting the Section 95 application filed by the Bank. It concluded that no grounds were made out to interfere with the order, reiterating that the creditor had a valid right to initiate proceedings against the appellant alone. The appeal, along with the interlocutory application, was disposed of with directions for the adjudicating authority to consider any withdrawal application strictly in terms of Rule 11.
Appearance
For Appellant: Mr. Arun Kathpalia & Mr. Abhijeet Sinha, Sr. Advocates with Mr. NPS Chawla, Mr. Sujoy Datta, Mr. Surekh Kant Buxy, Ms. Kinjal Goyal and Mr. Ritwik D. and Mr. Akhil Bhansali, Advocates.
For Respondents: Mr. Krishnendu Dutta, Sr. Advocate with Mr. Ramchandra Madan, Ms. Mehak Khurana and Mr. Tushar Nigam, Advocates for R-1. Mr. Gaurav Mitra, Mr. Himanshu Shembekar and Ms. Aarushi, Advocates for R-2. Mr. Himanshu Shembekar, Advocate for RP.
Cause Title: Kiran Kumar Jain Versus Cosmos Co-Operative Bank Ltd. & Anr.
Case No: I.A. No. 4524 of 2025 In Company Appeal (AT) (Insolvency) No. 955 of 2025
Coram: Justice Ashok Bhushan, Mr. Barun Mitra
