Parallel CIRP under the IBC can proceed against debtor and corporate guarantor, Supreme Court rules

The Supreme Court said on Thursday that lenders may start insolvency cases at once. Such cases may target both a principal borrower and a corporate guarantor. The court said this can happen for the same debt under the IBC. A bench of justices Dipankar Datta and Augustine George Masih delivered the ruling.

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The judgment said there is no legal ban in the Insolvency and Bankruptcy Code. It said a financial creditor can begin parallel Corporate Insolvency Resolution Process actions. The bench added that the IBC is a policy framework made by Parliament. It warned that judges should not act like lawmakers while reading the Code.

IBC CIRP ruling allows parallel cases against guarantors

Justice Datta opened the 47-page judgment with a caution on judging. "The Judge is not to innovate at pleasure. He is not a knight errant roaming at will in pursuit of his own ideal of beauty or of goodness,\" Justice Datta wrote. The bench said courts must follow the statute as written. It also said the IBC structure cannot be rewritten by interpretation.

The court rejected the view that CIRP must be blocked since the IBC is not recovery. \"Thus, 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. 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,\" Justice Datta said.

The verdict said a guarantee loses meaning if a creditor must wait. It said one CIRP cannot have to finish before another begins. The bench linked this to the Indian Contract Act principle. It noted the surety’s liability is co-extensive with the principal debtor. The ruling treated this as central to creditor rights.

The bench also addressed the time gap between two insolvency actions. \"The interpretation... would mean that the guarantor would be exempt, in the interregnum, from paying the debt, which the IBC does not provide for,\" the verdict said. The court said the Code does not create any such pause. It said barring parallel cases would add a rule not found in law.

IBC CIRP verdict in appeals involving ICICI Bank and SBI

The ruling came from a batch of appeals involving major lenders and companies. The appeals included ICICI Bank and the State Bank of India SBI. The other side included infrastructure and real estate firms. The court allowed the lender appeals in matters where guarantor insolvency had been blocked. It also rejected appeals filed by corporate directors.

The decision kept the focus on how applications are assessed. It said the adjudicating authority must test each filing on merits. It also said lenders can use remedies under the Code as allowed. The bench said parallel CIRP can continue when legally maintainable. The ruling settled that there is no statutory bar for the same debt.

With inputs from PTI