The NCLT has ruled that corporate guarantors cannot avoid Corporate Insolvency Resolution Process (CIRP) even if there are ongoing proceedings against the principal borrower. This decision confirms the co-extensive liability of corporate guarantors under the Insolvency and Bankruptcy Code (IBC).
NCLT Admits Default Against Corporate Guarantor
The National Company Law Tribunal (NCLT) recently held that corporate guarantors are not insulated from the Corporate Insolvency Resolution Process (CIRP) even when parallel proceedings against the principal borrower are ongoing. In this case, the NCLT admitted a default of ₹17.54 crores, indicating the strict accountability of financial guarantors under the Insolvency and Bankruptcy Code (IBC).
This decision is rooted in the principle of co-extensive liability, wherein corporate guarantors share the burden of the default alongside the principal borrower. The NCLT emphasized that the initiation of insolvency proceedings against the corporate borrower does not alleviate the obligations of the guarantors.
In examining the legal framework, the NCLT referred to the relevant provisions of the IBC, particularly sections concerning the initiation of CIRP and the enforceability of corporate guarantees. It determined that irrespective of the pendency of proceedings against the principal borrower, the legal liability of the corporate guarantor remains intact.
“A corporate guarantor, by its nature and role, holds a fiduciary responsibility towards the creditor and cannot evade accountability,
