Legal Provisions Involved: Section 7 and Section 60 of the Insolvency and Bankruptcy Code, 2016, Section 128 of the Indian Contract Act, 1872
Judgement By: Supreme Court of India
Judge/Bench: Hon’ble Justice Dipankar Datta and Hon’ble Justice Augustine George Masih
Facts
ICICI Bank granted loans to ERA Infrastructure (India) Limited and related group companies. The parent company provided corporate guarantees. Upon default, CIRP was initiated against Era Infra Engineering Private Limited, and ICICI’s claim based on the guarantee was admitted.
Key Legal Provisions
Section 7 and Section 60 of the Insolvency and Bankruptcy Code, 2016, Section 128 of the Indian Contract Act, 1872.
Issues raised
- Whether simultaneous CIRP proceedings against both the principal debtor and corporate guarantor are maintainable under the IBC?
- Whether the doctrine of election compels a financial creditor to elect claims against either the debtor or the guarantor?
Arguments of the case
The Appellant argued that Section 60(2) IBC expressly envisages simultaneous proceedings against debtors and guarantors. Moreover, the surety’s liability is co-extensive with the principal debtor under Section 128 of the Contract Act. The Respondent on the other hand argued that simultaneous proceedings convert IBC into mere recovery proceedings which is contrary to its objectives.
Judgement
The Supreme Court allowed the appeals, holding that simultaneous CIRP proceedings against a principal debtor and its corporate guarantor are maintainable.
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