IBC Update | Liability Of Corporate Guarantors

The Supreme Court of India in the recent case of Laxmi Pat Surana v. Union Bank of India has observed that proceedings under the Insolvency and Bankruptcy Code 2016 (IBC) can be initiated against a corporate guarantor who has given a guarantee on behalf of a sole proprietorship. This update briefly summaries this said judgment.

Background: In the present case, the financial creditor being Union Bank of India (Bank) extended a loan facility to the principal borrower, Mahaveer Construction (Principal Borrower), a proprietary firm. Surana Metals Limited stood as the guarantor (Corporate Guarantor) for the loan availed by the Principal Borrower. The loan was eventually declared as a non-performing asset in 2010 and the Bank issued recall notices against the Principal Borrower and the Corporate Guarantor. The Bank initiated proceedings before the Debt Recovery Tribunal, Kolkata against the Principal Borrower and during the pendency of the proceedings, the Bank also