Simultaneous CIRPs Against Principal Borrower And Corporate Guarantor For The Same Debt

1. Introduction

In any financial transaction pertaining to granting loans to the corporates, one of the most conventional methods adopted by banks and financial institutions include obtaining a guarantee from either the promoter or the holding/group companies of such corporate. Such guarantees and related contracts are governed under the provisions of Indian Contract Act, 1872 under the principle of coextensive liability of the surety and the principal debtor.

However, after introduction of the Insolvency and Bankruptcy Code, 2016 ("Code"), one of the most highly debated issues concerning these guarantee contracts is related to the question as to whether a lender can make simultaneous claims against the corporate insolvency resolution processes against the principal borrower as well as the corporate guarantor.