IBC: Law of guarantees and corporate insolvency process

The National Company Law Appellate Tribunal (NCLAT), in its recent ruling in the case of Vishnu Kumar Agarwal v Piramal Enterprises Ltd, while examining the validity of an application made under section 7 of the Insolvency and Bankruptcy Code, 2016 (code), against corporate guarantors, held that: (1) there is no bar on filing two simultaneous applications under section 7 against the principal borrower as well as the corporate guarantors and against both guarantors; and (2) it is not necessary to initiate a corporate insolvency resolution process (CIRP) against the principal borrower before initiating a CIRP against the corporate guarantors.

The NCLAT was hearing the appeal preferred by one of the shareholders against the order of the National Company Law Tribunal, New Delhi, initiating CIRP against the corporate guarantors.

The CIRP proceedings were initiated as the principal debtor, being a society, was not amenable to the insolvency proceedings under the code.

Abhishek Dutta is the founder and managing part of Aureus Law Partners. Vineet Shrivastava is a partner and Manish Parmar is a senior associate at the firm.