CREDITOR CAN DIRECTLY MOVE INSOLVENCY PROCEEDING AGAINST THE GUARANTOR INSTEAD OF DEBTOR

The National Company Law Appellate Tribunal (NCLT), New Delhi has in the case of Dr. Vishnu Kumar Agarwal v/s M/S Piramal Enterprises Ltd. passed a Judgment dated 08.01.2019 and held that the corporate insolvency resolution process (Insolvency Process) can be initiated under the Insolvency and Bankruptcy Code 2016 as amended thereof (the Code) directly against the Corporate Guarantor (Guarantor) by Financial Creditor (Creditor/FCs) without having initiated the Insolvency Process against the Corporate Debtor (Debtor). Thus, it is not mandatory to initiate the Insolvency Process against the Debtor before initiating the Insolvency Process against the Guarantor.

In this case, the Financial Creditor had initiated insolvency proceedings against the Debtor and the Guarantor on the ground that the Debtor had defaulted payment. This was challenged by the Guarantor on the ground that these insolvency proceedings should be first moved against the Debtor and not the Guarantor.

The NCLT Appellate Tribunal, New Delhi rejected the contentions made by the Guarantor and held that there is no bar under the Code for filing two applications simultaneously under Section 7 against the Debtor as well as the Guarantor. Although, once any one of the applications is admitted in the NCLT against either the Debtor or the Guarantor, the second application for the same set of claim and default cannot be admitted. Thus, the NCLT Appellate Tribunal, New Delhi upheld the Insolvency Process against the Debtor and did not admit the Insolvency Process against the Guarantor.

Satyam Singh Pal

Associate

The India Lawyer

With

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer