In a significant ruling that settles a long-standing debate under the Insolvency and Bankruptcy Code, the Supreme Court has held that insolvency proceedings can proceed simultaneously against a principal borrower and its corporate guarantor for the same debt.
A bench led by Justice Dipankar Datta delivered the judgment while deciding a batch of appeals involving major financial institutions, including ICICI Bank Limited and State Bank of India, among others.
The central question before the Court was simple but critical: Can a financial creditor initiate Corporate Insolvency Resolution Process (CIRP) against both the borrower and the guarantor at the same time for the same default?
The Court’s answer was clear - yes.
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Background of the Case
The appeals arose from conflicting decisions of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). In some cases, insolvency applications were rejected on the ground that once CIRP was admitted against one corporate debtor (either the principal borrower or the guarantor), another application for the same debt could not be entertained.
In other matters, the tribunals allowed parallel proceedings, relying on later interpretations of the law.
For instance, ICICI Bank Limited had initiated CIRP against borrower companies after filing claims in proceedings against their corporate guarantors. Similarly, State Bank of India pursued insolvency against both borrowers and guarantors in separate matters.
Opposing parties argued that allowing parallel proceedings would amount to giving creditors “two bites at the cherry.”
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The Core Legal Question
The issue revolved around whether:
- The Insolvency and Bankruptcy Code (IBC) permits simultaneous insolvency proceedings, and
- Creditors must “elect” one remedy - either against the borrower or the guarantor.
Earlier reliance had been placed on an NCLAT judgment in Vishnu Kumar Agarwal, which had taken a restrictive view. However, the Supreme Court noted that the legal position had since evolved.
Court’s Observations
The bench emphasized that under Section 128 of the Indian Contract Act, the liability of a guarantor is co-extensive with that of the principal borrower.
“The liability of the principal borrower and the surety is co-extensive,” the Court observed, adding that the IBC does not prohibit separate or simultaneous proceedings.
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The Court referred to its earlier ruling in BRS Ventures Investments Ltd., reiterating that the Code permits initiation of insolvency proceedings against both entities.
Rejecting the argument that IBC is merely a recovery tool, the bench clarified:
“Insolvency proceedings are not pure recovery proceedings. However, once statutory conditions are satisfied, the adjudicating authority cannot refuse admission merely on that ground.”
The Court also addressed the concern that creditors might gain unfair voting power in two separate Committees of Creditors (CoC). It held that each CIRP is independent and relates to different corporate debtors. Therefore, participation in two CoCs does not violate the scheme of the Code.
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On Doctrine of Election
A key argument raised by appellants was that creditors must choose - either proceed against the borrower or the guarantor.
The bench firmly rejected this.
“Forcing a creditor to elect would essentially make it sacrifice part of its claim. The Code does not provide for such election,” the Court said.
It noted that when legislation intends a mandatory election of remedies, it clearly says so. The IBC contains no such restriction.
Safeguards Against Double Recovery
Addressing fears of “double enrichment,” the Court pointed to existing safeguards under the Insolvency Regulations.
Creditors are obligated to update their claims if they receive partial or full payment from any source. Resolution Professionals are also required to revise admitted claims when new information becomes available.
“The same amount cannot be realised twice over,” the Court observed, making it clear that while proceedings may run simultaneously, recovery cannot exceed the actual debt.
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IBC Is Not Purely Recovery - But Rights Cannot Be Curtailed
The Court acknowledged that the IBC’s purpose is resolution and value maximisation - not mere debt recovery. However, it clarified that statutory rights granted to financial creditors cannot be curtailed by judicial interpretation in the absence of express prohibition.
“If the rigours and conditions prescribed by the statute are met, it must be left to the wisdom of the adjudicating authority to admit a petition,” the bench said.
Decision
The Supreme Court held that:
- Simultaneous CIRP proceedings against a principal borrower and corporate guarantor are legally maintainable.
- The doctrine of election does not apply in such cases.
- The apprehension of double recovery is addressed through existing regulatory safeguards.
- Tribunals cannot reject insolvency applications solely because another proceeding for the same debt is pending against a related party.
With these findings, the Court disposed of the batch of appeals, affirming the permissibility of concurrent insolvency proceedings under the Insolvency and Bankruptcy Code.
Case Title: ICICI Bank Limited v. ERA Infrastructure (India) Limited & Connected Appeals
Case No.: Civil Appeal No. 6094 of 2019 & Batch Matters
Decision Date: February 26, 2026
