The article provides various case studies in a precise and concised manner.

1. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
IBC, 2016
Insolvency and
Bankruptcy Code,
2016.
Article
on IBC, 2016

2. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
Guarantors – Are they Financial Creditors?
IBC, 2016 has thrown up several challenges for deciding the status of Guarantors-Whether they are
Financial Creditors or not? The National Company Law Tribunal (NCLT) and National Company
Law Appellate Tribunal (NCLAT) have dealt with a case where a Counter-Guarantee issued by a
Corporate Debtor to further secure the guarantee for a debt was a Financial debt or not and
consequently whether it is a Financial Creditor. It also dealt with a case of accepting claims as
Financial Creditors on the borrower as well as guarantors where both were undergoing Insolvency.
It is also decided on admitting an application u/s 7 of the IBC, 2016 [Application as Financial
Creditors] simultaneously in case of a Borrower or Guarantors .
A snapshot of interesting cases on this vexed subject is given below:
IBC, 2016

3. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
IBC, 2016
Exim v/s Resolution Professional JEKPL (Pvt)
Limited
(2018) 97 taxmann.com 194 (NCLAT)
In this case Exim Bank granted loan to Jubiliant Energy
Netherlands (JENV) who was the principal borrower. A
corporate guarantee for this loan was issued by Jubiliant
Expo Pvt Ltd (JEPL). A counter corporate guarantee was
issued by JEKPL Pvt Ltd to secure the contractual
obligation of JEPL Since the loan granted to JENV was
non-performing, Exim Bank invoked guarantee of JEPL
and counter guarantee of JEKPL Pvt Ltd. Resolution
Professional of JEKPL Pvt Ltd, rejected the claim of Exim
Bank to be included as Financial Creditors. NCLT the
Adjudicating Authority upheld the action of the Resolution
Professional. The NCLAT held reversing the decision of
Adjudicating Authority, that the counter guarantee falls
within Sec 5 (8) (h) of the IBC, 2016 and Exim Bank is a
Financial Creditor within the meaning of sec 5(7) read with
sec 5(8) of IBC.
Axis Bank v/s Edusmart Services Pvt Ltd
(2018) 97 Taxmann.com 194 (NCLAT)
In this case Axis Bank lent Rs.396.76 crs to Educomp
Solutions Ltd [a Corporate Debtor also under Corporate
Insolvency Resolution Process (CIRP)].
Axis Bank filed a claim in Educomp Solutions Ltd where it
was admitted. It also filed a claim with the Resolution
Professional of Edusmart Services Pvt Ltd (ESSPL) which
was under CIRP on the basis that ESSPL was a guarantor
of loan granted to Educomp solutions Ltd. Resolution
Professional of ESSPL rejected the claim and NCLT-
Principal Bench (See Axis Bank v/s Edusmart Services Pvt
Ltd [(2017) 87 taxmann.com99 (NCLT-PB)] ) held that the
claim cannot be admitted during CIRP as it was not invoked
as on CIRP date and further a moratorium prevailed. The
issue of double claim one against the borrower and the other
against the guarantor was also raised. The Hon’ble NCLAT
reversed the same and held that Axis Bank is a financial
creditor in ESSPL as the corporate guarantee is financial
debt within the meaning of sec 5(8)(h) read with sec 5(7)
IBC, 2016.
Held Similarly in ICICI Bank Ltd. v/s. CA Ritu Rastogi
(2018) 97 taxmann.com 227 (NCLT – PB)
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4. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
IBC, 2016
BMD Pvt Ltd v/s SVL Ltd
98 Taxmann.com 61 (NCLT - Chennai)
In this case BMD Pvt Ltd (BMD) advanced to Lietwind
Sriram Manufacturing Pvt Ltd (LSMPL) against the bank
guarantee and corporate guarantee of SVL Ltd. BMD
encashed bank guarantee and enforced corporate guarantee
of SVL Ltd. Held, for enforcement of corporate guarantee
of SVL Ltd, a tripartite agreement between BMD-LSHPL-
SVL is not necessary. Even an agreement between BMD
and SVL is sufficient. BMD was held to be a Financial
Creditor of SVL Ltd and the CIRP in respect of SVL Ltd
was admitted.
Ferro Alloys Corporation Lt v/s Rural
Electrification Corporation Ltd
NCLAT decided on 08.01.2019
(2019) 101 taxmann.com 283 (NCLAT)
In this appeal, the NCLAT was deciding whether the
application u/s 7 of IBC is maintainable against the
‘Corporate Guarantor’ without initiation of ‘CIRP’ against
the principal borrower. The facts of the case was:
Rural electrification Corporation Limited (REC) sanctioned
a loan of Rs.517.90 cores to FACOR Power Limited
(Principal Borrower). For securing the loan, a corporate
guarantee was executed by Ferro Alloys Corporation Ltd
(corporate guarantor). Bank of India initiated CIRP against
the corporate guarantor without initiating any action against
FACOR Power Ltd, the principal borrower.
Held, that Ferro Alloys Corporate Ltd (corporate guarantor)
is a ‘corporate debtor’ within the meaning of definition of
IBC as the guarantee becomes a debt as soon as the
guarantee is invoked against it. It is not necessary to initiate
‘CIRP’ against the ‘principal borrower’ before initiating
CIRP against the corporate guarantors. Without initiating
any CIRP against the principal borrower, it is always open
to the Financial creditors to initiate CIRP u/s 7 against the
‘corporate guarantor’ as the creditor is also the ‘Financial
Creditor’ with respect to the ‘Corporate Guarantor’. The
invocation of guarantee is covered by Sec 5(8)(i) read with
sec 5(7) IBC 2016.
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5. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
Dr.Vishnu Kumar Agarwal v/s Piramal
Enterprises
NCLAT CA (AT) 346 of 18
In the case of Dr.Vishnu K. Agarwal v/s. Piramal
Enterprises Ltd. NCLAT vide order dated 08.01.2019 held
that initiation of CIRP u/s 7 on same facts ,documents and
amount cannot be made on Principal Borrower and
corporate guarantor or against two corporate guarantors for
the reason:
(a) that once one application u/s 7 for the amount is
admitted, it is open to the other corporate guarantor to say
that the debt in question is not due as it is not payable in law
having shown the same debt payable by the principal
borrower/ corporate guarantor against which the CIRP has
been initiated.
(b) Also, from another angle a double claim cannot be made
to the Resolution Professional of two corporate debtor’s
one, principal borrower and other corporate guarantor or
two corporate guarantors. If claim cannot be made, the
CIRP cannot be initiated in two applications u/s 7. [This
observation of Hon’ble NCLAT appears in my opinion
contradictory to its order in JEKPL Pvt. Ltd. Case discussed
above.] This judgement has therefore NOT put a bar on
filing two application u/s 7. It however holds that when one
is admitted, the other application cannot be admitted.
Further, though there is provision to file joint application
u/s 7 by the financial creditors, no application can be filed
against two or more corporate debtors on the ground of joint
liability till it is shown that the corporate debtors combined
are joint venture companies.
IBC, 2016
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6. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
IBC, 2016
PNB v/s Concord Hospitality Pvt. Ltd.
(2018) 98 Taxmann.com 275
Whether Personal guarantors are ineligible and
suffer for disqualification u/s 29A read with sec 30
IBC 2016?
In the case Concord Hospitality Pvt. Ltd. (the Corporate
debtor) was admitted to CIRP. Mr. Gill had given a personal
Guarantee to PNB for the debt given to Concord
Hospitality. On the question whether Mr. Gill was ineligible
to submit a Resolution Plan in terms of sector 29A of IBC
2016, it was held that in terms of Sec 29A read with sec 30
of the IBC, 2016, a person ineligible is one who has
executed a guarantee in favour of a creditor (here PNB) in
respect of a CD against which an application by such
creditors has been admitted and such guarantee has been
invoked by such creditor and remains unpaid in full or part.
However, merely because Mr. Gill had given a personal
guarantee to PNB in respect of debt of Concord will not
make him ineligible as such guarantee has not been
invoked.
SBI v/s V. Ramakrishnan
(2018) 96 taxmann.com 271(SC)
Whether Section 14 of the IBC, 2016 which provides
for a moratorium for a limited period mentioned in
the code, on admission of an insolvency petition,
would apply to a personal guarantor of a Corporate
debtor?
The Supreme court in this case disposed off many
contradictory judgements of NCLT/NCLAT and held that
Sec 14 of IBC, 2016 which provides for moratorium would
not apply to personal guarantors. They are open to be being
sued. It also held is para 21 of the said order that the scheme
of Sec 60(2) and (3) is clear -the moment the personal
guarantee is invoked of a corporate debtor which is under
CIRP there is no moratorium on the personal guarantor and
action can be proceeded with. Such an application has to be
filed only in the NCLT. However, the Tribunal is to decide
such proceedings only in accordance with the Presidency-
Towns Insolvency Act, 1909 or the Provincial Insolvency
Act, 1920 as the case may be. It is clear that tribunal shall
be vested with all the power of the DRT as contemplated in
PART III of the code. Once PART III of the Code is notified
and the presidency/ provincial Acts repealed the NCLT
shall adopt the procedure as per the code.
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7. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
IBC, 2016
Lalit Mishra & Org v/s Sharon BioMedicine Ltd.
CA (AT) no. 164-2018 dated 19.12.2018 (NCLAT)
Whether promoters/ guarantors have a right of
subrogation against the Corporate debtor in case they
make any payment?
In this case NCLAT was considering whether the plan must
provide for waving of personal guarantee and whether they
have a right of Subrogation in case of payment. The Hon’ble
NCLAT held that the contract of guarantee is a separate
contract which is to be excluded for the Resolution plan.
The Resolution plan is for creditors and not a way to provide
relief to promoters. The NCLAT held that promoters /
guarantors have no right of subrogation.
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8. Alok K Saksena
Resolution Professional
Desai Saksena & Associates
IBC, 2016