ICICI BANK LTD VS ERA INFRASTRUCTURE (INDIA)  LTD. : CASE SUMMARY

The Supreme Court in ICICI Bank Ltd. Vs. Era Infrastructure (India) Ltd. Civil Appeal  6094 of 2019  reiterated view taken in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. & Anr (2025) 1 SCC 456  that simultaneous proceedings can be initiated against principal debtor and corporate guarantor.

BRIEF FACTS

Several appeals were filed before the Supreme Court against orders of NCLAT. In all these cases the NCLAT or the NCLT, has either rejected or permitted initiation of CIRP against the corporate debtor, which was either the principal debtor or the surety/guarantor itself.

In Civil Appeal 6094/2019, insolvency proceedings was initiated against Era Infrastructure Engineering Private Limited  wherein claim was filed by ICICI on the basis of guarantee.  Subsequently, ICICI  filed an application under section 7 of the IBC for initiation of CIRP against ERA Infrastructure (India) Limited. Relying on a judgment of the NCLAT in Vishnu Kumar Agarwal v. M/s Piramal Enterprises Ltd, the NCLT, vide the impugned judgment, rejected the application on the grounds that based on the same facts and documents, a fresh section 7 application could not be filed.

In Civil Appeal No. 6093 of 2019, Era Infrastructure Engineering Private Limited had provided corporate guarantees to Hyderabad Ring Road Project Private Limited.  CIRP was initiated against Era Infrastructure Engineering Private Limited wherein ICICI Bank ltd filed claim. Subsequently, ICICI initiated CIRP process against Hyderabad Ring Road Project Private Limited. NCLT rejected the application relying on Vishnu Kumar Agarwal.

In Civil Appeal No. 827-828 of 2021,  CIRP has been initiated against M/s Chamber Constructions, a guarantor to  RNA Corp. Pvt. Ltd. Subsequently, insolvency proceedings was initiated against RNA. RNA preferred appeal before NCLAT which was dismissed by NCLAT.

In  Special Leave Petition No. 21778/2019, the International Finance Corporation has granted loan to Punj Lloyd Upstream Limited. Punj Lloyd Limited stood guarantor to the transaction. CIRP was initiated against Punj Lloyd Ltd by ICICI. IFC filed claim in this case. Later IFC initiated insolvency proceedings against Punj Lloyd Upstream Limited, which was rejected by NCLT relying on  Vishnu Kumar Agarwal. IFC directly filed SLP before the Supreme Court against order of NCLT.

In Civil Appeal  2715 of 2020, CIRP was initiated against  Greengrow Commercial Pvt Ltd.  Greengrow had extended a corporate guarantee to Gee Pee Infotech Pvt Ltd.  against the facilities given by State Bank of India. Insolvency proceedings have already been initiated against Gee Pee Infotech Pvt. Ltd. Ex-director of Greengrow filed appeal before NCLAT which was allowed relying on Vishnu Kumar Agarwal.

In Civil Appeal 4018 of 2013, SBI advanced cash credit facilities to A A Estates Private Limited. Corporate guarantee was given  by RNA Corp Pvt Ltd. SBI initiated insolvency proceedings against A A Estates Private Limited. RNA had already been admitted to CIRP wherein SBI has filed its claim. An appeal was filed before NCLAT, which was dismissed.

In Civil Appeal 7231/2024, SBI, as part of a consortium, granted certain loans and facilities to Coastal Energen Private Ltd. Fossil Logistics Private Ltd. extended corporate guarantees. SBI initiated insolvency proceedings against Coastal Energen Private Ltd. Subsequently, SBI also initiated insolvency proceedings against Corporate Guarantor.  The suspended director of Fossil Logistics Private Ltd. preferred appeal before NCLAT, which was dismissed.

FINDINGS OF THE SUPREME COURT

The issue before the Supreme Court was whether simultaneous proceedings for Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 20165 against the principal debtor as well as its corporate guarantor, or vice-versa, are maintainable?

Simultaneous proceedings

The Supreme Court observed that simultaneous proceedings against the Corporate Debtor and/or the guarantor(s) can be maintained or not, is no longer res integra. In BRS Ventures, the Supreme Court has already held that simultaneous proceedings can be initiated against principal debtor as well as corporate guarantor.

IBC whether recovery proceedings

The Supreme Court observed that neither Section 7 or 9 bars initiating insolvency proceedings for recovery.  The fact that recovery is as central to the process of insolvency resolution as resolution itself would also be evident from the fact that upon an application under section 7 or section 9 being admitted, the decision as regards the viability of the resolution plan which, inter alia, provides for payment of the dues of the creditors is taken by the CoC, which is constituted chiefly by the financial creditors. It is any body’s guess that decision taken by the creditors would be in their best interest, i.e., to bolster recovery. In fact, it cannot be denied that maximization of the value of the corporate debtor’s assets is also to enure to the benefit of creditors.

whilst approving that the IBC is not a recovery proceeding, the Supreme Court  negated the contention that CIRP can be prohibited against a guarantor or co-borrower only on that ground. The rationale of a creditor obtaining a guarantee for its debt must be realized to its fullest. A financial creditor, vested with rights under the Code, must be able to exercise it. Equally so, the adjudicating authority has the obligation to examine the application independently, on its own merits.

Election of claims

The Supreme Court observed that it is settled law that a creditor can pursue proceedings against multiple debtors, simultaneously. Restricting the claim of a creditor against a debtor or a guarantor is likely to defeat the purpose of a guarantee. Since a guarantor’s liability is co-extensive, forcing the creditor to elect would essentially make it sacrifice part of its claim. This is not how a guarantee works, particularly when the Code does not provide for such election.

The conspicuous absence of any restrictive provision in the IBC implies that no such restriction can be imposed on the creditor. The effect of imposing a mandatory election of claims upon the creditor would effectively take away the statutorily vested right to approach the NCLT against one or both.

Double enrichment

The Supreme Court also rejected the contention that simultaneous proceedings may cause double enrichment. It was contended that simultaneous proceedings against debtor and guarantor might lead to recovery of dues more than what it is entitled and, thereby, doubly enriching itself. It was contended that the Code, as it stands today, does not envisage a mechanism for prohibition of such double enrichment. The Supreme Court observed that to entirely bar proceedings against guarantors solely on this ground would be an overextension of the principle. Sufficient safeguards exist as on date to prevent such double enrichment. Regulation 12A of the 2016 Regulations sets up an obligation upon the creditor to update its claim as and when it is satisfied, either partly or fully, from any other source.

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