No Mandatory Election Of Claims Under The IBC: Simultaneous CIRP Against Principal Borrower And Guarantor Upheld

1. Introduction:

1.1 The resolution of financially distressed companies under the Insolvency and Bankruptcy Code, 2016 ("IBC") has consistently raised complex questions concerning the interplay between the rights of financial creditors, the obligations of corporate debtors, and the liability of guarantors. The IBC has progressively evolved through judicial interpretation, particularly in matters involving guarantees and interconnected corporate structures. A recurring and commercially significant question has been whether a financial creditor can initiate simultaneous Corporate Insolvency Resolution Process ("CIRP") proceedings against both, principal borrower and its guarantor for the same underlying debt, or whether admission of proceedings against one entity operates as a bar against the other.

1.2 While p 7 of the IBC enables financial creditors to initiate CIRP against corporate debtors upon the occurrence of default, the statute does not expressly address the question concerning the permissibility of simultaneous or successive proceedings against both the principal debtor and the guarantor. This silence led to pergent tribunal rulings and uncertainty around the applicability of doctrines such as the doctrine of election of remedies, the scope of co-extensive liability under p 128 of the Indian Contract Act, 1872 ("Contract Act"), and concerns relating to duplicative claims, voting rights across Committees of Creditors ("CoC"), and potential overlapping recoveries.

1.3 These issues were recently considered by the Hon'ble Supreme Court ("Hon'ble SC") in ICICI Bank Ltd. v. Era Infrastructure (India) Ltd., 2026 SCC OnLine SC 314. [1] The said decision comprehensively addresses these issues and settles the legal position on the permissibility of simultaneous insolvency proceedings against principal debtor(s) and corporate guarantor(s).

1.4 The authors in the present case comment seek to discuss the highlights of this decision of the Hon'ble SC and the implications thereof for the stakeholders of the insolvency resolution framework.

2. Conspectus of facts:

2.1 In the present case, the Hon'ble SC was dealing with appeals arising out of different orders passed by the National Company Law Appellate Tribunal ("NCLAT") and various National Company Law Tribunals ("NCLTs"). These impugned orders stand connected through a common thread — they have either refused to admit applications for initiating CIRP simultaneously against the principal borrower / corporate debtor and the guarantor in light of a prior application for initiating CIRP already being admitted against the other; or which allowed applications for initiating CIRP simultaneously against the principal borrower / corporate debtor or guarantor, notwithstanding a prior application already being admitted against the other.

2.2 For instance, the lead appeal in the present case was filed by ICICI Bank Limited ("ICICI"), being a financial creditor, who had, inter alia, advanced a loan in favour of ERA Infrastructure (India) Limited ("ERA India"), a group company of Era Infra Engineering Private Limited ("Era Infra"), pursuant to a credit arrangement. For the said credit facility granted to the company, the parent company, i.e., Era Infra, gave certain guarantee and contractual comforts. Later on, ERA India defaulted upon its payment obligations and so did Era Infra.

2.3 On May 08, 2018, CIRP came to be initiated against Era Infra. ICICI, on the basis of the guarantee, lodged its claim. While ICICI participated in the CoC in respect of the CIRP that stood initiated against Era Infra, it also filed an application under p 7 of the IBC against ERA India seeking initiation of CIRP. The NCLT rejected the said application, noting that a fresh p 7 application could not be filed based on same facts and documents.

3. Issue for consideration before the Hon'ble SC:

3.1 The question before the Hon'ble SC was whether simultaneous proceedings for CIRP under the IBC, against the principal debtor as well as its corporate guarantor, or vice versa, are maintainable.

4. Analysis and findings by the Hon'ble SC:

4.1 The Hon'ble SC considered two sets of arguments advanced by the parties - those in favour of and those who are against the proposition of simultaneous proceedings. The Hon'ble SC analysed the legal issue before it in view of the position of law established through various precedents and while considering the core objectives of the IBC.

4.2 At the outset, the Hon'ble SC, inter alia, traced the evolution of the IBC and the lacunae in the statutes existing prior to the IBC which necessitated the enactment of the IBC. The Hon'ble SC thus noted that the IBC is primarily concerned with insolvency resolution of the debtor (corporate or otherwise), and while recovery is incidental, the process is a time-bound, collective mechanism aimed at balancing the interests of all stakeholders (especially the creditors), rather than facilitating recovery of dues only of the person who initiated the proceeding – with the end goal of maximizing the value of the assets of the debtor.

A. Simultaneous proceedings against the corporate debtor and the guarantor permitted under the IBC.

4.3 The Hon'ble SC noted that the impugned orders that rejected the notion of simultaneous CIRP against the corporate debtor and the guarantor, placed reliance on the judgment passed by the NCLAT in Vishnu Kumar Agarwal v. M/s Piramal Enterprises Ltd., 2019 SCC OnLine NCLAT 81 – wherein it was held that once an application stood admitted, either against the principal borrower or the guarantor, no further application could be maintained against the guarantor or co-guarantor or principal borrower.

4.4 On the other hand, the impugned orders that favoured the notion of simultaneous CIRP proceedings against the guarantor and principal borrower placed reliance on the judgment passed by a coordinate bench of the NCLAT in SBI v. Athena Energy Ventures (P) Ltd., (2021) 226 Comp Cas 744, wherein the NCLAT preferred not to interpret the law in the manner it was interpreted in the matter of Vishnu Kumar (supra).

4.5 The Hon'ble SC noted that the reasoning against simultaneous proceedings may appear simple, i.e., one debt, one proceeding. However, the said reasoning was negatived in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. & Anr., (2025) 1 SCC 456 – wherein relying upon sub-ps (2) and (3) of p 60 of the IBC, the Court has held that in consonance with the fundamental principles of the Contract Act that the liability of the principal borrower and surety is coextensive, the IBC permits separate or simultaneous proceedings to be initiated under p 7 of the IBC by a financial creditor against the principal debtor and the guarantor.

4.6 The Hon'ble SC further noted that in BRS Ventures (supra), the Court had considered the interpretation of sub-p (8) of p 5, sub-p (2) of p 60 of the IBC, as well as regulation 8 of the Insolvency And Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("2016 Regulations"), read with Schedule-I, Form C of the 2016 Regulations to reach the aforesaid conclusion.

B. Financial creditor entitled to realize its debt completely –

4.7The Hon'ble SC relying upon previous judicial precedents averred that indeed matters under the IBC are not purely of the nature of recovery proceedings, and that it is trite law that the modal verbs "may" and "shall" in ps 7(5)(a) and 9(5)(a) of the IBC respectively, make the latter mandatory and the former subject to the discretion of the adjudicating authority. The Hon'ble SC also noted that such a discretion under p 7(5)(a) ought to be reasonable, well-founded and not arbitrary.

4.8 Based on the aforesaid, the Court held that while the proceeding under the IBC is not a recovery proceeding, this cannot be the only ground to prohibit CIRP against a guarantor or co-borrower. The creditor obtaining a guarantee for its debt must realize it to full extent — and a financial creditor vested with rights under the IBC must be able to exercise the same.

C. Inapplicability of the doctrine of election of claims & presence of safeguards against double enrichment –

4.9 The Hon'ble SC reiterated that it is settled law that a creditor may initiate proceedings simultaneously against multiple debtors. The Court rejected the argument that allowing the creditor to claim the debt entirely from both, the principal debtor and the guarantor, would result in dual recovery attempts and voting rights in separate CoCs. The Court observed that such a benefit is in respect of separate CoCs for different debtors, and the proceedings against the guarantor and the debtor are separate and independent.

4.10 The Hon'ble SC held that a guarantor's liability is co-extensive – if the creditor is directed to elect a particular claim, it would effectively force the creditor to forgo its right to claim the remaining debt from either party – especially after the CIRP concludes, owing to the 'clean slate doctrine'. This is neither contemplated under principles of guarantee nor provided for under the IBC.

4.11 The Hon'ble SC also noted that when an election of remedies or claims is intended by the statute, such a provision must be expressly provided for, and such a provision is conspicuously absent in the IBC — implying that no such restriction can be imposed upon the creditor. The Court drew reference to the Motor Vehicles Act, 1988, as an example — wherein the claimants are mandated to choose between seeking compensation under p 163A or 166 of the said Act.

4.12 The Hon'ble SC considered the apprehension that permitting a creditor to initiate CIRP against multiple debtors could potentially result in recovery of amounts exceeding what is legitimately due, thereby, leading to unjust enrichment. It was contended that the IBC, in its present form, does not expressly provide a mechanism to prohibit such double recovery. While acknowledging the underlying concern, the Hon'ble SC observed that adequate safeguards exist within the statutory framework. In particular, reliance was placed on regulations 12A and 14 of the 2016 Regulations.

4.13 Regulation 12A of the 2016 Regulations casts an obligation upon the creditor to update its claim as and when it is satisfied, either partly or fully, from any other source; and regulation 14 of the 2016 Regulations casts an obligation upon the resolution professional to independently assess and update the claims from time-to-time. Thus, the concern of double enrichment stands rejected.

4.14 Reliance in this regard, was placed on Maitreya Doshi v. Anand Rathi Global Finance Ltd., (2023) 17 SCC 606 – wherein the Hon'ble SC had held that if there are two borrowers or corporate debtors, proceedings under p 7 of the IBC may be initiated against both. However, the same amount cannot be realised twice over. If dues are recovered in part from one corporate debtor, the balance may be realised from the other, but once the financial creditor's claim is fully discharged, no further recovery is permissible.

5. Conclusion:

5.1 In conclusion, the Hon'ble SC reaffirmed the position of law as laid down in BRS Ventures (supra) and has conclusively held that the financial creditor is authorized within the scheme of the IBC to simultaneously initiate CIRP proceedings or participate in ongoing CIRP proceedings against both – the principal borrower and the guarantor. Further, the doctrine of election of claim is not applicable to creditor(s) in such cases; however, upon satisfaction of its claim in entirety from one corporate debtor, the creditor cannot pursue its claim against the co-debtor.

5.2 During the course of proceedings, the Hon'ble SC was also urged to lay down guidelines and modalities for the path ahead. The Hon'ble SC noted that the legislature as well as the Insolvency and Bankruptcy Board of India ("IBBI") are aware of the pitfalls and lacunae that may arise. In this regard, it referred to the Report of the Insolvency Law Committee (February 2020), which was also referred to by the NCLAT in Athena Energy (supra). Ultimately, the Hon'ble SC declined to frame guidelines, observing that the IBC is the result of a carefully designed and extensively researched policy framework, with its rules and regulations formulated after rigorous deliberation, and laying down such guidelines would amount to entering the legislative domain.

6. CMS INDUSLAW's Remarks:

6.1 The judgment significantly strengthens creditor rights under the IBC by reaffirming that insolvency proceedings against a principal borrower and its guarantor are legally independent, notwithstanding the existence of a common underlying debt. By rejecting the applicability of the doctrine of election and emphasising co-extensive liability, the Hon'ble SC has restored commercial certainty in guarantee-backed financing structures. At the same time, by relying on the existing regulatory framework to address concerns of double recovery, the Court has avoided judicial overreach and preserved the legislative balance embedded within the IBC. The ruling, thus, harmonises insolvency principles with contract law while reinforcing the resolution-centric architecture of the IBC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.