New Delhi, Jan 21 (KNN) The National Company Law Tribunal (NCLT) had held that the lenders of defaulting companies can initiate corporate insolvency resolution process against corporate guarantors without invoking Corporate Insolvency Resolution Process (CIRP) for the principal borrowers.

The NCLT bench headed by Chairman Justice S J Mukhopadhaya said, “…It is not necessary to initiate ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ before initiating ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Guarantors’.

Without initiating any ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’, it is always open to the ‘Financial Creditor’ to initiate ‘Corporate Insolvency Resolution Process’ under Section 7 against the ‘Corporate Guarantors’, as the creditor is also the ‘Financial Creditor’ qua ‘Corporate Guarantor’,” it added.

The three member bench of the appellate tribunal in a judgement said that corporate guarantors are also financial debtors.

Section 7 of the Insolvency & Bankruptcy Code (IBC) empowers a financial creditor either by itself or jointly with other financial creditors to file insolvency plea against its corporate debtor before the NCLT (National Company Law Tribunal).

It also allows the lenders to suggest name of person to act as the resolution professional of the company.

"The provision of the I&B Code do not bar a 'financial creditor' from initiating CIRP against the guarantor, who comes within the meaning of corporate debtor," said the NCLAT.

The NCLAT Judgement came on January 8, 2019 in a plea filed by ‘Rural Electrification Corporation Limited’ (Financial Creditor) against ‘Ferro Alloys Corporation Ltd. (Corporate Guarantor–Corporate Debtor).