Under the newly legislated Insolvency and Bankruptcy Code 2016 (IBC), the New Delhi bench of National Company Law Tribunal (NCLT) passed a recent order dated 1 August 2017 admitting an application for initiating corporate insolvency resolution process by a guarantor of a corporate debtor.

Facts of the Case

  • Sumit Aviation Private Limited (Corporate Debtor) had taken a loan from Punjab National Bank (Bank) and the petitioner, Mr Davinder Ahluwalia (Guarantor) was the guarantor for the said loan and had mortgaged his immovable property with the Bank. To redeem the aforesaid mortgage of his property and reduce the liability of the Corporate Debtor, the Guarantor paid a sum of Rs 1.05 crores to the Bank.
  • On the failure of the Corporate Debtor to repay the abovementioned amount to the Guarantor, he invoked proceedings against the Corporate Debtor by filing an application to initiate the corporate insolvency resolution process for recovery of his dues from the Corporate Debtor.
  • In support of its application, the Guarantor attached its bank statements evidencing the loans aggregating to around Rs 29 lacs earlier advanced by the Guarantor to Corporate Debtor. The Guarantor furthermore relied on the cheque issued by the Corporate Debtor to Guarantor for the aforesaid amount, which was returned dishonoured.
  • On account of the above facts, the NCLT admitted the application of the Guarantor and appointed the interim resolution professional proposed by the Guarantor, (IRP) directing the IRP to make a public announcement and declaring moratorium for prohibiting certain actions as prescribed under IBC including stay of pending proceedings etc against the Corporate Debtor during the moratorium period.


The aforesaid order passed by NCLT under the IBC gives guarantors an opportunity and gleam of hope to recover their dues in a timely manner, i.e. 270 days, as compared to the recovery of dues prior to the enactment of the IBC which would be a rather lengthy process resulting in, more often than not, creditors bearing a loss of the time value of money recoverable by them.

This update was released on 11 Aug 2017.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or for any assistance.

Legal Update Team
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