No Guarantee For Lenders Under IBC

The credence of guarantees given to lenders ought to be protected under all circumstances in order to ensure that lenders are not left high and dry with huge piles of NPAs

Much like various other aspects of the Insolvency and Bankruptcy Code, 2016 (IBC), the issue of moratorium granted to personal guarantors of a corporate debtor undergoing the process of Insolvency Resolution has also been evolving since the IBC came into effect.

Both the Sick Industrial Companies Act, 1985 (SICA) and the IBC contain provisions relating to the continuity of proceedings/prohibiting suits and proceedings against corporate debtors, with the former making a slight and restrictive inclusion of suits of guarantee within this prohibition (s. 22 SICA) and the latter requiring the transfer of all IRP (Insolvency Resolution Process) and Bankruptcy proceedings before courts and tribunals to the NCLT, thereby indicating an implied prohibition (s. 60 IBC). It is noteworthy how courts and tribunals had an unprecedented hesitation in subjecting this limited benefit to the generality of prohibiting of suits and proceedings against corporate debtors including a recent NCLAT decision changing the course of the interpretation. Is such a track change a result of the change in regime (from SICA to IBC) and does it reflect the spirit behind the IBC?