From the onset of the Insolvency and Bankruptcy Code, there has been evolving jurisprudence on the position of guarantors, in the event of a default where a guarantee has been provided.
Moratorium Against Guarantors
In the initial period of implementation of the IBC, there was a huge debate as to whether guarantors would be entitled to the benefit of a moratorium, as provided under Section 14, upon the commencement of insolvency proceedings against the borrower for whose benefit the guarantee had been obtained. One set of rulings (an Allahabad High Court judgment a case involving State Bank of India, the Chennai NCLT, and NCLAT judgments in the Veesons Energy Systems case) held that the benefit of the moratorium would be available to the g…
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