The National Company Law Tribunal (NCLT) at Kochi has ruled that a settlement reached during the insolvency proceedings of a principal borrower does not, by itself, prevent insolvency proceedings against its corporate guarantor.
The settlement must specifically release the guarantor from its obligations for it to have that effect.
The tribunal observed, “any arrangement or settlement among the members of the Committee of Creditors concerning their inter se rights and obligations cannot, by itself, affect the rights of the Financial Creditor or extinguish the obligations of the Respondent under the Guarantee Agreements. Unless the settlement expressly releases the Corporate Debtor from its guarantee obligations, it cannot bar the…