Initiation of Corporate Insolvency Resolution Process by a Foreign Creditor against an Indian Corporate Guarantor

Every financial institutions want someone to stand guarantee to the loan they are about to provide. One of such common ways is that a subsidiary company stands as a guarantor for the parent company against the loan obtained by the latter. The question now arises is whether a Foreign Creditor can initiate Corporate Insolvency Resolution Process against Indian Corporate Guarantor?

Before delving into the question it is imperative to speak about the position of a Corporate Guarantor under the Insolvency & Bankruptcy Code, 2016 (“I&B Code”). The NCLAT vide its judgment in Dr. Vishnu Kumar Agarwal vs M/s Piramal Enterprises Ltd. cleared two legal positions. Firstly, it cleared, that a Financial Creditor can initiate Corporate Insolvency Resolution Process against the Corporate Guarantor, under I&B Code, even before proceeding against the corporate debtor. Secondly, the bench also noted that counter-indemnity obligation in respect of a guarantee comes within the meaning of ‘financial debt’, as per clause (h) of Section 5 (8) of the I&B Code. The NCLAT thus cleared the air on the position of Corporate Guarantor under I&B Code.

For a better understanding of the topic a recent judgment of the NCLT, Chennai Bench being M/s Stanbic Bank Ghana Ltd. vs M/s Rajkumar Impex Pvt. Ltd. (CP/670/IB/2017) is discussed herein below.


The Financial Creditor (M/s Stanbic Bank Ghana Ltd.) entered into Loan Agreements with M/s Rajkumar Impex Ghana Ltd. which was the principle borrower and the wholly owned subsidiary of the Respondent Company. Pursuant to the Loan Agreements the Financial Creditor entered into a deed of guarantee with the Respondent Company. The guarantee was an “on demand” guarantee which was inviolable on demand. The deed also contained an indemnity issued by the Respondent to the Financial Creditor. Upon default from the borrower proceedings were initiated against the Respondent in the courts in England, in terms of the deed, and the court of England passed an order after analyzing the merits despite which the Respondent failed to make payment to the Financial Creditor hence the Creditor initiated the Corporate Insolvency Resolution Process.

Submissions of the Respondent

The Respondent submitted that the petition was not maintainable since (a) the Creditor was not an Indian Company registered under the Companies Act, 2013; (b) a constituted attorney on behalf of the Creditor cannot institute an application under I&B Code, the rules only entitle an authorized representative to verify the pleadings; (c) Principle borrower is an independent company and not a subsidiary of the Respondent Company; (d) having failed to recover money from the principle borrower the Creditor cannot enforce the claim against the Guarantor; (e) the order made by the courts in England is not conclusive and has not been given on merit; (f) lastly the Foreign Exchange Management (Guarantee) Regulations, 2000 (FEMA Regulations) permission to be obtained from Reserve Bank of India before singing of the guarantee.

Submission of the Financial Creditor

The Creditor countered the arguments by stating that (a) dispute with the principle borrower is irrelevant, because the guarantee was “on demand” and it is a settled law that the liability of the Guarantor is co-extensive  with that of the principle borrower; (b) the I&B Code does not prohibit a foreign creditor from filing a petition; (c)the order passed by the court of England, despite being ex-partee was on merits; (d) an authorized representative includes an authorized agent, the Board of Directors authorized the POA to file the petition (relying on Macquirie Bank Ltd. vs Shilpi Cables Technologies Ltd.); (e) dispute is irrelevant for the purpose of  determining an application under Section 7 of I&B Code (relying on M/s Innoventive Industries Ltd. vs. ICICI Bank and another) (f) finally, FEMA Regulations apply only if the principle borrower in an Indian.

Decision by NCLT, Chennai Bench

Relying upon the findings of the order passed by the courts of England the NCLT concluded that the Financial Creditor has made out a prima facie case under I&B Code. The findings of the court of England that were relied upon are that the Respondent in terms of the deed is liable as principle obligator and indemnifier and also that there is no compelling reason for trial and after analyzing evidence the court of England passed its order. The NCLT concluded that it has not power to enforce the foreign decree but it has the power to taking cognizance of the decree and accordingly initiated the Corporate Insolvency Resolution Process.


Having considered the above, the NCLT has rightly admitted the petition and imitated Corporate Insolvency Resolution Process and with that the NCLT has also clarified that a Foreign Creditor can file a petition for Corporate Insolvency Resolution Process under I&B Code against an Indian Corporate Guarantor.

Published by Pushkar Taimni

Pushkar Taimni heads the practice at Law Chambers of Pushkar Taimni. He can be contacted at or

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