IL & FS Financial Services Limited Vs Serveall Constructions Private Limited (Supreme Court of India)
The Supreme Court considered whether a summary suit for recovery filed by IL & FS Financial Services Limited could proceed against the principal borrower despite moratoriums operating against the corporate guarantor under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) and the personal guarantors under Section 96 of the IBC. The plaintiff sought recovery of ₹203,66,31,506 arising from term loan facilities granted to the principal borrower, with defendants 2 to 4 acting as corporate and personal guarantors. After placing on record the insolvency orders against the guarantors, the plaintiff clarified that it sought to proceed only against the principal borrower while reserving its rights against the guarantors after the moratoriums ceased.
The plaintiff argued that the moratorium under Section 14 applied only to the corporate debtor against whom the Corporate Insolvency Resolution Process (CIRP) had been initiated, while the interim moratorium under Section 96 formed part of Part III of the IBC governing individuals and partnership firms. It submitted that no insolvency proceedings had been initiated against the principal borrower and therefore the recovery suit could continue against it. Reliance was placed on several judicial decisions concerning the distinction between corporate debtors, corporate guarantors and personal guarantors, the scope of Section 96, and the coextensive yet independent liabilities of borrowers and guarantors.
