Liability of principal borrower and guarantors is joint and several in guarantee contract

Jammu & Kashmir Bank Ltd Vs Ace Engineering (India) Pvt. Ltd (NCLT)

NCLT Chandigarh held in contract of guarantee, the liability of the principal borrower and guarantor(s) is joint and several. Even if, either the principal borrower or guarantor has been discharged then the other party would not stand discharged automatically till the liability is met out or discharged.

Facts- The present petition has been filed by Jammu & Kashmir Bank Ltd. (referred to as ‘Petitioner/Financial Creditor’) through its Authorized Representative, Mohd. Hanief Kirmani, u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (referred to as ‘Code’) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 to initiate the Corporate Insolvency Resolution Process (‘CIRP’) against Ace Engineering (India) Pvt. Ltd. (referred to as ‘Respondent/Corporate Debtor’). The petition is signed by Mr. Mohd. Hanief Kirmani, with the affidavit verifying the contents of the application appended thereto.

Conclusion- Observed that in contract of guarantee, the liability of the principal borrower and guarantor(s) is joint and several. Thus, even if, either the principal borrower or guarantor has been discharged then the other party would not stand discharged automatically till the liability is met out or discharged.

Held that the present petition being complete and having established the default in payment of the Financial Debt for the default amount being above the threshold limit, the petition is admitted in terms of Section 7(5) of the IBC.

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