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SBI Can Initiate Insolvency Against Without All Lenders: NCLT Delhi
In a significant ruling that clarifies the rights of lenders under the , the has held that an individual can unilaterally initiate against a without requiring all consortium lenders to join the application. The decision, delivered by a bench comprising Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Reena Sinha Puri, admitted State Bank of India's (SBI) application under Section 95 of the IBC against Amit Sethi, a of .
The ruling reinforces the principle that a remains an and that the IBC does not mandate by lenders in arrangements. The tribunal rejected a series of objections raised by the guarantor, including arguments on , the necessity of joint lender action, and the impact of ongoing proceedings under the ).
Background of the Case
SBI extended loan facilities to starting in 2015, secured primarily by a executed by Amit Sethi. The borrower defaulted, and the account was classified as a on . Following the default, SBI issued a to Sethi on , under the . When Sethi failed to discharge his liability, SBI filed an application under on .
The NCLT appointed Deepak Mittal as the (RP) on , under . The RP, after examining the application and the guarantor's financial position, recommended the initiation of insolvency proceedings against Sethi.
Key Objections and the Tribunal’s Response
Amit Sethi opposed the application on multiple grounds. He contended that the application was deceptive, barred by , and inconsistent with a notice issued under the . He further argued that the consortium of lenders had failed to implement a sanctioned package and that SBI had acted arbitrarily by pursuing parallel proceedings before the while also participating in the corporate debtor's resolution process.
The most substantial objection, however, was that all consortium lenders should have jointly filed the application. Sethi argued that a single lender could not unilaterally trigger insolvency proceedings against a , especially when other lenders were also involved in the lending arrangement. He also claimed that the conclusion of insolvency proceedings against the principal debtor——extinguished his liability as a guarantor.
The tribunal systematically dismantled each objection, relying on the statutory language of the IBC and precedents from the .
: A Remains Alive
On the issue of , the NCLT held that a remains in force until the entire debt is repaid. The period begins not from the date of default by the principal debtor, but from the date the guarantor fails to comply with a demand made under the guarantee. Since SBI issued its on , and filed the application on —within three years—the application was well within the period.
The tribunal observed: “Section 95 permits a creditor to file an application either by itself, jointly with other creditors, or through a . The provision does not require all consortium lenders to collectively institute proceedings against a .” This statement became the cornerstone for rejecting the joint action argument.
Individual Lender’s Standing Under Section 95
The NCLT relied on two key NCLAT decisions: and . Both cases established that Section 95 of the IBC grants any the unconditional right to initiate insolvency proceedings against a . The tribunal explicitly held: “In view of the aforesaid statutory position and the decisions of the Hon'ble NCLAT, we hold that an individual is competent to file an application under Section 95 of the Code. The objection raised by the on this ground is accordingly rejected.”
This finding is critical for lenders in consortium arrangements. It clarifies that no collective decision-making or prior approval from other consortium members is required before a single lender can move against a . The provision itself does not mandate joint action, and the NCLAT precedents reinforce that reading.
No
The tribunal also rejected the argument that the resolution or liquidation of the principal debtor automatically extinguishes the guarantor’s liability. It noted that a valid and subsisting guarantee continues to bind the guarantor until the debt is fully repaid. In this case, the expressly provided that Sethi’s liability would continue until full repayment of the debt. The NCLT found no evidence that the guarantee had been discharged or modified by any subsequent event, including the corporate debtor’s insolvency process.
This position aligns with settled contract law and the IBC framework: the creditor may pursue the guarantor independently, regardless of the fate of the principal debtor.
Other Objections Dismissed
The tribunal dismissed the argument that SBI’s simultaneous pursuit of proceedings before the DRT constituted arbitrary conduct or an abuse of process. It noted that the IBC does not bar parallel remedies; a creditor can pursue multiple legal avenues simultaneously, subject to the . No election was established in this case.
Similarly, the contention that the failure to implement a sanctioned package by the consortium vitiated the application was not entertained. The NCLT observed that the guarantor’s liability arises from the and is not contingent on the consortium’s internal arrangements or the outcome of the corporate debtor’s resolution.
On natural justice, the tribunal found no violation. The RP’s report was served on Sethi, and he was given an opportunity to respond. The bench accepted the RP’s report and imposed a under for 180 days, thereby initiating formal against the .
Legal Implications for Lenders and Guarantors
This ruling provides much-needed clarity for banks and financial institutions participating in . It confirms that each lender retains the independent right to invoke the and trigger insolvency proceedings under the IBC without the consent or participation of other consortium members. This reduces procedural friction and empowers individual lenders to act swiftly when a guarantee is invoked.
For personal guarantors, the decision serves as a cautionary reminder. A guarantee is a continuing, . The guarantor cannot rely on the of all lenders or the ongoing resolution of the principal debtor as a shield. The clock starts ticking only when the lender makes a formal demand, not from the date of the principal debtor’s default. Guarantors must therefore respond promptly to demand notices or face immediate insolvency risk.
The ruling also underscores the IBC’s in matters. By allowing a single lender to file an application, the Code prioritizes efficient debt recovery over the complexities of consortium coordination.
Conclusion
The NCLT’s well-reasoned order in is a landmark interpretation of Section 95 of the IBC. It reaffirms that individual consortium lenders have standing to initiate insolvency proceedings against personal guarantors without the need for joint action. The rejection of objections on , , and automatic release from liability further strengthens the creditor’s toolkit under the Code. As insolvencies become more common, this ruling will likely guide future litigation and transactional structuring. For now, lenders can proceed with greater confidence, while guarantors must recognize that the IBC leaves them with limited defenses when a valid demand remains unpaid.
The admissions of the application and the imposition of a 180-day mark the commencement of formal against Amit Sethi. The case will now proceed under the supervision of Deepak Mittal.
