Delhi high court allows bank action against guarantor under SARFAESI Act.
3 nov 2020
The Delhi high court held that banks/financial institutions can start and continue the proceedings against the guarantor for recovering their dues under securitisation and reconstruction of financial assets and enforcement of security interest act, 2002.
A division bench of Hima Kohli and Subramaniam Prasad while pronouncing the judgement noted that “the liability of the principal borrower and the guarantor remain co-extensive and the respondent/bank is well entitled to initiate proceedings against the petitioner under the SARFAESI ACT during the continuation of the insolvency resolution process against the principal borrower.”
The petition was filed by Ms. Kiran Gupta challenging the insolvency petition filed by the bank against the principal borrower under the provisions of the Indian bankruptcy code before NCLT, Delhi and issued a notice under Section 13(2) of the SARFAESI Act to the petitioner, who had stood as a guarantor for the principal borrower.
The court held that, since the liability of a guarantor is co-extensive with that of the debtor and not in the alternative, it cannot be said that proceedings in the NCLT against the debtor can be a bar to institution of proceedings against the guarantor under the SARFAESI ACT.