Corporate Guarantees explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Two questions decide most guarantee disputes in an insolvency — whether the guarantee was invoked before the process began, and whether the creditor must exhaust the principal borrower first. The answers are yes it must have been, and no it need not.
An uninvoked guarantee is not a claim
In Edelweiss Asset Reconstruction Company Ltd. v. Orissa Manganese and Minerals Ltd. the corporate debtor had given a guarantee to the appellant. The principal borrower had not defaulted on payments to the appellant, and the appellant had not invoked the guarantee.
The NCLAT held that the appellant's claim could not be considered, as there was no claim in existence as on the date of commencement of the CIRP. A guarantee is a contingent obligation; until invocation it confers no right to payment, and only what exists on the commencement date can be proved.
The Principal Bench in Axis Bank Ltd. v. Edu Smart Services Pvt Ltd (IB)-102(PB)/2017 completed the position: if a guarantee has not been invoked up to the date of commencement of the CIRP against the guarantor, then section 14 prevents the surety from invoking the guarantee during the CIRP.
So corporate guarantees have a cut-off. A creditor that has not invoked by the commencement date has neither a provable claim nor the ability to create one during the process. Invocation is a step to take before the moratorium, not after it.
Performance bank guarantees are outside this. A PBG is not caught, because "security interest" as defined in section 3(31) does not include a performance bank guarantee.
No obligation to sue the principal borrower first
On enforcement, corporate guarantees are treated as independent of the principal debt. Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Ltd. established that:
- a CIRP can be initiated against a corporate guarantor even where the principal borrower is not a corporate person; and
- a financial creditor is at liberty to initiate a CIRP against a corporate guarantor under section 7 without first initiating a section 7 application against the principal borrower in respect of the same debt, claim or default.
The NCLAT relied on State Bank of India v. Indexport Registered (1992) 3 SCC 159, where the Supreme Court held that a decree-holder bank may execute the decree first against the guarantor without proceeding against the principal borrower, because the guarantor's liability is co-extensive with that of the principal debtor under the Contract Act, 1872.
The restriction that was later distinguished
The same decision initially held that although a creditor could proceed against a corporate guarantor without proceeding against the principal borrower, it could not initiate a second CIRP for the same debt once one application had been admitted — a rule aimed at preventing multiple proceedings and double recovery.
That restriction has since been largely distinguished:
- the NCLAT in Ferro Alloys Corporation held it is not necessary to initiate a CIRP against the principal borrower before initiating one against the corporate guarantor; and
- the Supreme Court in Laxmi Pat Surana v. Union Bank of India clarified that simultaneous proceedings against both the borrower and multiple guarantors are permissible under the Code.
The position to advise on today is the later one. Corporate guarantees can be enforced in parallel with the principal debt, subject to the creditor not recovering more than once in substance.
Margin money and expired guarantees — Ankit International v. Bank of India
In this decision of 12 December 2025, the NCLT Mumbai Bench held that margin money in the form of fixed deposits reverts to the corporate debtor if the underlying bank guarantees expire uninvoked.
Such fixed deposits, having been recorded as assets in the information memorandum, must be treated as part of the insolvency estate. Once the resolution plan is approved under section 31, it becomes a binding final settlement that extinguishes all claims not specifically included. The bank's post-approval appropriation of Rs. 49,03,519 was declared illegal, and it was ordered to release the funds with accrued interest to the successful resolution applicant within four weeks.
The guarantee timeline
Corporate guarantees are worth mapping against the process dates, because each stage changes what can be done with them:
| Point in time | Position on the guarantee |
|---|---|
| Before commencement, invoked | A claim exists and is provable |
| Before commencement, not invoked | No claim on the commencement date |
| During the CIRP | Section 14 prevents invocation (except a PBG) |
| After plan approval under section 31 | Claims not specifically included are extinguished |
| Bank guarantee expires uninvoked | Margin money FD reverts to the estate |
Common mistakes
- Filing a claim on corporate guarantees that were never invoked.
- Attempting to invoke after the moratorium has commenced.
- Treating a performance bank guarantee as caught by the same rule.
- Appropriating margin money after a resolution plan has been approved.