Personal and corporate guarantors, whove had to not only shoulder equal liability as the borrower under the insolvency law, now have also lost their right of subrogation.
Under the Insolvency and Bankruptcy Code, courtsby relying on the Indian Contract Acthave held that the liability of a guarantor and borrower is co-extensive, they have the same liability towards the creditor. If the creditor recovers some amount from the borrower, the liability of the guarantor reduces proportionately and vice-versa.
But also built in the Contract Act is the right of subrogation for the benefit of guarantors. This means that if a creditor recovers partial or full debt from the guarantor, the guarantor will then be able to step into the shoes of the credi…
Read the full article at: https://www.bloombergquint.com/law-and-policy/insolvency-law-guarantors-lose-the-right-to-step-into-creditors-shoes