K. PARAMASIVAM versus THE KARUR VYSYA BANK LTD. & ANR.

K. PARAMASIVAM versus THE KARUR VYSYA BANK LTD. & ANR.

A corporate person who has given a guarantee for a loan to a non-corporate borrower becomes a 'corporate debtor' for the purposes of Section 7 IBC when the principal borrower defaults; the financial creditor may initiate CIRP against the corporate guarantor without first proceeding against the principal borrower, because the guarantor's liability is co-extensive with the principal borrower's.

Parties
Appellant: K. Paramasivam; Respondent Financial Creditor: The Karur Vysya Bank Ltd.; Corporate Debtor: Maharaja Theme Parks and Resorts Private Limited
Jurisdiction
India
Judgment Date
06 September 2022
Procedural Posture
Civil Appeal Under Section 62 of the Insolvency and Bankruptcy Code, 2016 / Final Judgment on Appeal From NCLAT Upholding NCLT Order Admitting Section 7 Application
Outcome
Appeal dismissed.
Legal Topics
Corporate Insolvency Resolution Process, Corporate Guarantee, Financial Debt, Section 7 IBC, Definitions Under IBC (ss.3(7), 3(8), 5(5 A))
Insolvency and Bankruptcy Corporate Law Corporate Insolvency Resolution Process Corporate Guarantee Financial Debt Section 7 IBC Definitions Under IBC (ss.3(7), 3(8), 5(5 A))

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Parties

K. Paramasivam

Appellant

The Karur Vysya Bank Ltd.

Respondent Financial Creditor

Maharaja Theme Parks and Resorts Private Limited

Corporate Debtor

Procedural Posture

Civil Appeal Under Section 62 of the Insolvency and Bankruptcy Code, 2016 / Final Judgment on Appeal From NCLAT Upholding NCLT Order Admitting Section 7 Application

Legal Issues

  1. 1 Whether CIRP under Section 7 IBC can be initiated against a corporate guarantor who guaranteed loans of a non-corporate principal borrower
  2. 2 Whether a corporate guarantor falls within the definition of 'corporate guarantor' in Section 5(5A) and/or within 'corporate debtor' in Section 3(8) for the purposes of Section 7
  3. 3 Whether the financial creditor must first proceed against the principal borrower before initiating proceedings against the corporate guarantor

Ratio Decidendi

A corporate person who has given a guarantee for a loan to a non-corporate borrower becomes a 'corporate debtor' for the purposes of Section 7 IBC when the principal borrower defaults; the financial creditor may initiate CIRP against the corporate guarantor without first proceeding against the principal borrower, because the guarantor's liability is co-extensive with the principal borrower's.

Court Disposition

Appeal dismissed.

Orders

  • Appeal dismissed.
  • Order of the NCLAT dated 18.11.2019 dismissing Company Appeal (AT)(Ins) No.538 of 2019 is upheld.