K. Paramasivam vs. The Karur Vysya Bank Ltd. and Ors. - (Supreme Court) (06 Sep 2022)

Liability of the guarantor is co-extensive with that of the principal borrower

MANU/SC/1108/2022

Insolvency

Present appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016, (IBC), is against a final judgment passed by the National Company Law Appellate Tribunal (NCLAT) dismissing the Company Appeal against an order passed by the Adjudicating Authority, admitting the application filed by the Respondent No.1 under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Maharaja Theme Parks and Resorts Private Limited.

The Appellant is the promoter, shareholder and suspended/ discharged director of Maharaja Theme Parks and Resorts, a company registered under the Companies Act, 1956.

Under Section 7 of the IBC, CIRP can be initiated against a corporate entity who has given a guarantee to secure the dues of a non-corporate entity as a financial debt accrues to the corporate person, in respect of the guarantee given by it, once the borrower commits default.

The issue of whether CIRP can be initiated against the Corporate Guarantor without proceeding against the principal borrower has been answered by this Court in Laxmi Pat Surana v. Union Bank of India and Another.

The issues raised in present appeal are settled by this Court in Laxmi Pat Surana v. Union Bank of India and Another. As held by this Court in Laxmi Pat Surana v. Union Bank of India and Another, the liability of the guarantor is co-extensive with that of the Principal Borrower. The judgment in Laxmi Pat Surana v. Union Bank of India and Another, rendered by a three-Judge Bench of this Court is binding on this Bench. It was open to the Financial Creditor to proceed against the guarantor without first suing the Principal Borrower. There is no ground to interfere with the concurrent findings of the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT). Appeal dismissed.

Tags : INITIATION CIRP LEGALITY