2019 (11) TMI 1392 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Principal Borrower - Corporate Debtor or not - Section 7 of the I B Code - HELD THAT - It is clear that a Corporate Person, who is the surety in a contract of guarantee to a Corporate Debtor comes within the meaning of Corporate Guarantor. The Appellant M/s. Maharaja Theme Parks and Resorts Private Limited is a Corporate Person being a Company under the Companies Act, 2013. It has given a surety, but not in relation to a contract or guarantee to a Corporate Debtor. It has granted surety with regard to contract with a Debtor Firm or proprietary concern. Therefore, the Appellant - Company Appeal (AT) (Insolvency) No. 538 of 2019 Page 4 of 7 M/s. Maharaja Theme Parks and Resorts Private Limited does not come within the meaning of Corporate Guarantor as defined under Section 5(5A) - From the conjoint reading of Sections 3(7) and (8), it is clear that a Company as defined in clause (2) of Section 2 of the Companies Act, 2013 or Company Appeal (AT) (Insolvency) No. 538 of 2019 Page 5 of 7 a limited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated therein (except any financial service provider), comes within the meaning of Corporate Debtor. It is not in dispute that M/s. Maharaja Theme Parks andResorts Private Limited is a Company under the Companies Act, 2013. Therefore, M/s. Maharaja Theme Parks and Resorts Private Limited comes within the meaning of Corporate Debtor. Appeal dismissed.

Summary

Issues:
1. Maintainability of an application under Section 7 of the Insolvency and Bankruptcy Code against a Corporate Debtor.
2. Interpretation of definitions of Corporate Guarantor, Corporate Person, Personal Guarantor, Corporate Debtor, Financial Creditor, and Financial Debt under the Insolvency and Bankruptcy Code.

Issue 1: Maintainability of application under Section 7:
The case involved an appeal against the admission of an application under Section 7 of the Insolvency and Bankruptcy Code by the National Company Law Tribunal. The Appellant, a Promoter/Suspended Director of the Corporate Debtor, argued that the application was not maintainable against the Corporate Debtor as it was not the Principal Borrower. The Corporate Debtor had extended corporate guarantees for loans taken by other entities, and the proceedings were initiated against the Corporate Guarantor instead of the Borrowers. The Appellant contended that the application should have been filed only against a Corporate Debtor as defined in the Code.

Issue 2: Interpretation of definitions under the Code:
The Appellant argued that the Corporate Debtor did not fall within the definition of Corporate Guarantor as per Section 5(5A) of the Code since it had provided surety to a Debtor Firm or proprietary concern, not a Corporate Debtor. The Appellant claimed to be a Personal Guarantor as per Section 5(22) since it did not give surety in its individual capacity to a Corporate Debtor. The definitions of Corporate Person, Corporate Debtor, Financial Creditor, and Financial Debt were analyzed to establish the Corporate Debtor's status and the Bank's position as a Financial Creditor. The Tribunal concluded that the Bank qualified as a Financial Creditor of the Corporate Debtor, making the application under Section 7 maintainable.

In the judgment, the Tribunal dismissed the appeal, finding no merit in the arguments presented by the Appellant. The decision was made on the basis of the definitions and interpretations of the relevant sections of the Insolvency and Bankruptcy Code. The appeal was accordingly dismissed without costs.