2022 (9) TMI 324 - SC - Insolvency and Bankruptcy

Initiation of CIRP - Corporate Guarantor being a Company - The Company stood guarantor for the loans availed by the three borrowers which are partnership firm and / or proprietary concerns - HELD THAT - 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 guarantor is then, the Corporate Debtor. 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 2021 (3) TMI 1179 - SUPREME COURT where it was held that the liability of the guarantor is co-extensive with that of the Principal Borrower. The judgment in Laxmi Pat Surana, 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 are no ground to interfere with the concurrent findings of the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) - appeal dismissed.

Summary

Issues Involved:
1. Jurisdiction of NCLT to entertain the petition under Section 7 of the IBC.
2. Definition and scope of 'Corporate Debtor' and 'Corporate Guarantor' under IBC.
3. Applicability of CIRP against a Corporate Guarantor for loans given to non-corporate entities.
4. Concurrent findings of the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT).

Issue-wise Detailed Analysis:

1. Jurisdiction of NCLT to entertain the petition under Section 7 of the IBC:
The appellant contested the jurisdiction of the National Company Law Tribunal (NCLT) to entertain the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), arguing that Maharaja Theme Parks and Resorts Private Limited was not a Corporate Debtor as defined under Section 3(8) of the IBC. The appellant asserted that the company did not owe any financial debt to the Financial Creditor.

2. Definition and scope of 'Corporate Debtor' and 'Corporate Guarantor' under IBC:
The appellant argued that Maharaja Theme Parks and Resorts did not fall within the definition of 'Corporate Guarantor' under Section 5(5A) of the IBC, which defines a corporate guarantor as a corporate person who is the surety in a contract of guarantee to a corporate debtor. The appellant's counsel, Mr. Mishra, contended that the company had not guaranteed any loan given to a corporate person and hence could not be considered a Corporate Guarantor.

3. Applicability of CIRP against a Corporate Guarantor for loans given to non-corporate entities:
The respondent's counsel, Mr. Nayyar, referred to the Supreme Court's decision in Laxmi Pat Surana v. Union Bank of India and Another (2021) 8 SCC 481, which clarified that CIRP could be initiated against a corporate entity that has given a guarantee to secure the dues of a non-corporate entity. The Supreme Court in Laxmi Pat Surana held that the liability of the guarantor is coextensive with that of the principal borrower, and the guarantor's status transforms into that of a debtor or corporate debtor upon the principal borrower's default.

4. Concurrent findings of the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT):
The Adjudicating Authority (NCLT) had admitted the petition under Section 7 of the IBC and initiated the CIRP against Maharaja Theme Parks and Resorts, appointing an Interim Resolution Professional. The appellant's appeal against this order was dismissed by the NCLAT. The Supreme Court found no grounds to interfere with the concurrent findings of the NCLT and NCLAT, reinforcing the position that the Financial Creditor could proceed against the corporate guarantor without first suing the principal borrower.

Conclusion:
The Supreme Court dismissed the appeal, upholding the concurrent findings of the NCLT and NCLAT. The judgment reaffirmed that under Section 7 of the IBC, CIRP could be initiated against a corporate guarantor for loans given to non-corporate entities, and the liability of the guarantor is coextensive with that of the principal borrower. The appeal was dismissed, confirming the initiation of CIRP against Maharaja Theme Parks and Resorts Private Limited.