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TMI Blog2022 (9) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... There are no ground to interfere with the concurrent findings of the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) - appeal dismissed. - CIVIL APPEAL NO. 9286 OF 2019 - - - Dated:- 6-9-2022 - INDIRA BANERJEE And J. K. MAHESHWARI , JJ. For the Appellant : Mr. Amitesh Chandra Mishra , Adv. Ms. Ankit Chaturvedi , Adv. Ms. Pratibha Yadav , Adv. For M/S ACM Legal , AOR For the Respondent : Mr. Nikhil Nayyar , Sr. Adv.Ms. Sugandha Batra , Adv. Mr. T. V. S. Raghavendra Sreyas , AOR Mrs. Gayatri Gulati Sreyas , Adv. Mr. Siddharth Vasudev , Adv. Mr. Iyengar Shubharanjani Ananth , AOR JUDGMENT Indira Banerjee , J. This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016, hereinafter referred to as the IBC , is against a final judgment and order dated 18th November 2019, passed by the National Company Law Appellate Tribunal (NCLAT) dismissing the Company Appeal (AT) (Insolvency) No.538 of 2019, against an order dated 8th April 2019 passed by the Adjudicating Authority, admitting the application filed by the Respondent No.1 being CP/1314/IB/2018 under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 3(7) of the IBC which reads: - 3. (7) corporate person means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; 8. Mr. Mishra argued that on a conjoint reading of Section 5(5A), Section 3(7) and Section 3(8) of the IBC, it is apparent that a Corporate Guarantor is the surety in a contract of guarantee to a Corporate Debtor. The borrowers not being Corporate Debtors, Maharaja Theme Parks and Resorts is not a Corporate Guarantor as defined in Section 5(5A) of the IBC. 9. By an order dated 8th April 2019, the Adjudicating Authority admitted the petition under Section 7 of the IBC and initiated the CIRP against Maharaja Theme Parks and Resorts. The Respondent No.2 was appointed Interim Resolution Professional. 10. Being aggrieved by the order dated 8th April 2019 of the Adjudicating Authority, admitting the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant should be a person to whom a financial debt is owed. The expression financial debt has been defined in Section 5(8). Amongst other categories specified therein, it could be a debt along with interest, which is disbursed against the consideration for the time value of money and would include the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of the same clause. It is so provided in sub-clause (i) of Section 5(8) IBC to take within its ambit a liability in relation to a guarantee offered by the corporate person as a result of the default committed by the principal borrower. The expression debt has been defined separately in the Code in Section 3(11) to mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. The expression claim would certainly cover the right of the financial creditor to proceed against the corporate person being a guarantor due to the default committed by the principal borrower. The expression claim has been defined in Section 3(6), which means a right to payment, whether or not such right is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant that as the principal borrower is not a corporate person, the financial creditor could not have invoked remedy under Section 7 IBC against the corporate person who had merely offered guarantee for such loan account. That action can still proceed against the guarantor being a corporate debtor, consequent to the default committed by the principal borrower. There is no reason to limit the width of Section 7 IBC despite law permitting initiation of CIRP against the corporate debtor, if and when default is committed by the principal borrower. For, the liability and obligation of the guarantor to pay the outstanding dues would get triggered coextensively. 27. To get over this position, much reliance was placed on Section 5(5-A) IBC, which defines the expression corporate guarantor to mean a corporate person, who is the surety in a contract of guarantee to a corporate debtor. This definition has been inserted by way of an amendment, which has come into force on 6-6-2018. This provision, as rightly urged by the respondents, is essentially in the context of a corporate debtor against whom CIRP is to be initiated in terms of the amended Section 60 IBC, which amendment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that effect in the contemporaneous legislative changes brought about. 30. The expression corporate debtor is defined in Section 3(8) which applies to the Code as a whole. Whereas, expression corporate guarantor in Section 5(5- A), applies only to Part II IBC. Upon harmonious and purposive construction of the governing provisions, it is not possible to extricate the corporate person from the liability (of being a corporate debtor) arising on account of the guarantee given by it in respect of loan given to a person other than corporate person. The liability of the guarantor is coextensive with that of the principal borrower. The remedy under Section 7 is not for recovery of the amount, but is for reorganisation and insolvency resolution of the corporate debtor who is not in a position to pay its debt and commits default in that regard. It is open to the corporate debtor to pay off the debt, which had become due and payable and is not paid by the principal borrower, to avoid the rigours of Chapter II IBC in general and Section 7 in particular. 15. The issue of whether CIRP can be initiated against the Corporate Guarantor without proceeding against the principal borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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