Insolvency and Bankruptcy Code, 2016: ss. 3(7), 3(8), 5(5A), 7, 62 – Initiation of Corporate Insolvency Resolution Process-CIRP – Borrowers failed to repay the debts to financial creditor – Application u/s. 7 by the financial creditor for initiating CIRP against corporate debtor; and that corporate guarantor liable to re-pay loan having extended guarantee for the loans availed by borrowers – Guarantor ’s case that they were not corporate debtors – Application admitted by NCLT and upheld by NCLAT – On appeal, held: Liability of the guarantor is co-extensive with that of the principal borrower – It was open to the financial creditor to proceed against the guarantor without first suing the principal borrower, in respect of the guarantee given by it, once the borrower commited default – Guarantor is then, the corporate debtor. Dismissing the appeal, the Court
HELD: Under Section 7 of the Insolvency and Bankruptcy Code, 2016, 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. Liability of the guarantor is co-extensive with that of the Principal Borrower. 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). [Para 13, 16, 17][104-A-B; 109-B, C]
Laxmi Pat Surana v. Union Bank of India and Another (2021) 8 SCC 481: [2021] 2 SCR 924 – relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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