Tribunal clarifies insolvency rules: Corporate guarantor can face proceedings without principal debtor.

The Tribunal held that the appeal by the suspended Board of Directors of the Corporate Debtor was not maintainable. It clarified that insolvency proceedings could be initiated against a corporate guarantor without first proceeding against the principal debtor. The Tribunal also ruled that consortium banks need not be impleaded at the initial stage of the application under Section 7 of the I&B Code. Moreover, it emphasized that a dispute over the quantum of debt does not impact the admission of the application. The appeals were dismissed, affirming the maintainability of the application against the corporate guarantor independently.

---

---

Issues Involved:
1. Maintainability of the appeal by the suspended Board of Directors of the Corporate Debtor.
2. Definition and applicability of the term "Corporate Guarantor" under the Insolvency & Bankruptcy Code (I&B Code).
3. The right of a financial creditor to initiate insolvency proceedings against a corporate guarantor without first proceeding against the principal debtor.
4. The necessity of impleading consortium banks at the stage of admission of the application under Section 7 of the I&B Code.
5. Dispute regarding the quantum of debt and its impact on the admission of the application under Section 7 of the I&B Code.

Issue-Wise Detailed Analysis:

1. Maintainability of the Appeal by the Suspended Board of Directors:
The appeal by the Corporate Debtor, through its suspended Board of Directors, is deemed not maintainable. This is in line with the Supreme Court's ruling in "Innoventive Industries Ltd. v. ICICI Bank," which states that once an insolvency professional is appointed, the erstwhile Directors cannot maintain an appeal on behalf of the company. The Tribunal reiterated that the suspended Board of Directors has no right to move an appeal on behalf of the Corporate Debtor, although individual directors or shareholders may challenge the order.

2. Definition and Applicability of "Corporate Guarantor":
The I&B Code does not explicitly define "Corporate Guarantor," but it does define "Personal Guarantor" under Section 5(22). The appellant argued that the absence of the term "Corporate Guarantor" implies it is not covered under the Code. However, the Tribunal held that the term "Corporate Debtor" includes any corporate person who owes a debt, which can include a corporate guarantor. Therefore, the liability in respect of a guarantee forms part of the financial debt.

3. Right to Initiate Insolvency Proceedings Against Corporate Guarantor:
The Tribunal held that insolvency proceedings could be initiated against a corporate guarantor without first proceeding against the principal debtor. This is supported by the Supreme Court's rulings in "Bank of Bihar Ltd. vs. Dr. Damodar Prasad" and "State Bank of India v. Indexport Registered," which state that a creditor is not required to exhaust remedies against the principal debtor before proceeding against the guarantor. The Tribunal emphasized that the liability of the guarantor is co-extensive with that of the principal debtor.

4. Necessity of Impleading Consortium Banks:
The Tribunal rejected the argument that consortium banks must be impleaded at the stage of admission of the application under Section 7. It held that at the initial stage, only the corporate debtor needs to be impleaded. The role of other creditors, including consortium banks, comes into play after the admission of the application when claims are filed and the Committee of Creditors is formed.

5. Dispute Regarding Quantum of Debt:
The Tribunal dismissed the argument that the dispute regarding the quantum of debt affects the admission of the application under Section 7. According to the Supreme Court's ruling in "Innoventive Industries Ltd.," the Adjudicating Authority only needs to be satisfied that there is a debt and default. A mere dispute over the quantum of debt cannot be a ground to reject the application if the debt exceeds one lakh rupees and there is a default.

Conclusion:
The Tribunal dismissed the appeals, holding that the application under Section 7 of the I&B Code against the corporate guarantor is maintainable without initiating insolvency proceedings against the principal debtor. The Tribunal affirmed that the financial creditor has the right to proceed against the corporate guarantor independently. The appeals were accordingly dismissed with no costs.

---