TaxTMI 
TaxTMI 
2022 (9) TMI 324
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....f the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Maharaja Theme Parks and Resorts Private Limited, hereinafter referred to as "Maharaja Theme Parks and Resorts". 2. The Appellant is the promoter, shareholder and suspended/ discharged director of Maharaja Theme Parks and Resorts, a company registered under the Companies Act, 1956. The Respondent No.1, hereinafter referred to as "Financial Creditor" had advanced credit facilities to the following three entities:- (i) Sri Maharaja Refineries, a Partnership Firm; (ii) Sri Maharaja Industries, a proprietary concern of K. Paramasivam; and (iii) Sri Maharaja Enterprises, a proprietary concern of P. Sathiyamoorthy 3. Maharaja Theme Parks and Resorts stood guarantor for the loans availed by all the three borrowers. The borrowers failed to repay the debts payable by them to the Financial Creditor. 4. On or about 24th October 2018, the Financial Creditor filed an application under Section 7 of the IBC being CP/1314/IB/2018 for initiation of CIRP against Maharaja Theme Parks and Resorts. In the said application the Financial Creditor stated that Maharaja Theme Parks and Reso....
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.... 2019 of the Adjudicating Authority, admitting the application for CIRP, the Appellant filed an appeal. The appeal filed by the Appellant, has been dismissed by the NCLAT (Appellate Authority), by the judgment and order impugned. 11. Mr. Amitesh Chandra Mishra appearing on behalf of the Appellant submitted that the appeal filed by the Appellant under Section 61 of the IBC has been dismissed by the Appellate Authority (NCLAT) on the ground that the company, Maharaja Theme Parks and Resorts, is a Corporate Guarantor, without considering the fact that Maharaja Theme Parks and Resorts does not fall within the ambit of the definition of Corporate Guarantor, and therefore CIRP cannot be initiated against it. 12. Mr. Nikhil Nayyar, learned Senior Counsel appearing on behalf of the Respondent Financial Creditor submitted that the issue of whether an action under Section 7 of the IBC can be initiated by a Financial Creditor, against a corporate person, in relation to a corporate guarantee, given by that corporate person, in respect of a loan advanced to the principal borrower, who is not a corporate person, has been answered by this Court in Laxmi Pat Surana v. Union Bank of India and....
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....3(6), which means a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. It also means a right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment in respect of specified matters. 23. Indubitably, a right or cause of action would enure to the lender (financial creditor) to proceed against the principal borrower, as well as the guarantor in equal measure in case they commit default in repayment of the amount of debt acting jointly and severally. It would still be a case of default committed by the guarantor itself, if and when the principal borrower fails to discharge his obligation in respect of amount of debt. For, the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act. As a consequence of such default, the status of the guarantor metamorphoses into a debtor or a corporate debtor if it happens to be a corporate person, within the meaning of Section 3(8) IBC. For, as aforesaid, the expression "default" has al....
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....RP is to be initiated in terms of the amended Section 60 IBC, which amendment is introduced by the same Amendment Act of 2018. This change was to empower NCLT to deal with the insolvency resolution or liquidation processes of the corporate debtor and its corporate guarantor in the same Tribunal pertaining to same transaction, which has territorial jurisdiction over the place where the registered office of the corporate debtor is located. That does not mean that proceedings under Section 7 IBC cannot be initiated against a corporate person in respect of guarantee to the loan amount secured by person not being a corporate person, in case of default in payment of such a debt. 28. Accepting the aforementioned argument of the appellant would result in diluting or constricting the expression "corporate debtor" occurring in Section 7 IBC, which means a corporate person, who owes a debt to any person. The "debt" of a corporate person would 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 "debt" in Section 3(11) is wide enough to include liability of a corporate person on account of ....
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....itiated against the Corporate Guarantor without proceeding against the principal borrower has been answered by this Court in Laxmi Pat Surana (supra). The relevant paragraphs are set out hereinbelow: - "21. Section 7 is an enabling provision, which permits the financial creditor to initiate CIRP against a corporate debtor. The corporate debtor can be the principal borrower. It can also be a corporate person assuming the status of corporate debtor having offered guarantee, if and when the principal borrower/debtor (be it a corporate person or otherwise) commits default in payment of its debt." *** 23. Indubitably, a right or cause of action would enure to the lender (financial creditor) to proceed against the principal borrower, as well as the guarantor in equal measure in case they commit default in repayment of the amount of debt acting jointly and severally. It would still be a case of default committed by the guarantor itself, if and when the principal borrower fails to discharge his obligation in respect of amount of debt. For, the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debt, as pre....