IMPORTANT POINT
Liability of guarantor is co-extensive with that of Principal Borrower. CIRP can be initiated against a corporate entity who has given a guarantee to secure dues of a non-corporate entity once borrower commits default.

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 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 Resorts had extended corporate guarantee(s) for loans availed by each of the borrowers. On failure of the borrowers to repay the loans, Maharaja Theme Parks and Resorts, as Guarantor, became liable to repay the loan.

5. Maharaja Theme Parks and Resorts filed its counter statement before the Adjudicating Authority, objecting to the jurisdiction of the NCLT to entertain the petition under Section 7 of the IBC, on the contention that, the company, Maharaja Theme Parks and Resorts Private Limited, was not a Corporate Debtor, which is defined in Section 3(8) of the IBC to mean, “a corporate person who owes a debt to any person.” It was contended that Maharaja Theme Parks and Resorts did not owe any financial debt to the Financial Creditor.

6. The Appellant contends that, Maharaja Theme Parks and Resorts does not also fall within the definition of ‘Corporate Guarantor’ in Section 5(5A) of the IBC, which reads ‘corporate guarantor’ means a corporate person who is the surety in a contract of guarantee to a corporate debtor.” Mr. Mishra, appearing for the Appellant, submitted that Maharaja Theme Parks and Resorts had not guaranteed any loan given to a corporate person.

7. Mr. Mishra referred to the definition of ‘Corporate Person’ 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. B