Case Law Details
K. Paramasivam Vs Karur Vysya Bank Ltd. & Anr. (Supreme Court of India)
The question raised in the said appeal is whether CIRP can be initiated against the Corporate Guarantor without proceeding against the principal borrower. The issues raised in this appeal are settled by this Court in Laxmi Pat Surana v. Union Bank of India and Another, (2021) 8 SCC 481. As held by this Court in Laxmi Pat Surana (supra), the liability of the guarantor is co-extensive with that of the Principal Borrower. The Apex Court held that the judgment in Laxmi Pat Surana (supra), rendered by a three-Judge Bench of this Court is binding on this Bench. It was open to the Financial Creditor to proceed against the guarantor without first suing the Principal Borrower.
It is to be noted that the issue whether an action under Section 7 of the Insolvency and Bankruptcy Code, 20161 can be initiated by the financial creditor against a corporate person (being a corporate debtor) concerning guarantee offered by it in respect of a loan account of the principal borrower, who had committed default and is not a “corporate person” within the meaning of the Code, has been answered by this Court in Laxmi Pat Surana (supra).
Under Section 7 of the IBC, 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.
In Laxmi Pat Surana (supra), this Court held: –
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