Wednesday 28 October 2020

The Karur Vysya Bank Ltd Vs. Maharaja Theme Parks and Resorts Pvt. Ltd - Corporate Guarantee for an individual.

 NCLT Chennai (08.04.2019) in The Karur Vysya Bank Ltd Vs. Maharaja Theme Parks and Resorts Pvt. Ltd. [ CP/1314/IB/2018) held that; it makes no difference as to whether the Corporate Person stood as guarantor to an individual or a Corporate Person, and as so long as the obligation in respect of a claim is due from a Corporate Person falling within the definition of Financial Debt, then it is obvious that the Creditor can proceed under section 7 of the Code against such Corporate Persons

Facts of the case ; The CD had given guarantee to a FC for loans granted to three principal borrowers who are partnership firms/proprietary concerns. The principal borrowers defaulted in repayment and the FC invoked the guarantee. CD failed to honour the guarantee. The FC filed an application for initiation of CIRP of the CD. The CD opposed the application on the ground that it had not given guarantee for loans to companies. The issue for consideration before the AA was whether or not a creditor can initiate CIRP against the corporate guarantor when the guarantee is given for the loans granted to non-companies


Excerpts of the order;

 

#” 30  Here this Corporate Debtor falls within the definition of Corporate Person  because it is a company  falling within the definition because it is a company incorporated under the Companies Act, 1956 / Companies Act, 2013, as the case may be as envisaged under Clause 20 of Section 20 of the Companies Act, 2013.  Therefore we hereby hold that this liability falls within the definition of section 5(8)(i) of the Code and since the Corporate Debtor is a Corporate Person ,it makes no difference as to whether the Corporate Person stood as guarantor to an individual or a Corporate Person, and as so long as the obligation in respect of a claim is due from a Corporate Person falling within the definition of Financial Debt, then it is obvious that the Creditor can proceed under section 7 of the Code against such Corporate Persons, here the Corporate Debtor being a Corporate Person falling within Section 5(8)(i) of the Code , this petition is maintainable against the Corporate Debtor.


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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.