LAXMI PAT SURANA versus UNION BANK OF INDIA & ANR.

Citation: [2021] 2 S.C.R. 924 · Decided: 26-03-2021 · Supreme Court of India · Bench: A.M. KHANWILKAR · Disposal: Disposed off

Cited by 3 judgment(s) · cites 6 · see the full citation network in Lexace

Judgment (excerpt)

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924
SUPREME COURT REPORTS
[2021] 2 S.C.R.
LAXMI PAT SURANA
v.
UNION BANK OF INDIA & ANR.
(Civil Appeal No. 2734 of 2020)
MARCH 26, 2021
[A. M. KHANWILKAR, B. R. GAVAI AND
KRISHNA MURARI, JJ.]
Insolvency and Bankruptcy Code, 2016:
s. 7 - Initiation of corporate insolvency resolution process by
financial creditor – Application for initiating CIRP by Financial
Creditor-Bank u/s. 7 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 –
Maintainability of – Held: 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 co-extensive and co-terminous with
that of the principal borrower to defray the debt, as predicated in s.
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 s. 3(8) of the Code – Principal borrower may or may not be a
corporate person, but if a corporate person extends guarantee for
the loan transaction concerning a principal borrower not being a
corporate person, it would still be covered within the meaning of
expression “corporate debtor” in s. 3(8) of the Code – Upon default
committed by the principal borrower, the liability of the company
(corporate person), being the guarantor, instantly triggers the right
of the financial creditor to proceed against the corporate person
(being a corporate debtor) – Thus, action u/s. 7 of the Code could
be legitimately invoked even against a (corporate) guarantor being
a corporate debtor.
[2021] 2 S.C.R. 924
924
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s. 7 - Application under – For initiation of corporate
insolvency resolution process by financial creditor-Bank against
corporate debtor concerning guarantee offered by it in respect of
a loan account of the principal borrower, who committed default –
Application filed after three years from the date of declaration of
the loan account as Non-performing Asset, being the date of default,
if barred by limitation – Held: When the principal borrower and/or
the (corporate) guarantor admit and acknowledge their liability
after declaration of NPA but before the expiration of three years
therefrom including the fresh period of limitation due to (successive)
acknowledgments, it is not possible to extricate them from the renewed
limitation accruing due to the effect of Section 18 of the Limitation
Act – s. 18 would come into play every time when the principal
borrower and/or the corporate guarantor-corporate debtor, as the
case may be, acknowledge their liability to pay the debt – Such
acknowledgment must be before the expiration of the prescribed
period of limitation including the fresh period of limitation due to
acknowledgment of the debt, from time to time, for institution of the
proceedings u/s. 7 of the Code – On facts, NCLT as well as NCLAT
adverted to the acknowledgments by the principal borrower as well
as the corporate guarantor-debtor after declaration of NPA time
and again after 30.01.2010 and lastly on 08.12.2018 – View taken
by the NCLT and NCLAT that a fresh period of limitation is required
to be computed from the date of acknowledgment of debt by the
principal borrower from time to time and in particular the (corporate)
guarantor/corporate debtor vide last communication dated
08.12.2018, is affirmed – Thus, the application u/s. 7 of the Code
filed on 13.02.2019 is within limitation – Limitation Act, 1963 - s.
18.
s. 3(8) – Expression ‘corporate debtor’ – Meaning of.
s. 5(5A) – Expression ‘corporate guarantor – Meaning of.
s. 5(7) – Expression ‘financial creditor’ – Meaning of.
Disposing of the appeal, the Court
HELD: 1.1 Section 7 of the Insolvency and Bankruptcy
Code is an enabling provision, which permits the financial creditor
to initiate Corporate Insolvency Resolution Process-CIRP against
LAXMI PAT SURANA v. UNION BANK OF INDIA
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926
SUPREME COURT REPORTS
[2021] 2 S.C.R.
a corporat

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