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2019 (1) TMI 579 - AT - Insolvency and BankruptcyInitiation of ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ - admission of an application under Section 7 - Held that:- Insolvency Resolution Process under Section 7 of the I&B Code can be initiated against the guarantor who is a ‘corporate person’ and who by operation of law ipso facto becomes a ‘corporate debtor’ by satisfying the ingredients of the terms as defined under Section 3(8) - In the present case as per clause 1.2 of the ‘Deed of Guarantee’ dated 22nd January, 2015, “on the failure of principal borrower to pay and/or discharge the obligations, the guarantor shall, forthwith upon demand, pay to Rural Electrification Corporation Limited (Financial Creditor) without demur or protest”, the amount stated in the demand made by Rural Electrification Corporation Limited to the guarantor thereby invoking the guarantee. Admittedly, the guarantee was invoked by ‘Rural Electrification Corporation Limited’ against ‘Ferro Alloys Corporation Ltd.’ and demand was raised on 27th October, 2015 calling upon ‘Ferro Alloys Corporation Ltd.’ to pay the amount due within 21 days. Since then, Ferro Alloys Corporation Ltd. (Corporate Guarantor) became a ‘corporate debtor’ of ‘Rural Electrification Corporation Limited’ (Financial Creditor) - In its Annual Report for the year ending 2016-17, ‘Ferro Alloys Corporation Ltd.’ has shown a sum of ₹ 517.90 crores payable to the ‘financial creditor’. Therefore, it is clear that ‘Ferro Alloys Corporation Ltd.’ admitted the ‘debt’ and in absence of payment, we hold that there is a ‘default’. The provision of the I&B Code do not bar a ‘financial creditor’ from initiating ‘corporate insolvency resolution process’ against the ‘guarantor’, who comes within the meaning of ‘corporate debtor’. It is not necessary to initiate ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ before initiating ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Guarantors’. Without initiating any ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’, it is always open to the ‘Financial Creditor’ to initiate ‘Corporate Insolvency Resolution Process’ under Section 7 against the ‘Corporate Guarantors’, as the creditor is also the ‘Financial Creditor’ qua ‘Corporate Guarantor’. The first question is thus answered against the Appellant - appeal dismissed.
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