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Legal Case Shots

Court judgements broken down into the case type, how the decision played out, and the lesson worth remembering — with the full judgement available as a PDF.

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What is Legal Case Shots?+

Legal Case Shots is a searchable database of Supreme Court of India judgments, each broken down into the case type, the court's key holding, and a practical lesson learnt — with the full judgment available as a PDF for citation or deeper reading.

Company & Insolvency LawSupreme Court

K. Paramasivam vs The Karur Vysya Bank Ltd. & Anr.

Civil Appeal · Not availableDecided 6 Sept 2022

Civil Appeal No. 9286 of 2019

Indira Banerjee · J.K. Maheshwari

Background

Karur Vysya Bank ("Financial Creditor") had extended credit facilities to three separate borrowing entities, including proprietorships of K. Paramasivam and one P. Sathiyamoorthy. A company called Maharaja Theme Parks and Resorts Private Limited had stood as corporate guarantor for all three loans. When the borrowers defaulted, the bank initiated Corporate Insolvency Resolution Process (CIRP) proceedings against Maharaja Theme Parks and Resorts as guarantor. The company (through its promoter, the appellant K. Paramasivam) argued it could not be treated as a "corporate debtor" under the IBC because the underlying borrowers were not themselves "corporate persons," and that the case did not fit the statutory definition of "corporate guarantor." Both the NCLT and the NCLAT rejected this argument and allowed the insolvency proceedings to proceed, leading to this further appeal.

Decision Breakdown

The Supreme Court held the issue was already settled by its earlier three-judge bench ruling in Laxmi Pat Surana v. Union Bank of India (2021), which established that a corporate person offering a guarantee for a loan — even one advanced to a non-corporate borrower — becomes a "corporate debtor" under Section 3(8) of the IBC once the principal borrower defaults, because the guarantor's liability is coextensive with the borrower's under Section 128 of the Contract Act. The narrower definition of "corporate guarantor" in Section 5(5A) IBC, the Court explained, applies only to a specific jurisdictional provision (Section 60) and does not cut down the broader "corporate debtor" concept used in Section 7. It was also open to the Financial Creditor to proceed directly against the guarantor without first suing the principal borrower. Finding no ground to interfere with the concurrent findings of the NCLT and NCLAT, the appeal was dismissed.

Lesson Learnt

A company that stands as guarantor for someone else's loan can be pushed into insolvency proceedings on that guarantee alone if the borrower defaults — even if the borrower itself is not a company — and the lender need not first sue the original borrower before going after the guarantor.

K. Paramasivam vs The Karur Vysya Bank Ltd. & Anr. – Legal Case Shots | LegalAware