In Brief
Union Bank of India sought to initiate Corporate Insolvency Resolution Proceeding (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 against Surana Metals Limited, which had provided a guarantee for a loan originally extended to M/s. Mahaveer Construction, a proprietary firm. The appellant challenged the proceedings on two grounds: (i) that CIRP cannot be initiated against a corporate guarantor when the principal borrower is not a corporate person, and (ii) that the application was barred by limitation as it was filed more than three years after the loan was declared a non-performing asset. The Supreme Court held that a corporate guarantor is liable as a corporate debtor when the principal borrower defaults, as the guarantor's liability is coextensive with the principal borrower's under contract law. It further held that the limitation period can be extended under Section 18 of the Limitation Act when the debtor acknowledges its liability in writing, allowing the financial creditor to initiate CIRP within three years of such acknowledgment. The appeal was disposed of, leaving other contentions for determination before the NCLT.",
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