AI Structured Summary
Not yet generated for this judgment
Judgment
O R D E R
Per: Bidisha Banerjee, Member (Judicial)
The Court Convened in a hybrid mode. 2. This I.A. (IB)/232(KB)2024 in C.P.(IB)/218(KB)2022 has been preferred by the Financial Creditor to seek initiation of Insolvency Regulation Process against the Respondent Personal Guarantor to Corporate Debtor Rule, 2019 (“Personal Guarantors Rules”) and Regulation 4(2) of IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (‘Personal Guarantors Regulations’) in terms of Section 99 (1) of the Insolvency and Bankruptcy Code, 2016 read with applicable Regulation of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors), 2016.
The amount in default is Rs.34,61,90,604.17/-(Rupees Thirty Four Crores Sixty One lakhs Ninety Thousand Six hundred Four and Paise Seventeen only) as on 30.04.2022.
The application is complete as required under Section 95 read with Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019.
The Applicant had proposed the name of the Insolvency Professional for appointment as Resolution Professional. In view of the above, Mr. Sanjit Kumar Nayak, IBBI Registration No. IBBI/IPA-003/IP-N00079/2017-2018/10702, email ID: Sknayak31@gmail.com; was appointed as Resolution Professional, subject to his possessing a valid AFA, in exercise of the power conferred under Section 97 of the IBC, 2016 on this Authority.
The Resolution Professional was directed to file declaration within seven days to the effect that he fulfils all the requirements for being appointed as Resolution Professional in the matter which he has given, and to file his report in terms of Section 97 in two weeks.
The Resolution Professional Mr. Sanjit Kumar Nayak has vide his report dated 16.11.2021 suggested/stated as extracted hereunder:
8. Submission of the Financial Creditor:
The respondent namely Mr. Varez Karsi Dadina (hereinafter referred to as “Respondent”), is the Director and Personal Guarantor to the Principal Borrower i.e. M/S KND Engineering Technologies Ltd. (hereinafter referred to as “Corporate Debtor”). M/S KND Engineering Technologies Ltd.
On or about early 2018 one Subrata Sarkar, an Operational Creditor filed an application under Section 9 of the Insolvency and Bankruptcy Code against the Principal Borrower KND in which one resolution plan was accepted and approved by the Adjudicating Authority vide Order dated 04.06.2019 under Section 31 of the Insolvency and Bankruptcy Code.
On failure of implementation of such plan, the Financial Creditor took steps and initiated an application against the Principal Borrower and its guarantors under Section 19 of the Recovery of Debts and Bankruptcy Act being O.A. No. 668 of 2019 on 16.10.2019 before the Learned Debts Recovery Tribunal-III, Kolkata. The said application is pending for adjudication.
The Financial Creditor also issued a Demand Notice in Form B under Rule 7(1) of the IBBI (Application to Adjudicating for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019 dated 13.10.2020 to the Respondent herein. The demand Notice was duly served to the Guarantor herein.
On failure to make payments, the present proceedings under Section 95 of the Code, were initiated by the Financial Creditor seeking to initiate Insolvency Resolution Process of the Personal Guarantor herein on 26.03.2021.
It is well-settled position of law that date of declaration of the loan account/debt as NPA can be reckoned as the date of default for initiation of CIRP under Section 7 & 9 of the IBC Code. In Jagadish Prasad Sarada v. Allahabad Bank, (2021) 15 Comp Cas-OL 697 it has been held that date of non-performing assets is to be treated as date of default. Reference to that effect is made to as under:
“10.The Hon'ble Supreme Court has already observed in Civil Appeal Nos. 439, 436, 3137, 4979, 5819 and 7289 of 2018 in B. K. Educational Services P. Ltd. v. Parag Gupta and Associates (2019) 212 Comp Cas 1 (SC), dated October 11, 2019 that the limitation period for application under section 7 of the Code is 3 years as provided by article 137 of the Limitation Act, 1963 which commences from the date of default and is extendable only by application of section 5 of the Limitation Act, 1963 if any case for condonation of delay is made out. The view taken by the Hon'ble Apex Court in B. K. Educational Services P. Ltd. v. Parag Gupta and Associates (2019) 212 Comp Cas 1 (SC) that the limitation period for application under section 7 of the I and B Code is three years as provided by article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of section 5 of the Limitation Act, 1963 if any case for condonation of delay is carved out, has again been reiterated in the latest pronouncement of the hon'ble apex court in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries P. Ltd. (Civil Appeal No. 6347 of 2019, decided on August 14, 2020) (2020) 222 Comp Cas 115 (SC).”
It is therefore manifestly clear that date of default will be the date of declaration of account as NPA and such date of default would not shift.
In regard to validity of last sanction letter dated 30.03.2017, since additional guarantee deed was not executed the guarantee deeds executed by the Respondent time to time is unequivocally a continuing guarantee. Hence, the Respondent’s contention that the last sanction letter dated 30.03.2017 was not validly executed on the ground that no corresponding guarantee deed was executed is wholly untenable in law and contrary to the explicit terms of the multiple guarantee agreements executed on previous occasions.
Further, that the term “continuing guarantee” under Section 129 of Contracts Act, 1872 entails “A guarantee which extends to a series of transactions”.
That, as per Clause 5 of the Guarantee deed the Respondent has undertaken to not revoke the Guarantee without the Bank’s written consent. As such, a guarantee deed was neither denied, disputed nor revoked by the Personal Guarantor or the Corporate Debtor. As such, as per the aforementioned clause 2, the guarantee deed executed on 03.10.2016 is an absolute continuing guarantee which acts as security against the sanction letter dated 30.03.2017.
With regard to invocation of guarantee it is submitted that prior to filing of this application by the Financial Creditor, a Demand letter under Section 13(2) of the SARFAESI Act, 2002 dated 02.05.2018 along with the Demand Notice issued in Form B under Rule 7(1) on 13.10.2020 was addressed to the Respondent which constitutes a valid and effective invocation of the Personal Guarantee executed by the Respondent/Guarantor in favour of the Applicant-Financial Creditor. The judgements relied on by the respondents being pronounced in the year of 2025, while the Section 7 application for initiation of CIRP being filed on 16.03.2021 by the Financial Creditor, the Demand Notice issued in Form B under Rule 7(1) on 13.10.2020 should be treated as a proof for invocation of guarantee. The letter unequivocally call upon the Respondent to discharge the liability under the Personal guarantee executed by him in favour of the Financial Creditor and reads as under:
“7.By this notice, you are hereby called upon to discharge the entire liability as on date and also future interest thereon, along with cost, charges and expense, to us as secured creditor within 60 days from the date of this notice,…”
That the demand notice u/s 13(2) of the SARFAESI Act, 2002 on 02.05.2018 to the Principal Borrower as well as to the Personal Guarantors was duly served.
That the Guarantee deed specifically mentions that the guarantee was in the nature of an on-demand guarantee, the default was to arise on the part of the Guarantor when the Demand Notice was issued as contemplated in the Deed of Guarantee. Thus, a demand notice duly signed by the Bank’s addressed to the Guarantor for invoking the Guarantee will suffice. The co-extensive nature of the guarantor’s liability, he is equally responsible for the outstanding amount owed by the principal borrower. Reliance is placed on Hon’ble NCLAT’s decision in Mavjibhai Nagarbhai Patel vs. SBI & ors CA(AT)(INS)No.1702 of 2024 in support.
Per Contra, the Personal Guarantor would submit as under:
C.P.(I.B.) No. 116/KB/2021 is a petition under section 95 of IBC. The said petition is not maintainable as there is no invocation of the guarantee by the Financial Creditor (“FC”).
In the petition, the FC has not disclosed any demand notice apart from the Form B demand notice dated 13.10.2020 [pg 197 of CP].
FC has given the date of default taking into consideration the date of the Form B demand notice [pg 14 pr 4 of CP; pg 20 pr 16 of CP].
Form B demand notice issued under Rule 7(1) of the 2019 Rules cannot be construed or treated to be a notice invoking guarantee for the purposes of filing of section 95 petition under IBC in terms of:
The judgment of the Hon’ble NCLAT in State Bank of India vs Mr. Deepak Kumar Singhania passed in Company Appeal (AT) (Ins) No.191 of 2025 dated 28.02.2025 at paragraphs 7, 17, 26, 27
The judgment of the Hon’ble NCLAT in Canara Bank vs Babulal Gumanlal Jain passed in Company Appeal (AT) (Ins) No. 297 of 2025 dated 12.03.2025 at paragraphs 1, 6
It is stated that when this was pointed out to this Hon’ble Tribunal on 23.09.2025, the Ld. Advocate for the FC submitted that she would obtain instruction in this matter, and the matter was adjourned to 07.11.2025.
When the matter was taken up on 07.11.2025 the FC submitted that they will disclose alleged notices issued under Section 13(2) of the SARFAESI Act, 2002. However, no such notices under section 13 (2) of the SARFAESI act, 2002 were served upon the respondent.
In any event, it is well settled proposition of law that even notice under Section 13(2) of the SARFAESI Act, 2002 is not an invocation of guarantee unless invocation is done as per the guarantee agreement in support the following decisions are relied upon:
Judgment of the Hon’ble NCLAT, Principal Bench in Asha Basantilal Surana vs State Bank of India & Ors. Company Appeal (AT) (Ins) No. 84 of 2025 dated 15.05.2025
Amanjyot Singh vs Navneet Kumar Jain & Ors. – Company Appeal (AT) (Ins) No. 961 of 2022 (paras 8 and 12)
Thus it is asserted that the respondent is not a guarantor under the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 as there is no invocation of the guarantee by the Bank. Without invocation of guarantee, right to payment does not even accrue in favour of the Bank. It is stated that this point is categorically taken by the respondent in its Additional reply affidavit affirmed on 08.04.2024 at page 5 para 9. Despite receipt of the said affidavit, no rejoinder has been filed by the FC. As such, the statements made by the respondent are uncontroverted and undisputed.
We discern as under:
In State Bank of India Vs. Mr. Deepak Kumar Singhania Hon’ble NCLAT noted the following decisions:
a. Hon’ble Supreme Court in Syndicate Bank vs. Channaveerappa Beleri and Ors. – (2006) 11 SCC 506, where Hon’ble Supreme Court at Paragraph 9 has held:
“9.A guarantor’s liability depends upon the terms of his contract. A “continuing guarantee” is different from an ordinary guarantee.”
b. Archana Deepak Wani vs. Indian Bank – Company Appeal (AT) (Ins.) No.301 of 2023 where Hon’ble NCLAT has held that liability of the Guarantor must be determined strictly in terms of the Deed of Guarantee.
c. Pooja Ramesh Singh vs. State Bank of India – Company Appeal (AT) (Ins.) No.329 of 2023 where Hon’ble NCLAT noted and held that default in the guarantee arises only after the guarantee has been invoked.
Having noted thus, Hon’ble NCLAT in Deepak Singhania has succinctly observed and held as under:
“default shall arise on the part of Guarantor only when Demand Notice is issued, as contemplated in the Deed of Guarantee.”
Having noted that, Rule 7, sub-Rule (1) contemplate service of demand notice under clause (b) of Sub Section (4) on the Guarantor, demanding payment of the amount of default in Form B, it was held:
“we are not persuaded to accept the submission of the Appellant that Notice under Rule 7 (1) issued in Form B to the Guarantor, demanding repayment of the default amount has to be treated as Notice for invoking guarantee.”
While rejecting the contention of the Appellant “that Notice under Rule 7, sub-rule (1) is a Notice, invoking the guarantee.” Hon’ble NCLAT has held:
“Default before issuance of Notice under Rule 7(1), must exist on the part of the Guarantor”.
In a similar case, in Canara Bank Vs. Babulal Gumanlal Jain, Hon’ble NCLAT has held that the issue which is sought to be raised by the Appellant has already been considered and decided by this Tribunal in “Company Appeal (AT) (Ins.) No.191 of 2025, State Bank of India vs. Mr. Deepak Kumar Singhania” decided on 28.02.2025 and dismissed the appeals.
In a recent decision rendered on 07.01.2026 the Hon’ble Principal Bench of NCLAT in Ujwal Gupta Vs. Union Bank of India noted and found as follows:
In CA (AT) (Ins) No.961 of 2022, Amanjyot Singh vs. Navneet Kumar Jain, Resolution Professional & Ors. having noted that “although after sale of the mortagaged asset, part of the facility was realized, but no steps have been taken by the Bank against the Appellant for recovery of any dues”, “the notice, which is the basis of the Application, was issued on 04.10.2013, and that “nine years have been passed from issuance of the notice and no steps have been taken by the Bank for recovery of any amount from the Appellant”, Hon’ble NCLAT held as follows:
“12.We, thus, are satisfied that foundation which was laid down by the Appellant for initiating the CIRP against the Appellant, was not sufficient to admit Section 94 Application and initiate the CIRP against the Appellant. We may further notice that Section 10 Application against the Corporate Debtor has already been admitted and CIRP against the Corporate Debtor had been initiated. The case taken up by the Bank being categorical and clear that no steps have been taken by the Bank against the Appellant, there is no cause for the Appellant to pray for initiation of CIRP against the Appellant – the Personal Guarantor. We, thus, do not find any good ground to interfere with the impugned order in this Appeal. The Appeal is accordingly dismissed. No costs.”
In CA (AT) (Ins) Nos. 1702 of 2024, 1711 of 2024, 1712 of 2024, Mavjibhai Nagarbhai Patel vs. State Bank of India and Anr., Jayantibhai Nagarbhai Patel vs. State Bank of India and Anr., Narayanbhai N. Patel vs. State Bank of India and Anr., Hon’ble Appellate Tribunal had noted that:
“16.The liability of the guarantor has to be read from the Deed of Guarantee. xxxxxx
“It is clear from the reading of the clauses in the Deed of Guarantee that guarantee was given by the Personal Guarantor in unequivocal terms and the guarantee amount was to be paid by the guarantor once the guarantee was invoked.”
“17.When we look at the specific Clauses of the Deed of Guarantee, it clearly states that the guarantee was in the nature of a continuing guarantee.” Xxxxxxxxx
“The Section 13(2) Notice which was sent to the Corporate Debtor was also forwarded to the Guarantor with the specific demand to make payment of the amount mentioned in the notice in terms of the guarantee. This Section 13(2) Notice was indisputably also sent to the Personal Guarantors separately and independently. When we see the Section 13(2) notice under SARFAESI Act as placed at pages 549 to 551 of Appeal Paper Book (“APB” in short) we find that there is clear indication of the names of all the Personal Guarantors therein which includes the present Appellant(and also the other two Appellants whose appeals are also under consideration before us).”
The Hon’ble Appellate Tribunal also noted the clear intention of the bank to initiate any nature of legal proceedings as evident from the following notice :
“Copy of this notice to personal guarantor who are liable to pay the aforesaid outstanding amount. This notice is without prejudice to the Bank’s right to initiate such other actions or legal proceedings as it deems necessary under any other applicable provisions of Law.” Having noted the above Hon’ble Tribunal held that:
“20.Since the guarantee deed specifically mentioned that the guarantee was in the nature of an on-demand guarantee, the default was to arise on the part of the Guarantor only when the Demand Notice was issued as contemplated in the Deed of Guarantee. Thus, the period of limitation of the Personal Guarantor was to commence once the demand was made on the Guarantor by the Respondent No.1 Bank. Hence, the Notice dated 04.06.2021 issued by the Respondent No.1 Bank to the Personal Guarantor has to be treated to be Notice on Demand as Contemplated in the Deed of Guarantee.”
Hon’ble Appellate Tribunal Further considered the decision in CA (AT) (Ins) No. 1609 of 2024, Shantanu Prakash vs. State Bank of India and Anr. where it had noted and held as under:
“while notice was issued under Section 13(2) of the SARFAESI Act, which has also specifically called upon the Appellant to discharge in full the borrower liability stated there in within 60 days of the notice. Thus, the notice fulfils all the condition stipulated under personal guarantee and can be treated as valid invocation. On this issue, the Adjudicating Authority has also held that the demand notice issued by the Respondent No.1 under Rule 7(1) of the I&B (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 as valid. Thus, we do not find any error in the Impugned error in the Impugned Order on this account.”
Hon’ble Appellate Tribunal in Ujwal Gupta vs. Union Bank of India while considering the ratio of CA (AT) (Ins) No. 191 of 2025, State Bank of India vs. Mr. Deepak Kumar Singhania, as discussed above, found that:
“the factual matrix of this case, however, is different than the facts of the instant case as in this case notice was issued under Rule 7(1) in Form-B and it was being impressed to be taken as the notice of invocation of guarantee, which is not a case in the case at hand.”
27.Thus, in our considered opinion, it was a crystal-clear communication not only to the Appellant but to all the addressees to discharge their liability with regard to the credit facilities extended to CD by the Financial Creditor and there appears no ambiguity in this. Since the appellant has extended guarantee by executing a deed and the principal borrower/CD failed to pay the amount of credit facilities extended by the Financial Creditor and the liability of the principal borrower and guarantor is coextensive, this demand notice was sufficient communication to the appellant to discharge his liability under the guarantee deed towards the credit facility extended by the creditor to the CD and is sufficient invocation of guarantee.” In the above backdrop it also noted that Hon’ble NCLAT in Asha Basantilal Surana (Supra), which is a three member’s decision, after considering Amanjyot Singh (Supra) and Mavjibhai Nagarbhai Patel (Supra) clearly holds that “in a case where notice under Section 13(2) makes a demand as per the guarantee agreement between the parties, the notice has to be treated as a notice for invocation of bank guarantee.” The Appellate Tribunal in the above case has also distinguished the law laid down earlier in Amanjyot Singh (Supra), as case confined to its own facts, by observing in para 12 of the judgment, that the dismissal of the appeal in Amanjyot Singh case was on the facts of the said case and has no application in the facts of the case under scrutiny and also that the invocation of personal guarantee has to be in accordance with the terms of the guarantee agreement. We reproduce the para no. 12 of the aforesaid judgment (Asha Basantilal Surana) (Supra) for convenience herein below:-
"12.Thus, the dismissal of the Appeal in the Amanjyot Singh's case was on the facts of the said case and has no application in the facts of the present case. The invocation of personal guarantee has to be in accordance with the terms of the Guarantee Agreement which is a settled law. Clause 7 of the Guarantee Agreement does not require any particular mode and manner of the demand notice. When demand notice is issued against the personal guarantor asking the personal guarantor to discharge its liabilities, the guarantee stands invoked. Whether notice under Section 13(2) in a particular case invoked the guarantee or not depends on the words and intent of the notice. For finding out as to whether Notice under Section 13(2) invoked the personal guarantee, the letters and words of the Notice has to be looked into to come to any conclusion that whether personal guarantor has been asked to discharge its liabilities or not. In the facts of the present case, we are of the considered opinion that the Notice under Section 13(2) issued by the State Bank of India is a clear demand notice from the Appellant to pay the amount of Rs. 28,56,64,336.06/-."
(Emphasis Supplied)
Hon’ble NCLAT in Ujwal Gupta (supra) has finally ruled as follows:
“32.Thus, what has been highlighted by the aforesaid judgment is that it would be the terms and conditions of the agreement executed between the parties with regard to the guarantee which would be relevant to assess as to whether the guarantee has been sufficiently invoked or not. Therefore, whether a guarantee may be invoked by giving notice under Section 13(2) of the SARFAESI Act depends on the terms of the guarantee and the content of the notice. If the notice clearly demands payment from the personal guarantor in terms of the guarantee, it can be treated as an invocation of the guarantee. The facts and the wording of the notice are crucial in this determination.”
We have considered the rival contentions perused records and considered the implications of the decisions cited.
In the present case the FC asserts that Section 13(2) notice is a notice invoking guarantee, it is thus extracted verbatim hereinbelow for clarity:
A bare reading of the notice would indicate that the notice was not intended for invoking guarantee for the purpose of filing application against the Personal Guarantor under IBC. It is clearly for the purpose of enforcement of security, unlike the notice under Section 13(2) of SARFAESI Act in Mavjibhai (supra) which read as under:
this notice to personal guarantor who are liable to pay the aforesaid outstanding amount. This notice is without prejudice to the Bank's right to initiate such other actions or legal proceedings as it deems necessary under any other applicable provisions of Law. This notice is in supersession of our earlier notices sent to you vide our letter no. SAMB/GRJ/2018-19/2002 dated 16.02.2019 which stands withdrawn.
Having noted the language as above, in Mavjibhai (supra) was satisfied that the 13(2) notice was meant to be noticed not only for proceedings under SARFAESI Act but also for other provisions of law Hon’ble NCLAT observed:
Notice under Section 13(2) was issued to the Appellant, the personal guarantor and application under Section 95(1) was filed by the State Bank of India which was admitted by the Adjudicating Authority which order was challenged by the personal guarantor. In the above case, the Bank has pleaded that the deed of personal guarantee was invoked by the Bank vide demand notice dated 04.06.2021 issued under Section 13(2) of the SARFAESI Act, 2002. Thus, the Section 13(2) Notice was held to be notice of demand as per guarantee.
Hon’ble Tribunal held that :
“20.Since the guarantee deed specifically mentioned that the guarantee was in the nature of an on-demand guarantee, the default was to arise on the part of the Guarantor only when the Demand Notice was issued as contemplated in the Deed of Guarantee. Thus, the period of limitation of the Personal Guarantor was to commence once the demand was made on the Guarantor by the Respondent No. 1 Bank. Hence, the Notice dated 04.06.2021 issued by the Respondent No.1 Bank to the Personal Guarantor has to be treated to be Notice on Demand as contemplated in the Deed of Guarantee. The Rule 7(1) Notice dated 28.06.2021 had therefore rightly recorded that the debt was due on 04.06.2021 being the date of Demand Notice under Section 13(2) of the SARFAESI Act and that the date of default occurred on 04.08.2021 on the expiry of 60 days from 04.06.2021."
In the present case we have noted Section 13(2) notice was not for any other purpose but for SARFAESI action and, therefore, we clearly observe absence of prior invocation of guarantee, before issuance of Form B notice on 13.10.2020. Thus “default before issuance of Notice under Rule 7(1)” (as held in Pooja Ramesh Singh supra) is not noted.
In view of the above settled position having noted absence of prior invocation of guarantee before issuance of demand notice under Rule 7(1) we have no hesitation to dismiss the Section 95(1) Petition against the Personal Guarantor.
Accordingly, C.P. (IB)/116(KB) 2021 is dismissed.
The Registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps.
Certified Copy of this order may be issued, if applied for, upon compliance of all requisite formalities.