State Bank Of India vs Dr. Jitendra Das Maganti & Anr.

The Corporate Debtor has availed various credit facilities from the Financial Creditor in the form of Term Loan and Non-Fund Based Credit facilities limits. The Corporate Debtor defaulted in paying the loan availed from the Financial Creditor and committed default for an amount of Rs. 129,58,95,550.79/-.

The Corporate Debtor is the Principal Borrower, and the Personal Guarantor stood as the guarantor to secure the repayment of the financial assistance availed by the Corporate Debtor. The outstanding amount as at 31.07.2021 is Rs. 129,58,95,550.79/-. The Personal Guarantor to secure the repayment of the financial assistance availed by the Corporate Debtor has executed Guarantor agreements in favour of the Financial Creditor.

The Corporate debtor after availing the loan facilities violated the terms of sanction letters and other loan documents and committed defaults in repaying the loan amounts.

It is stated that the Personal Guarantor entered into a Joint Term Loan Agreement with the Financial Creditor and with other Creditors on 20.01.2010.

The Personal Guarantor entered into another Deed of Guarantee executed with the Financial Creditor on 20.01.2015.

Vide order dated 13.03.2018, the Corporate Debtor was admitted into CIRP, and a moratorium was declared by this Adjudicating Authority in TCP (IB) No. 32/7/AMR/2019. As the Corporate Debtor failed to discharge its repayment obligations, the Financial Creditor has filed the present Petition under Section 95(1) of the IBC, seeking initiation of the Insolvency Resolution Process against the Personal Guarantor.

The Financial issued a Form-B demand notice dated 17.08.2021 to the Personal Guarantor on 03.09.2021, pursuant to Rule 7(1) of the Personal Guarantor Rules. The notice was duly served upon the Personal Guarantor on 08.09.2021.

The details of the debt are as follows:

As per Part-III of the Form -C, the date of default is 13.03.2018, being the date of admission of the CIRP of the Corporate debtor.

It is stated that the IRP had examined the present Petition and the same is found to satisfy all the ingredients of Sec.95 of the IBC.

As on the date of Application, i.e., on 07.04.2022, the Corporate Debtor and Personal Guarantor owed Rs. 129,58,95,550.79/- to the Financial Creditor. The Personal Guarantor to the Corporate Debtor has failed to pay the debt within fourteen days of service of the demand in Form B dated 17.08.2021.

In terms of Section 95(6) of the IBC, the Financial Creditor has the Petition in Form – C through IRP as per Rule 7(2) of The Personal Guarantor Rules.

In terms of Section 95(7) of the IBC, the following details and documents have been submitted by the Financial Creditor as per Section 95(4) of the IBC:

In terms of Section 99(2) of the IBC, the Corporate Debtor or the Personal Guarantor to the Corporate Debtor failed to repay the debt claimed by the Financial Creditor, the RP has not received any evidence for the repayment of the debt, such as:

evidence of electronic transfer of the unpaid amount from the bank account of the debtor;

evidence of encashment of a cheque issued by the debtor; or

a signed acknowledgement by the creditor accepting receipt of dues

In terms of Section 99(3) of the IBC, the debt for which the petition has been filed by the Financial Creditor is not registered with the Information Utility.

In terms of Sections 99(4) and 99(5) of the IBC, the RP, vide letter dated 30.05.2022 and email dated 31.05.2022, sought additional information and documents from the Corporate Debtor; however, no response was received. The RP also addressed a letter and email dated 30.05.2022 to the Personal Guarantor seeking further documents and information, to which the Personal Guarantor responded by disputing the debt and raising certain allegations. Further, the RP, vide email dated 31.05.2022, sought information from the Financial Creditor and received a response dated 04.06.2022, wherein the State Bank of India confirmed that no payment had been received from the Personal Guarantor after the filing of the petition under Section 95 of the IBC.

In terms of Section 99(7) of the IBC, the RP recommended accepting the present petition filed by the Financial Creditor.

In terms of Section 99(8) of the IBC, RP held that the debtor is not eligible for the fresh start process under Chapter II of the Code; It is submitted that according to section 78 of the IBC, where the amount of the default is not less than one thousand rupees, Part III i.e., Provisions of fresh start, Insolvency and Bankruptcy of Individuals and Partnership firms shall apply. The RP concluded that there is a default of more than one thousand rupees from the Guarantor.

In terms of Section 99(9) of the IBC, the RP has reiterated the above point VIII for acceptance of the present Petition. The RP has also mentioned the objections raised by the Personal Guarantor as below:

In terms of Section 79(15) of the IBC, the Financial Creditor, while filing the Petition in Form C, has declared that the debt claimed does not constitute an excluded debt. Upon examination of the documents on record, the RP found no material indicating otherwise.

The Personal Guarantor has contended that the Financial Creditor lacks locus standi to maintain the present Petition under Section 95 of the IBC. It is submitted that the Personal Guarantee was executed in favour of a consortium of lenders and not in favour of the individual Financial Creditor. According to the Personal Guarantor, the purported Personal Guarantee relied upon by the Financial Creditor does not confer any enforceable rights upon it individually. Therefore, it is contended that the present Petition is not maintainable and is liable to be dismissed.

The Personal Guarantor has contended that the present Petition has been filed by suppressing material facts and with an oblique motive to coerce the Personal Guarantor to pay amounts which he is not liable to pay, and is therefore a patent abuse of the process of law.

The Personal Guarantor contended that the mandatory demand notice in Form B, as required under Section 95(4)(b) of the Code read with Rule 7(1) of the Personal Guarantor Rules, was never served upon him. It was submitted that the right to file a Petition under Section 95 of the IBC accrues only upon due service of the notice in Form B and after the prescribed period. He further contended that the address mentioned in the postal receipt filed by the IRP along with his report dated 30.05.2022 did not exist and that the postal receipt annexed to the petition did not pertain to the alleged demand notice. It was also contended that the petitioner had inadvertently annexed documents relating to notices issued to third parties. Therefore, according to the Personal Guarantor, the present Petition is liable to be dismissed for non-compliance with the mandatory requirements of Section 95(4)(b) of the Code and Rule 7(1) of the Personal Guarantor Rules.

The Personal Guarantor contended that the present petition is barred by limitation, as the Personal Guarantee dated 20.01.2015 had already been fully invoked by the Financial Creditor vide demand notice dated 16.11.2016. It was submitted that the Financial Creditor could have initiated proceedings based on the said invocation only up to 16.11.2019, and any remedy arising out of the Deed of Guarantee thereafter is time-barred. It was further contended that the RP's Report erroneously proceeded on the basis that the guarantee was invoked for the first time through Form B dated 17.08.2021, while failing to disclose or consider the earlier invocation dated 16.11.2016.

The Personal Guarantor contended that the Deed of Guarantee was not executed by the lenders, including the State Bank of India. It was submitted that the said guarantee is non est and unenforceable in law, and consequently, the present proceedings founded thereon are liable to be dismissed.

The Personal Guarantor contended that the present Financial Creditor is neither a member of the consortium of lenders nor a beneficiary under the Deed of Guarantee and, therefore, lacks the locus standi to maintain and prosecute the present petition.

The Personal Guarantor contended that no particulars or supporting documents relating to the alleged debt owed by him have been furnished, including duly verified statements of account reflecting the debit and credit entries pertaining to the claim.

The Personal Guarantor contended that the deed of guarantee was executed in favour of a consortium of lenders and not in favour of the present Financial Creditor, who is not a party thereto. It was further contended that, under Clauses 6 and 7 of the Guarantee, any enforcement rights can be exercised only by the lenders collectively and not by an individual lender. Accordingly, the present petition is liable to be dismissed.

The Personal Guarantor has raised baseless objections regarding the maintainability of the present Petition. The Financial Creditor contended that the Petition is maintainable under Section 95 of the IBC, as the Personal Guarantor had guaranteed the debt of the Corporate Debtor, which committed default in repayment of the loan facilities, thereby entitling the Financial Creditor to initiate the insolvency resolution process against the Personal Guarantor.

It was submitted that the Financial Creditor had issued the Demand Notice in Form B to the Personal Guarantor through India Post on 03.09.2021 (Article No. RM720292576IN), which was delivered on 08.09.2021. It was further submitted that, despite receipt of the demand notice, the Personal Guarantor neither replied to the notice nor discharged the outstanding dues. Reliance was placed on the postal tracking report annexed to the petition, which evidences delivery of the notice on 08.09.2021. The Financial Creditor has contended that the Personal Guarantor's assertion regarding non-service of the Form B notice is incorrect, as the tracking reports relied upon by the Personal Guarantor pertain to communications issued by the Resolution Professional seeking information and documents and not to the Demand Notice in Form B issued by the Financial Creditor. Accordingly, it was submitted that the records clearly establish issuance and service of the Demand Notice upon the Personal Guarantor.

It is submitted that the present Petition is not barred by limitation as contended by the Personal Guarantor. It is humbly submitted that the Personal Guarantor has signed the Revival Letter dated 14.08.2017 and acknowledges the debt. Therefore, the present Petition is within the period of limitation. Further, the CIRP of the Corporate Debtor was initiated on 13.08.2018, and demand notice was delivered on 03.09.2021 within the period of limitation. It is further submitted that as per the decision of the Hon'ble Supreme Court of India given in SMW(C) No.3 of 2020 in Cognizance for extension of Limitation the period from 15.03.2020 till 28.02.2022 shall stand excluded for deciding the period of Limitation. The Personal Guarantor acknowledges the debt and default vide letter dated 21.12.2020. The principal borrower also acknowledges the debt. It is humbly submitted that the liability of the Personal Guarantor was terminus with that of the principal borrower; all acknowledgements made by the principal borrower are also binding upon the Personal Guarantor.

It was submitted that the Personal Guarantor has not denied the execution of the Personal Guarantee dated 20.01.2015 in favour of the lenders specified in Schedule I. It was further submitted that, pursuant to the merger of the State Bank of Hyderabad, State Bank of Mysore, State Bank of Travancore and State Bank of Patiala with the State Bank of India with effect from 01.04.2017 vide Gazette Notifications G.S.R. Nos. 157(E), 158(E), 159(E) and 160(E), all loan accounts, rights, interests and obligations of the erstwhile banks stood vested in and transferred to the State Bank of India. Consequently, all contracts, deeds, bonds, guarantees, agreements and other instruments subsisting immediately prior to the effective date became enforceable by or against the State Bank of India with full force and effect, thereby entitling the Financial Creditor to enforce the Personal Guarantee.

It is submitted that the Corporate Debtor, in order to avail the financial assistance, has executed various loan documents and the Personal Guarantor to the Corporate Debtor in order to secure the repayment of the financial assistance availed by the Corporate Debtor has executed Guarantee Agreements in favour of the Creditor. Copies of sanction letters, Joint Term Loan Agreement, Guarantee Agreement, Certificate under Bankers Book of Evidence Act, 1891 are enclosed to the Petition which show that the loan was availed by the Corporate Debtor which was guaranteed by the Personal Guarantor. It is further submitted that one of the Creditors, Axis Bank Limited, Consortium Member, has filed Section 7 IBC, Petition against the Corporate Debtor for initiating CIRP before the Hon'ble NCLT, Hyderabad Bench (Now NCLT, Amaravati Bench). The Hon'ble NCLT, Hyderabad Bench (Now NCLT, Amaravati Bench) admitted the Section 7 IBC Petition vide order dated 13.03.2018 in CP(IB) No 282/7/HDB/2017 and initiated the Corporate Insolvency Resolution Process against the Corporate Debtor.

It is submitted that in terms of clause 3.3 of the deed of guarantee, Guarantee shall be available to all the members of the consortium, and they shall be entitled to call upon the Guarantors to perform the terms of the Guarantee. As per the Personal Guarantee Agreement it is not mandatory for initiating proceedings against the Personal Guarantor by all the members of consortium together. Each member of consortium is entitled to initiate proceedings independently.

It is submitted that the Financial Creditor has sufficiently established that there is a lawful financial debt due to the Petitioner being unpaid by the Corporate Debtor and Personal Guarantor. The present petition filed by the Financial Creditor lucidly outlines the nature and description of the unpaid Financial Debt in accordance with the provisions of the IBC. It is therefore submitted that the instant petition is fit for admission as envisaged by the code and satisfies all the conditions for admission.

In the present case, no notice is served on the Personal Guarantor, the address of the Personal Guarantor is 36, Balaji Baymount, Tarakarama Layout, Pedda Rushikonda, Vishakhapatnam-530 045, the same is mentioned in the Page 6 of the Petition and the same address is found in Personal Guarantee agreement in Page 100 of the Petition; The relevant extract of the clause 21 of the Personal Guarantee agreement also read as follows:

The Notice in Form B was sent to 28, Kirlampudi Layout, Door No. 7-23-7, Sanjeevayya Nagar, Visakhapatnam – 530023, an address which he had allegedly vacated in 2010. It is submitted that the Deed of Personal Guarantee required notices to be sent to the address specified therein, whereas the Petitioner dispatched the notice to a different address not mentioned in the Guarantee. Accordingly, it is contended that there was no valid service of the demand notice under Section 95 of the Code and, therefore, the petition is liable to be dismissed.

It is further contended that the service of the notice is doubtful, as the demand notice is dated 17.08.2021, whereas the postal receipt is dated 03.09.2021. It is submitted that the address mentioned in the postal receipt, namely "Pothinamallayapalem – 530041", does not correspond either to the address of the 1st Respondent or to the address to which the notice was purportedly sent. Accordingly, it is contended that the article dispatched on 03.09.2021 appears to have been sent to an altogether different address.

It is further contended that the alleged tracking report (at page 29 of the Petition) is merely a screenshot without any indication that it was obtained from the official India Post website, nor does it disclose the identity or address of the addressee. It is submitted that the destination PIN code mentioned therein is 530041, which does not correspond either to the address of the Personal Guarantor (PIN code 530045) or to the address to which the demand notice was purportedly sent (PIN code 530023). Accordingly, it is argued that neither the postal receipt nor the alleged tracking report can be relied upon to establish service of the demand notice.

It is submitted that there is no cogent proof to establish that the demand notice was duly served upon the Personal Guarantor. In the absence of the Petitioner discharging the burden of proving compliance with the mandatory requirement of service of demand notice under Section 95(4)(b) of the IBC, the present petition is liable to be dismissed.

It is further submitted that the CIRP of the Corporate Debtor was commenced pursuant to a default in respect of the loan facilities granted by Axis Bank Ltd., and not on account of any dues allegedly payable to the Petitioner.

It is further submitted that the Petitioner has merely placed on record certain sanction letters, joint term loan documents, and the Deed of Personal Guarantee, without furnishing essential documents required under Section 95(4)(a) and (c) of the Code, such as details of the actual amounts disbursed, repayments made by the Corporate Debtor, statements of account of the Petitioner's predecessors-in-interest, and documents evidencing the alleged default of the Corporate Debtor. It is contended that, in the absence of cogent evidence, including statements of account demonstrating the disbursement of funds, repayments received, and the occurrence of default, there is no proof of the alleged debt, its quantum, or the default, and consequently, the Petition under Section 95 of the Code is not maintainable.

It is further submitted that, even assuming the certificates to be correct, they pertain only to the period from 01.04.2021 to 31.07.2021, which neither covers the period of the alleged disbursements and repayments nor the period subsequent to the issuance of the demand notice dated 17.08.2021. Since the Corporate Debtor had already been admitted into CIRP on 13.03.2018, it is contended that the certificates at pages 124–127 of the Company Petition have little or no evidentiary value.

It is submitted that neither the Petition, nor the documents filed along with it, nor the RP Report contain sufficient details or evidence regarding the alleged debt, default, repayments, or the amount claimed. It is further submitted that the amount claimed is not supported by any material on record. In the absence of the basic information and documents required under Section 95(4)(a) and (c) of the Code, the present Petition is liable to be dismissed.

It is submitted that the Guarantee was executed in favour of a consortium of lenders and not the present Financial Creditor. Since Clauses 6 and 7 provide for enforcement by the "Lenders" collectively, the Financial Creditor cannot independently enforce the Guarantee. Accordingly, it is contended that the present petition is liable to be dismissed.

It is submitted that the present petition has been filed by the Insolvency Professional pursuant to an authorization letter dated 04.08.2021 allegedly issued by an Assistant General Manager of the Petitioner. However, no material has been placed on record to establish the authority of the said officer to issue such authorization. It is further submitted that the authorization letter dated 04.08.2021 bears the reference "SARG/Infra", whereas the certificates filed by the Petitioner pertain to "SARG-Commercial" (SARGC). Moreover, the said letter required a countersigned copy to be furnished, failing which the authorization would stand cancelled, but no countersigned copy of the letter dated 04.08.2021 has been placed on record.

In the Preliminary Objections, counter filed by the Personal Guarantor and also before the Hon’ble Supreme Court the Personal Guarantor has not pleaded non-receipt of the demand notice. The theory of non-service of demand notice is invented to prejudice the mind of the Adjudicating Authority.

The Financial Creditor duly served the Demand Notice upon the Personal Guarantor to the address specified in the Personal Guarantee Agreement/Aadhaar Card via India Post and was duly served upon the Personal Guarantor, with service evidenced by the Postal Receipt and Tracking Report attached at pages 28 and 29 of the Company Petition. Due to an inadvertent and bona fide oversight, a copy of the Demand Notice addressed to Kirlampudi Layout was mistakenly filed at pages 24 to 27 of the petition instead of the correct notice. To rectify this error, the Financial Creditor has formally placed the correct Demand Notice sent to the Rushikonda address on record vide IA No. 84/2024 at pages 7 to 10.

The Personal Guarantor has mentioned that the receipt of demand notice before the Hon’ble Supreme Court, cannot plead non-service of the demand notice. The demand notice, along with the postal receipt and tracking report, is mentioned in IA No. 84/2024, which shows that the Personal Guarantor has received the demand notice.

The KYC documents submitted by the Personal Guarantor, specifically the Aadhaar Card attached at pages 128 and 129 of the Company Petition, record the PIN Code as 530041. This PIN Code accurately matches and corresponds with the residential address specified within the said Aadhaar Card.

The present petition has been filed through the Insolvency Resolution Professional pursuant to an engagement letter dated 04.08.2021 issued by the Financial Creditor to Shri Rajesh Chillale, which is enclosed at pages 22 and 23 of the Petition. The said engagement letter was executed by the Assistant General Manager, who is the duly authorized signatory for the Financial Creditor. By virtue of the Gazette Notification issued by the Government of India dated 02.05.1987, the Assistant General Manager is designated as the competent person authorized to sign legal documents on behalf of the Financial Creditor.

The present petition is not barred by limitation in view of the revival letter dated 14.08.2017, signed by the Personal Guarantor to acknowledge the debt. Furthermore, the Personal Guarantor explicitly acknowledged both the debt and default vide a subsequent letter dated 21.12.2020. Since the Principal Borrower has also acknowledged the debt, the liability of the Personal Guarantor remains co-extensive and co-terminus with that of the Principal Borrower.

The Hon’ble Supreme Court in Dilip B Jiwrajka Versus Union of India & Ors (WP (Civil) No 1281 of 2021) observed as follows:

No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;

The Financial Creditor has annexed the National E-Governance Services Limited Form-D Record of Default of the Corporate Debtor, and the status authentication was deemed to be authenticated.

The present Petition was filed on 09.04.2022 before this Adjudicating Authority, noting the date of default as stated by the Financial Creditor to be 13.08.2018. Pursuant to Section 128 of the Indian Contract Act, 1872, when a default is committed by the principal borrower, the surety becomes jointly and severally liable, granting the creditor the right to recover its dues from either party or from both simultaneously. Since the Personal Guarantee was invoked by the Financial Creditor vide a demand notice dated 17.08.2021, which falls within the prescribed timeline, and given that the guarantee extended by the Personal Guarantor is a continuing guarantee, we find that the present Petition is well within the limitation period.

As per the records before us, Part III of Form C of the petition claims an amount in default of Rs. 129,58,95,550.79 as of 31.07.2021. The Financial Creditor has recorded the date of default as 13.03.2018 in the petition. whereas the Form B demand notice issued to the Personal Guarantor on 17.08.2021 specifies the date of default as 14.01.2017.

Under Clause 3.1 of the Deed of Guarantee dated 20.01.2015, in the event of a default by the principal borrower, the guarantors shall, upon written demand, pay all outstanding amounts to the lenders. The relevant extracts of this clause are as follows:

A perusal of the aforesaid clause of the Deed of Guarantee dated 20.01.2015 establishes that the Financial Creditor is required to make a formal demand for payment and explicitly invoke the guarantee prior to the initiation of the present proceedings. The fulfilment of this requirement is a condition precedent, rather than a mere formality. In the absence of a prior invocation of the guarantee in terms of the Deed of Guarantee, the Financial Creditor cannot trigger the provisions of the Code or maintain the present Petition against the Personal Guarantor.

As per Rule 3(1)(e) of the Personal Guarantor Rules, a guarantor is defined as a personal guarantor to a corporate debtor whose guarantee has been invoked by the financial creditor and remains unpaid in full or in part. The relevant extract of the rule is as follows:

Section 3(11) of the IBC, 2016 defines "debt" as a liability or obligation in respect of a claim due from any person.

Section 3(12) of the IBC, 2016 defines "default" as non-payment of such debt when it becomes due.

Hence, a Personal Guarantor becomes a Debtor only upon invocation of the guarantee, making the debt due.

In Edelweiss Asset Reconstruction Company vs. Orissa Manganese and Minerals Ltd. ((2019) ibclaw.in 308 NCLAT), the Hon'ble NCLAT held that "a contract of guarantee matures into a binding obligation only upon invocation," and the guarantor's liability must be proved separately.

The Hon’ble NCLAT, Principal Bench, New Delhi, in Saranga A. Aggarwal vs. State Bank of India & Anr. (Company Appeal (AT)(Ins) No. 1788 of 2025), reaffirmed the well-settled legal position that proceedings under Section 95 of IBC cannot be initiated against a Personal Guarantor without first invoking the deed of guarantee. Furthermore, the Hon’ble Tribunal emphasised that the invocation of the guarantee must precede the service of the demand notice in Form B by the Financial Creditor.

The Hon’ble NCLAT, Principal Bench, New Delhi, in State Bank of India vs Deepak Kumar Singhania (Company Appeal (AT)(Ins) No. 191 of 2025) reiterated the same position that:

A personal guarantor's liability arises only upon invocation of the guarantee as per the Deed of Guarantee.

The Demand Notice under Rule 7(1) of the Personal Guarantor rules is a statutory step, not an invocation of the guarantee.

Conditions under Rule 3(1)(e) of the Personal Guarantor rules must be fulfilled for the guarantor to be liable.

A personal guarantor's liability is conditional and crystallizes only upon the formal invocation of the deed of guarantee in terms of the contract. A demand notice under Form B is strictly a statutory prerequisite for initiating insolvency proceedings under Section 95 of the Code; it cannot operate as a substitute for, or serve the dual purpose of, invoking the guarantee. Consequently, the contractual invocation must independently precede the service of the Form B notice.