State Bank of India vs Shri Carnet Elias Fernandes

The Demand-cum-Recall Notice dated 30.09.2016, addressed to the Corporate Debtor and to the personal guarantors including the Respondent, constituted a valid and unequivocal invocation of the Deed of Guarantee, and default crystallised on 07.10.2016 upon expiry of the seven-day notice period;

the balance sheets of the Corporate Debtor for FY 2016-17 to FY 2019-20 contained clear and unequivocal acknowledgment of the debt owed to the Applicant, and remained valid notwithstanding that they were signed by suspended directors during CIRP, since the statutory obligation to sign financial statements under Sections 129 and 134 of the Companies Act, 2013 survives suspension of the Board's powers under Section 17(1)(b) of the Code;

by virtue of Section 128 of the Indian Contract Act, 1872 and Clauses 12 and 19 of the Deed of Guarantee dated 31.03.2015 (which deem any acknowledgment by the borrower to be binding upon, and made on behalf of, the guarantor), the acknowledgments in the Corporate Debtor's balance sheets validly extended limitation as against the Respondent as well;

the exclusion of the period from 15.03.2020 to 28.02.2022 pursuant to the Hon'ble Supreme Court's Suo Motu orders in In Re: Cognizance for Extension of Limitation, Suo Motu W.P. (C) No. 3 of 2020, further extended limitation, and the Petition, filed in October 2021, was well within limitation; and

the Demand-cum-Recall Notice dated 30.09.2016 also constituted valid invocation of the personal guarantee of the Respondent, and the decision in State Bank of India v. Deepak Kumar Singhania, Company Appeal (AT) (Insolvency) No. 191 of 2025, relied upon by the Respondent, was distinguishable and inapplicable to the facts of the present case.

The Respondent states that the Corporate Debtor has been undergoing Corporate Insolvency Resolution Process (“CIRP”) since 20 July 2017 pursuant to an order passed by the Adjudicating Authority under Section 9 of the IBC in C.P. (I.B.) No. 35/9/NCLT/AHM/2017, Beeta Kone Tools v. GEI Industrial Systems Ltd. He further states that he is the sole Resolution Applicant and has submitted Resolution Plans dated 3^rd December 2019, 31^st January 2020 and 31^st August 2020, with the latter being under consideration, although further progress has been stalled on account of a technical issue pending before the Hon’ble NCLAT.

According to the Respondent, the Section 95 application pertains only to the personal guarantee furnished by him in relation to the loan provided by the Applicant to the Corporate Debtor, and he claims that he has not availed any other loan or facility from the Applicant. He further states that he is more than eighty years of age, has no present source of income and has no assets except equity shares of the Corporate Debtor and debts owed to him by the Corporate Debtor. According to him, such shares and debts presently have no realizable value as they are non-transferable and their value depends upon the outcome of the CIRP.

The Respondent contends that the issue concerning his guarantee would be resolved if the Resolution Plan submitted by him is approved by the Committee of Creditors, of which the Applicant is a member. He submits that admission of the Section 95 application under Section 100 of the IBC would result in the collapse of his Resolution Plan and adversely affect the revival of the Corporate Debtor, which, according to him, is a potentially viable MSME capable of employing approximately 500 persons and producing equipment for critical sectors of the Indian economy.

The Respondent further alleges that the application has not been filed in accordance with prudent business considerations and has been moved with an ulterior and malicious intent to cause him hardship and to frustrate the Resolution Plan. He submits that the Applicant would derive no benefit from his insolvency, particularly when other financial creditors have substantially larger exposures to the Corporate Debtor. He therefore alleges that the Applicant is misusing the process under the IBC while his Resolution Plan remains under consideration before the Committee of Creditors.

The Respondent also relies upon the objectives of the IBC, contending that the Code is intended, inter alia, to maximise the value of assets, promote entrepreneurship and balance the interests of stakeholders. He submits that admission of the application at this stage would not achieve these objectives and would instead result in no return or benefit to the Applicant or other creditors, while adversely affecting the prospects of resolution of the Corporate Debtor. He further contends that the Adjudicating Authority has discretion under Section 100 to admit or reject an application under Section 95 and that such discretion should be exercised having regard to the objectives of the Code, public policy and national interest, particularly in relation to the revival of MSMEs.

The Respondent additionally contends that an order under Section 100 would result in various legal disabilities, including those contemplated under Section 29A of the IBC, which according to him would affect his fundamental rights under Article 19(1)(g) of the Constitution. He asserts that the Applicant, being “the State” under Article 12 of the Constitution, ought to act prudently and judiciously and that, in the circumstances pleaded by him, initiation of proceedings under Section 95 is unjustified and contrary to constitutional principles.

In view of the aforesaid circumstances, the Respondent has prayed that the Section 95 application be kept in abeyance until conclusion of the CIRP of the Corporate Debtor, or alternatively, that the Applicant be advised to withdraw the application on grounds of business prudence and in conformity with the objectives and spirit of the IBC.

Vide order dated 25.11.2021, this Adjudicating Authority appointed Mr. Rahul Anand as the Resolution Professional (“RP”). The RP issued a notice on 27.11.2021 to the Respondent through e-mail and speed post, seeking details and relevant documents. The Resolution Professional has submitted that he received a telephone call from Mr. C. Fernandes, the Respondent, during which the Respondent acknowledged the debt. The Respondent further stated that he had no means to make payment and that all the attached properties had already been sold by the lenders. However, the Respondent has not submitted any proof or evidence demonstrating that the debt in default, either in whole or in part, has been repaid by him, whether in person, through e-mail, or by post.

The RP thereafter examined the Petition and the material on record, including the Deed of Guarantee dated 31.03.2015, the Demand-cum-Recall Notice dated 30.09.2016, and the balance sheets of the Corporate Debtor for FY 2016-17 to 2019-20 acknowledging the debt due to the Applicant, and submitted his Report dated 06.12.2021 under Section 99 of the Code, recommending that the Petition be admitted under Section 100 of the Code, having found that the requirements of Sections 95 and 99 of the Code stood satisfied and that the Respondent had furnished no proof of repayment of the debt claimed.

We have heard Ld. Counsel for the Applicant and Ld. Counsel for the Respondent, and have perused the pleadings, the written submissions filed by the parties, the Report of the Resolution Professional, and the Judgment of the Hon'ble NCLAT dated 17.10.2025 in Company Appeal (AT) (Ins.) No. 1742 of 2024.

At the outset, we note that the matter concerning another personal guarantor of the same corporate debtor was decided by Hon’ble NCLAT vide its Judgment dated 17.10.2025, whereby the earlier order of this Tribunal dated 16.07.2024 was set aside. The Hon’ble NCLAT, upon due consideration of the rival contentions and the material on record, categorically held that: (i) the Petition is within limitation, and (ii) the personal guarantee of the Respondent stands validly invoked. These findings, having attained finality upon dismissal of the Respondent's further challenge before the Hon'ble Supreme Court, are binding upon this Adjudicating Authority and cannot be reopened or re-agitated in these proceedings. We respectfully adopt and follow the said findings.

Consequently, we hold that:

the demand-cum-recall notice dated 30.09.2016 crystallised the default of the Respondent on 07.10.2016;

the balance sheets of the Corporate Debtor for FY 2016-17 to FY 2019-20 contain valid and binding acknowledgments of the debt as against the Respondent, in terms of Section 18 of the Limitation Act, 1963, read with Clauses 12 and 19 of the Deed of Guarantee dated 31.03.2015 and Section 128 of the Indian Contract Act, 1872;

the period from 15.03.2020 to 28.02.2022 stands excluded in computing limitation, in terms of the Hon'ble Supreme Court's Suo Motu orders in Re: Cognizance for Extension of Limitation, Suo Motu W.P. (C) No. 3 of 2020, and the Petition, filed in October 2021, is well within limitation; and

the demand-cum-recall notice dated 30.09.2016 constitutes valid invocation of the personal guarantee of the Respondent.

We now examine the remaining objections raised by the Respondent, which were not the subject matter of adjudication before the Hon'ble NCLAT.

We further note, and consider it significant, that the Respondent has himself acknowledged the debt in question. As recorded in the Affidavit in reply dated 24.02.2022 filed by the respondent and the Report of the Resolution Professional, the Respondent, in the course of a telephonic conversation with the Resolution Professional, admitted the debt and stated that he had no means to make payment, and that the properties attached had already been sold by the lenders. The Respondent has, at no stage — whether in person, by e-mail, or by post — furnished any proof or evidence that the debt in default, in whole or in part, has been repaid by him. Nor has the Respondent, in his reply by way of affidavit dated 24.02.2022, retracted or disputed this acknowledgment.

This admission is of material consequence. The Respondent's objections, as noted above, are confined to (i) the consequences that admission would have on his Resolution Plan and the CIRP of the Corporate Debtor, and (ii) broader submissions grounded in public policy and constitutional provisions. At no point does the Respondent traverse or deny the existence of the debt, the fact of default, or his liability as guarantor thereunder. Where a guarantor himself admits the debt and his own inability to discharge it, objections directed only at the consequences of admission — rather than at the existence of the debt itself — cannot furnish a ground to withhold relief that the Applicant is otherwise entitled to under Section 100 of the Code. The admission independently reinforces the findings of the Hon'ble NCLAT on debt and default, and forecloses any residual factual dispute on the point.

We further note that the Report of the Resolution Professional dated 06.12.2021, after due examination of the Petition in terms of Sections 95 and 99 of the Code, recommends admission of the Petition, having found the requirements of the Code satisfied and the Respondent to have furnished no proof of repayment despite notice. This recommendation stands fortified by the Respondent's own acknowledgment of the debt as noted above. We find no reason to disagree with the recommendation of the Resolution Professional.

Accordingly, having regard to (i) the binding findings of the Hon'ble NCLAT on limitation and invocation of the personal guarantee, (ii) the Respondent's own acknowledgment of the debt and his admitted inability to repay, (iii) rejection of the Respondent's remaining objection for the reasons recorded above, and (iv) the Report of the Resolution Professional recommending admission, we are satisfied that the Petition is complete in all respects and that the requirements of Section 100 of the Insolvency and Bankruptcy Code, 2016 stand fulfilled. The Petition is fit for admission. Ordered accordingly.

a. The Petition bearing CP (IB) No. 54(MP) of 2021, filed under Section 95 of the Insolvency and Bankruptcy Code, 2016, is hereby ADMITTED under Section 100 of the IBC.

b. The Personal Insolvency Resolution Process (PIRP) in respect of Shri Carnet Elias Fernandes, the Respondent/Personal Guarantor herein, is hereby initiated with effect from the date of this Order.

c. Mr. Rahul Anand, Resolution Professional (already appointed vide order of this Tribunal dated 25.11.2021)(AFA valid till 31^st December 2026), is hereby confirmed as the Resolution Professional for the conduct of the PIRP of the Respondent, with directions to carry out all functions, duties and responsibilities assigned under the Code, the Personal Guarantors Rules, and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019.

d. The moratorium under Section 101 of the IBC shall come into effect from the date of this Order and shall remain operative for the period of the PIRP, subject to the conditions and exceptions provided under the Code, and shall cease to have effect at the end of the period of one hundred and eighty days beginning with the date of admission of the Petition, or on the date this Adjudicating Authority passes an order on the repayment plan under Section 114 of the Code, whichever is earlier.

e. The Resolution Professional shall cause a public announcement of the initiation of the PIRP in terms of Section 102 of the IBC and Regulation 6 of the PIRP Regulations, within three (3) days from the date of this Order.

f. The Applicant is directed to deposit a sum of Rs. 50,000/- (Rupees Fifty Thousands only), towards his fees and expenses, within one week of this Order, subject to adjustment/reimbursement in accordance with the Code and the Regulations framed thereunder.

g. The Respondent/Personal Guarantor shall, upon receipt of the public announcement, submit a Statement of Affairs to the Resolution Professional within the period prescribed under the Code and the Regulations.

h. The Resolution Professional is directed to submit a status report to this Tribunal on the progress of the PIRP within thirty (30) days of this Order.

A copy of this Order shall be communicated to the Resolution Professional, the Applicant/Financial Creditor, and the Respondent/Personal Guarantor forthwith.