Pranav B Prem

The National Company Law Tribunal (NCLT) Mumbai Bench comprising Shri K. R. Saji Kumar (Judicial Member) and Shri Sanjiv Dutt (Technical Member) has held that both the demand notice issued under Rule 7(1) of the Personal Guarantors Rules, 2019, and the notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) cannot be considered as an invocation of the guarantee. The bench further held that an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be entertained unless there is a clear and explicit invocation of the personal guarantee by the financial creditor.

Background of the Case

The application was filed by the Bank of Maharashtra (Financial Creditor) under Section 95 of the IBC seeking initiation of the Personal Insolvency Resolution Process against Mrs. Kavita Ninad Mestry (Personal Guarantor/Respondent). The Corporate Debtor, M/s Autocrat Automotive Stamping Private Limited, had availed a Term Loan of Rs. 3.75 Crores and a Cash Credit Facility of Rs. 1.25 Crores from the financial creditor in 2013. Mrs. Kavita Ninad Mestry, being one of the Directors of the Corporate Debtor, had provided personal guarantee to secure the credit facility extended to the Corporate Debtor. The financial creditor claimed the date of default to be May 12, 2014, which pertains to the corporate debtor's default.

Also Read: NCLAT rules, Fresh Period Of Limitation U/S 18 Of Limitation Act Begins From Date When Balance Sheet Is Signed By Corporate Debtor

Observations of the Tribunal

The Tribunal observed that the date of default in case of a personal guarantor arises only when the guarantee is invoked and is determined by the nature and contents of the deed of guarantee. Referring to the Supreme Court judgment in Syndicate Bank vs. Channaveerappa Belari & Ors. [Civil Appeal No. 6894 of 1997], the Tribunal emphasized that: "A claim may be time barred against the principal debtor but still be enforceable against the personal guarantor. The liability of the personal guarantor arises when the debt is not discharged after the guarantee has been invoked." The NCLT also highlighted that the liability of a personal guarantor is triggered only when the financial creditor makes an explicit demand requiring the guarantor to discharge the debt.

Validity of the Demand Notices

The financial creditor relied on two demand notices to establish the invocation of the guarantee:

1. Demand Notice dated May 17, 2018, under Section 13(2) of the SARFAESI Act: The Tribunal noted that: "The demand notice dated 17 May 2018 neither explicitly invoked the guarantee nor provided proof of receipt by the guarantor in capacity of the guarantor." Therefore, it held that a notice under Section 13(2) of the SARFAESI Act cannot be considered as an invocation of the guarantee.

2. Demand Notice dated November 3, 2022, under Rule 7(1) of the Personal Guarantors Rules, 2019: Upon examining this notice, the Tribunal observed: "A careful examination discloses that the notice lacks an explicit invocation of the guarantee agreement. It does not call upon the personal guarantor to repay the outstanding debt under the deed of guarantee." The Tribunal, relying on the NCLAT's ruling in State Bank of India vs. Mr. Deepak Kumar Singhania,[CA (AT) (Ins.) No.191 of 2025] held: "A Demand Notice issued under Rule 7(1) of the Personal Guarantor Rules, 2019 cannot be considered a notice for invocation of a guarantee for the purpose of filing an application by a creditor under Section 95 of the Code."

Requirement of Explicit Invocation

The Tribunal emphasized that a valid invocation of the guarantee requires an unequivocal communication from the financial creditor demanding payment under the deed of guarantee. In the absence of such an explicit demand, the liability of the personal guarantor does not arise.

Also Read: “Senior Advocate Designation Not a Right but ‘Recognition of Ability’: Delhi HC Upholds Rule 9B Limiting Eligibility to Retired DHJS Officers”

Decision of the Tribunal

The Tribunal concluded that since there was no valid invocation of the guarantee, the default on the part of the personal guarantor cannot be established. Consequently, the requirements under Section 95 of the IBC are not fulfilled, rendering the application ineligible for admission. "Since the guarantee has not been invoked in the present case, the default on the part of the personal guarantor cannot be said to have arisen. Therefore, the requirements of Section 95 of the Code are not satisfied, and the application deserves to be rejected."  Accordingly, the Tribunal dismissed the application filed by Bank of Maharashtra.

Appearance:

Financial Creditor: Adv. Meet Pandya i/b Kay Legal & Associates LLP

Personal Guarantor: None

Resolution Professional: Adv. Kartikee Korgaonkar

Cause Title: Bank Of Maharashtra Stressed Asset Management Branch V. Mrs. Kavita Ninad Mestry

Case No: CP (IB) No.1009/MB/2023 with IA (IBC) No.4914/2024

Coram: Hon’ble Shri K. R. Saji Kumar [Member (Judicial)], Hon’ble Shri Sanjiv Dutt [Member (Technical)]

[Read/Download order]