Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member), has ruled that personal guarantors who have already acknowledged the receipt of a demand notice before the Supreme Court cannot later plead that such notice was not served. The Tribunal set aside the order of the National Company Law Tribunal (NCLT), Amravati Bench, and restored the insolvency petition filed by the State Bank of India (SBI) under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the personal guarantors of M/s Seven Hills Health Care Pvt. Ltd.

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The financial creditor, SBI, had extended financial assistance to M/s Seven Hills Health Care Pvt. Ltd., in which Dr. Jitendra Das Maganti and Dr. Renuka Rani Maganti stood as personal guarantors. Upon default, the bank issued demand notices calling upon the guarantors to discharge outstanding liabilities amounting to over ₹129 crore and subsequently filed an application under Section 95 of the IBC.

Before the NCLT could proceed, the guarantors approached the Supreme Court of India by filing a writ petition challenging the constitutional validity of Sections 95 to 100 of the IBC (dealing with insolvency resolution of personal guarantors to corporate debtors). In that petition, the guarantors themselves admitted that SBI had issued the demand notice to them. Despite this, the NCLT dismissed the Section 95 petition filed by SBI, holding that the demand notice had not been properly served in accordance with Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.

Aggrieved by this, SBI preferred an appeal before the NCLAT, Chennai. The bank argued that Section 95(4) of the IBC does not require issuance of a separate notice before filing an insolvency application, but that it had nonetheless served the notice at the addresses provided in the guarantors’ Aadhaar records. It further contended that the guarantors, having admitted receipt of the notice before the Supreme Court, were estopped from denying service at a later stage.

The guarantors, on the other hand, argued that the notice had been sent to the wrong address and was therefore defective. They claimed that the alleged admission before the Supreme Court was contextual and not conclusive proof of service.

After hearing both sides, the NCLAT held that Section 95(4) of the IBC read with Rule 7(1) of the 2019 Rules makes the issuance of a demand notice a substantive requirement before initiating insolvency proceedings against a guarantor. However, the Tribunal noted that the guarantors themselves had acknowledged receipt of such notice before the Supreme Court while challenging the provisions under which it was issued.

The Bench observed that an admission made before the highest court of the land is the best evidence under law, and a party cannot later resile from its own statement. “The respondents have themselves admitted the service of the demand notice in their own pleadings before none other than the Hon’ble Apex Court, and that too in a proceeding under Article 32 of the Constitution. Therefore, now they cannot rescind their own acknowledgment,” the Tribunal held.

The NCLAT emphasized that the purpose of a demand notice under Section 95(4)(b) of the IBC is to ensure that the personal guarantor is made aware of the impending proceedings. In this case, the respondents had already acted upon such knowledge by filing a writ petition before the Supreme Court. Hence, the argument regarding non-service was “hyper-technical and redundant.” The Bench added that invalidating the demand notice on such technicalities would defeat the very objective of the IBC, which is to facilitate timely resolution of financial distress.

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Concluding its observations, the Tribunal found that the NCLT’s order was erroneous and inconsistent with the factual record. It set aside the NCLT’s decision and restored SBI’s Section 95 petition against the personal guarantors, directing the Adjudicating Authority to proceed in accordance with law.

Appearance

For Appellant: Mr. Pranava Charan,

For Respondent: Mr. Dwarakesh Prabhakaran, Advocate for R1

Cause Title: State Bank of India Through Resolution Professional Shri Chillale Rajesh v. Dr. Jitendra Das Maganti & Anrs.

Case No: Company Appeal (AT) (CH) (Ins) No.360 & 361/2024

Coram: Justice Sharad Kumar Sharma (Member-Judicial), Jatindranath Swain (Member-Technical)