NCLAT Delhi Rules, S. 13(2) SARFAESI Act Notice Demanding Payment From Guarantor Constitutes Invocation Of Personal Guarantee
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has held that a demand notice under Section 13(2) of the SARFAESI Act, 2002, which expressly seeks payment from a personal guarantor in accordance with the terms of a guarantee agreement, constitutes a valid invocation of the personal guarantee. This ruling came from a bench comprising Justice Ashok Bhushan (Chairperson), Mr. Arun Baroka, and Mr. Barun Mitra (Technical Members) in Asha Basantilal Surana v. State Bank of India & Ors..
Background
The appellant, Asha Basantilal Surana, had executed a deed of personal guarantee dated 12.11.2021 in favour of State Bank of India (SBI) and other financial creditors for the credit facilities extended to the principal borrower, M/s Surana Metacast (India) Pvt. Ltd.. The principal borrower’s loan account was declared a Non-Performing Asset (NPA) on 01.05.2023. Consequently, a demand notice under Section 13(2) of the SARFAESI Act was issued on 09.10.2023 to both the borrower and the appellant as guarantor, demanding repayment of ₹28,56,64,336.06.
Subsequently, SBI obtained an order under Section 14 of SARFAESI for taking possession of the secured assets and issued a sale notice under Section 13(4). On 22.08.2024, the appellant filed an application under Section 94(1) of the Insolvency and Bankruptcy Code, 2016 seeking initiation of personal insolvency proceedings. However, the Adjudicating Authority (NCLT Ahmedabad) dismissed the application as premature, holding that apart from the Section 13(2) notice, no formal invocation of the personal guarantee had been made.
Key Legal Issue
The central issue before the NCLAT was whether a Section 13(2) SARFAESI notice, which clearly demands payment from a personal guarantor, can be treated as invocation of the personal guarantee, thereby giving rise to a valid cause of action for filing an application under Section 94(1) of the IBC.
Tribunal’s Analysis
The NCLAT carefully examined the terms of the Guarantee Agreement, particularly Clause 7, which allowed the bank to demand payment from the guarantor without specifying any particular form for such a demand. The Tribunal observed that the Section 13(2) notice addressed to the appellant was explicitly titled “Notice to Guarantor” and clearly required her to discharge the entire liability of ₹28.56 crore within 60 days.
The Tribunal cited Clauses 4 and 5 of the notice, which made an unequivocal demand for repayment from the appellant. It was noted that the notice also reserved the bank’s right to initiate further proceedings under Section 13(4) and other applicable laws.
Rejecting the view taken by the NCLT, the NCLAT held that a notice under Section 13(2), when it makes a demand directly against a guarantor, does in fact amount to invocation of the personal guarantee, especially when the guarantee deed does not mandate a specific form or sequence for such invocation.
Distinction from Prior Case
The NCLT had relied on the earlier NCLAT decision in Amanjyot Singh v. Navneet Kumar Jain [Company Appeal (AT) (Insolvency) No.961 of 2022], where the Tribunal had dismissed a similar Section 94 application. However, the NCLAT clarified that the Amanjyot Singh ruling was based on unique facts, where the bank had categorically stated that it had not taken any steps against the guarantor for recovery. In contrast, the facts in the present case demonstrated that the bank had demanded payment from the guarantor via a formal notice and had even initiated asset possession proceedings.
Supporting Precedent
The Tribunal also referred to Mavjibhai Nagarbhai Patel v. State Bank of India [Company Appeal (AT) (Insolvency) No. 1702 of 2024], where a Section 13(2) demand notice was accepted as invocation of a personal guarantee. In that case, the demand notice named and addressed personal guarantors, thereby creating a cause of action to proceed under personal insolvency provisions. The NCLAT emphasized that the determination of whether a guarantee has been invoked through a demand notice must be based on the contents and intent of the notice. If the language reflects a clear demand for payment in accordance with the terms of the guarantee, the notice must be treated as valid invocation.
Verdict
Holding that the NCLT's conclusion was factually and legally incorrect, the NCLAT allowed the appeal, set aside the order dated 04.12.2024, and restored the appellant’s Section 94(1) application. The matter was remanded to the Adjudicating Authority for further proceedings in accordance with law. The judgment reaffirms that demand notices under SARFAESI, when expressly addressed to guarantors with a call for payment, are sufficient to constitute invocation of the personal guarantee, thereby enabling initiation of personal insolvency proceedings under the IBC.
Appearance
For Appellant: Mr. Abhishek Naik, Ms. Gulafsha Kureshi, Ms. Deepsikha Mishra and Mr. Palak Zaidi, Advocates
For Respondents: Mr. Siddharth Singal, Ms. Richa Mishra, Ms.Harshita Agrawal, Ms. Mushkan Mangla and Mr. Akash Chatarjee, Advocates for R-2. Mr. Yash Sikka, Advocate for R-3.
Cause Title: Asha Basantilal Surana v/s State Bank of India & Ors.
Case No: Company Appeal (AT) (Insolvency) No. 84 of 2025
Coram: Justice Ashok Bhushan [Judicial Member], Mr. Arun Baroka [Technical Member], Mr. Barun Mitra [Technical Member]
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