Refusal Of Demand Notice By Guarantor Constitutes Valid Service; NCLT Hyderabad Admits Personal Insolvency Petition
Sangeetha Prathap
The National Company Law Tribunal (NCLT), Hyderabad Bench – Court-II, has held that refusal by a personal guarantor to accept delivery of a statutory demand notice amounts to valid and deemed service under the Insolvency and Bankruptcy Code, 2016, and consequently admitted the petition filed by STCI Finance Ltd. to commence the personal insolvency resolution process against Ramnath Nandakumar, the personal guarantor of Natems Sugar Pvt. Ltd.
The Bench consisting of Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri observed that the courier tracking report furnished by the applicant established that the statutory demand notice dated 15 May 2021 was dispatched to the address specified in the personal guarantee deed on 17 May 2021, and the courier record showed the remark “Not Delivered (Receiver refused service)” dated 8 June 2021. The Tribunal recorded that refusal to receive a notice cannot defeat the statutory requirement of service and, in fact, constitutes deemed service under settled principles of law.
STCI Finance Ltd. had sanctioned a loan of Rs. 60 crore to Natems Sugar on 26 March 2018, secured by a joint personal guarantee executed by Ramnath Nandakumar and Nanda Kumar Ramanujalu. The borrower began defaulting from 31 December 2019 and repeatedly acknowledged the default in writing, yet no repayment was made despite repeated reminders. The lender invoked the personal guarantee on 24 October 2020, and thereafter issued the statutory demand notice under the Code before filing the present Section 95 application on 6 October 2023.
The guarantor challenged the maintainability of the application on two principal grounds: first, that the demand notice was not properly served, and second, that the application was barred by limitation. The NCLT rejected both objections. It held that service is deemed valid when the notice is dispatched to the address designated in the guarantee deed and the recipient refuses delivery. The Bench further noted that the guarantor never communicated any change of address to STCI Finance, and therefore cannot later claim non-service of notice.
On limitation, the Tribunal clarified that the period of limitation does not commence from the date of default by the borrower but from the date of invocation of the guarantee, and therefore the Section 95 petition filed on 6 October 2023 following the invocation on 24 October 2020 was within the prescribed time. The Tribunal also noted that the existence of debt and default was supported not only through the loan documents and guarantee deed but also through written admissions and communications exchanged between the parties.
The Tribunal also took into account the report of the Resolution Professional appointed under Section 97, who examined the pleadings and documents and recommended admission of the application under Section 99 of the Code after satisfying himself of the existence of debt, default, invocation of guarantee, refusal of service and compliance with statutory prerequisites.
Finding the objections raised by the guarantor untenable and holding that refusal of service constitutes valid service of a demand notice under the Code, the NCLT admitted the petition under Section 95, commenced the personal insolvency resolution process against Ramnath Nandakumar, imposed a 180-day moratorium, and appointed Mr. Nethi Mallikarjuna Setty as the Resolution Professional to conduct the process in accordance with law.
Appearance
For the Petitioner: Advocate K Siddharth Rao.
For the Respondent: Advocate Mummaneni Vazra Laxmi.
Cause Title: STCI Finance Ltd. Vs. Ramnath Nandakumar
Case No: Company Petition IB/260/2023
Coram: Judicial Member Rajeev Bhardwaj, Technical Member Sanjay Puri
