Pranav B Prem

The National Company Law Tribunal (NCLT) Mumbai has held that a statutory demand issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002, can operate as a valid invocation of a personal guarantee when the notice contains a direct and unconditional demand for repayment addressed to the guarantor. The coram of Judicial Member K.R. Saji Kumar and Technical Member Anil Raj Chellan observed that the deed of guarantee required the guarantor to make payment “two days after demand and without demur” and therefore, the Section 13(2) notice served by the bank, which demanded repayment within sixty days, fulfilled the mandatory requirement for invocation of the guarantee.

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The dispute arose from credit facilities sanctioned by Solapur Janata Sahakari Bank to Shetkari Sakhar Karkhana (Chandrapuri) Limited, including a Short Term Other Security facility of ₹6 crores granted on 20 August 2015 and a cash credit pledge loan of ₹9 crores sanctioned on 19 March 2016. Mukund Pandharinath Kulkarni executed personal guarantee deeds dated 21 September 2015 and 23 March 2016 securing the borrowings of the corporate debtor. When the corporate debtor’s account turned non-performing in December 2016, the Bank issued a notice under Section 13(2) of SARFAESI on 21 November 2017 demanding ₹7.24 crores together with contractual and additional interest. The notice was addressed not only to the corporate debtor but also to the guarantors and specifically asked them to clear the dues within sixty days.

Subsequently, an arbitral award dated 11 March 2019 directed the corporate debtor and guarantors to jointly and severally pay the financial creditor ₹7,24,11,423 with interest at 13.25% per annum from 1 November 2017 till realisation. As the award remained unsatisfied, the Bank initiated a petition under Section 95 of the Insolvency and Bankruptcy Code seeking commencement of the personal guarantor insolvency resolution process.

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Kulkarni objected to the petition on multiple grounds, alleging forum shopping on the part of the Bank by simultaneously pursuing remedies under the Multi-State Co-operative Societies Act. He also argued that the mortgaged commercial properties valued at around ₹20 crore fully secured the outstanding dues, and therefore, the insolvency process was unnecessary. He further submitted that the insolvency petition filed in November 2021 was barred by limitation and contended that a SARFAESI notice cannot be treated as a notice of invocation of guarantee. Additionally, Kulkarni argued that he stood discharged from his guarantee obligations after approval of the corporate debtor’s resolution plan since the plan recorded waiver of security interests.

The tribunal rejected all objections. On limitation, the Bench relied on the Supreme Court ruling in Dena Bank v. C. Shivakumar Reddy, holding that an unsatisfied decree or arbitral award constitutes a fresh financial debt that triggers a new limitation period for insolvency proceedings. With respect to release of personal guarantee, the Bench relied on Lalit Kumar Jain v. Union of India, reiterating that approval of a resolution plan does not automatically discharge a personal guarantor, as the guarantor’s obligation arises from an independent contract which survives even after the corporate debtor is released.

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Most significantly, the tribunal held that the Section 13(2) SARFAESI notice served on the guarantor met the contractual criteria for invocation of the personal guarantee by directly demanding repayment. The tribunal emphasised that “a mere demand on the guarantor satisfies the requirement specified under the deed of guarantee” and therefore, the insolvency application was complete in all respects. In view of this finding, the NCLT Mumbai admitted the petition and initiated the personal guarantor insolvency resolution process against Mukund Pandharinath Kulkarni in accordance with the Insolvency and Bankruptcy Code.

Appearance

For the Financial Creditor: Advocate Raina Birla

For Resolution Professional: Advocate Dhananjaya Sud

For the Personal Guarantor: Advocate Jack Thalakottur

Cause Title: Solapur Janata Sahakari Bank Limited vs Mukund Pandharinath Kulkarni

Case No: C.P. (IB) NO. 275/MB/2022

Coram: Judicial Member K.R. Saji Kumar, Technical Member Anil Raj Chellan