Mere Procedural Lapses in the Service of Demand Notice Do Not Extinguish Personal Guarantor's Liability
- REEDLAW
- Feb 13
- 3 min read
NCLAT held that mere procedural lapses in the service of the Demand Notice do not extinguish the liability of the Personal Guarantor.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench headed by Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Arun Baroka reviewed an appeal yesterday (12-02-2025) and held that mere procedural lapses in the service of the Demand Notice do not extinguish the liability of the Personal Guarantor when the existence of debt and execution of the guarantee remain unchallenged.
The appeal was filed under Section 61(3) read with Section 61(1) of the Insolvency and Bankruptcy Code, 2016, challenging the order dated June 13, 2024, passed by the National Company Law Tribunal (NCLT), New Delhi, in CP (IB) No. 24(ND)/2023. Through this order, the Personal Insolvency Resolution Process (PIRP) was initiated against the Appellant, who was the Personal Guarantor (PG) for the debts of NaftoGaz India Pvt. Ltd. The company had availed various credit facilities from the State Bank of India (SBI) and the State Bank of Bikaner and Jaipur (SBBJ) between 2007 and 2012, with the Appellant executing a personal guarantee. The accounts were classified as Non-Performing Assets (NPA) on January 28, 2012 (SBBJ), and June 13, 2012 (SBI). Subsequent legal proceedings included a SARFAESI demand notice issued on December 26, 2013, and an application under Section 95(1) of the IBC filed on December 3, 2022, seeking recovery of approximately ₹315 crores.
The Appellant raised objections regarding the limitation period, improper service of the Demand Notice, and discrepancies in the amounts mentioned in the Demand Notice vis-à-vis the Section 95(1) application. The NCLT dismissed these objections and admitted the PIRP. The NCLAT examined the contentions and found that SBI had provided sufficient details of the outstanding debt. Relying on the precedent set in Suzlon Synthetics Limited v. Stressed Asset Stabilisation Fund and Another, REEDLAW 2022 NCLAT Del 11545, the Tribunal reiterated that the Adjudicating Authority need only ascertain whether the default exceeded the statutory threshold. The Tribunal also noted that the Demand Notice explicitly mentioned the loan account numbers, including those of SBBJ, which merged into SBI on April 1, 2017, thereby vesting the recovery certificate with SBI.
The Appellant's objection regarding the service of the Demand Notice was rejected, as the Tribunal found that the notice had been sent to the address recorded in the Appellant's passport and Deed of Guarantee, as well as through email. The Tribunal emphasized that failure to respond to the notice for over two years indicated no prejudice was caused to the Appellant. Additionally, the argument that service under Rule 7(1) was mandatory before filing the Section 95 application was deemed unpersuasive, as no objections had been raised regarding the execution of the personal guarantee or the SARFAESI notice.
The NCLAT also examined the issue of limitation and found that the Section 95 application was time-barred, having exceeded the three-year limitation period, even after accounting for the COVID-19 suspension period. The Tribunal rejected SBI's reliance on the recovery certificate issued in O.A. No. 213/2013, as it was not referenced in the Section 95 proceedings. The Tribunal further found deficiencies in the bank’s application, including the failure to provide complete documentation for all accounts in default. Consequently, the notices under Rule 7(1) and Rule 7(2), along with the Section 95 application, were held to be barred by limitation, leading to the dismissal of the appeal.
Mr. Siddharth Khattar, Mr. Divij Andley and Mr. Gaurav Parewa, Advocates represented the Appellant.
Mr. Siddharth Sangal, Mr. Chirag Sharma, Ms. Richa Mishra and Ms. Harshita Agarwal, Advocates appeared for Respondent No. 1.
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