Service of Section 95(4)(b) IBC Demand Notice Mandatory; Admitted Receipt by Guarantor Bars Technical Challenges
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal ruling, the Appellate Tribunal reaffirmed that issuance and service of a demand notice under Section 95(4)(b) of the Insolvency and Bankruptcy Code is a mandatory precondition before initiating insolvency proceedings against a personal guarantor. The ruling clarified that once the guarantor has admitted actual receipt and knowledge of such notice, hyper-technical objections to the mode or form of service cannot be entertained, thereby safeguarding the due process requirement while preventing procedural objections from frustrating the statutory scheme of the IBC.
The National Company Law Appellate Tribunal, Chennai Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Jatindranath Swain (Technical Member), while adjudicating a batch of Company Appeals, held that once service of demand notice under Section 95(4)(b) read with Rule 7(1) is established in substance, the personal guarantor cannot later dispute its validity on trivial or technical grounds. The Tribunal further observed that the objective of the statutory notice requirement is to ensure fair opportunity of response, and where acknowledgement of receipt exists, the proceeding cannot be derailed on procedural objections.
The Appellant, acting as the Financial Creditor, had challenged the rejection of applications under Section 95 of the Insolvency and Bankruptcy Code, 2016, by the Tribunal related to two personal guarantors of the Corporate Debtor. The Tribunal had dismissed the applications on the sole ground that there was no due service of demand notice on the personal guarantors as required under Section 95(4)(b) and Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. The Financial Creditor argued that service of the demand notice was merely directory and not mandatory, and further contended that service had, in fact, been effected at the address provided in the guarantors' Aadhaar cards, with relevant documentary proof.
Upon examination of the statutory framework, the Appellate Tribunal observed that the provisions of Section 95(4)(b) of the Code, read harmoniously with Rule 7(1) of the applicable Rules and the prescribed demand notice format, make service of the demand notice a mandatory procedural prerequisite for initiating insolvency proceedings against personal guarantors. The Tribunal clarified that such procedural compliance, including service at the correct address and adherence to the form and timeline, is fundamental to ensuring due process under the Code.
The Tribunal further noted that the Respondent Personal Guarantors had, in their own pleadings before the Supreme Court regarding the constitutional validity of Section 95, admitted to receiving the demand notice, thus evidencing service and knowledge of the impending proceedings. In light of this admission, the Tribunal held that technical objections relating to address discrepancies were hyper-technical and did not vitiate the proceedings, especially when knowledge and opportunity to respond were manifestly present.
Accordingly, the Appellate Tribunal set aside the orders of the Tribunal rejecting the applications on the ground of non-service and remanded the matter for decision on merits, finding that mandatory service had been established and procedural compliance achieved. All pending interlocutory applications stood closed.
Mr. Pranava Charan, Advocate, represented the Appellant.
Mr. Dwarakesh Prabhakaran, Advocate, appeared for the Respondent No. 1
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