National Company Law Tribunal, Hyderabad Bench: In an application filed under Section 95, Insolvency and Bankruptcy Code, 2016 (IBC) by Bank of Baroda (Financial creditor) seeking initiation of personal insolvency resolution process (PIRP) against the personal guarantor of Vijay Home Appliances Ltd., the Bench of Rajeev Bhardwaj, Member (Judicial), and Sanjay Puri, Member (Technical), held that in the absence of valid invocation of the guarantee in terms of the deed, the application was not maintainable and dismissed the petition. The Court noted that,
“Form B serves only as a procedural requirement under Section 95 of the IBC and, by itself, cannot create any liability. The liability of the Personal Guarantor does not arise from this notice alone, and it cannot be treated as a proper invocation.”
Background
In the matter in hand, the financial creditor, Bank of Baroda had sanctioned credit facilities amounting to Rs 15 crores to the company in 2009 and 2011. These facilities were later reviewed and enhanced. Personal guarantor signed multiple deeds of guarantee between 2009 and 2013, agreeing to repay the Bank “on demand” if the company failed to discharge its loan liability.
In 2016, the company’s loan account was classified as a non-performing asset (NPA). Thereafter, insolvency proceedings corporate insolvency resolution Process (CIRP) were initiated against the company in 2019, and in 2020, the company was ordered to be liquidated.
Following the liquidation of the company, the Bank issued a statutory demand notice in Form B on 6 August 2020 to the personal guarantor, calling upon him to pay the outstanding amount of over Rs 13 crores.
Feeling aggrieved by the non-payment, the financial creditor filed an present application under Section 95, Insolvency and Bankruptcy Code, 2016 seeking initiation of Personal Insolvency Resolution Process against the personal guarantor.
Issue
Whether the issuance of a statutory demand notice in Form B under Rule 7(1), Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (2019 Rules), by itself, satisfies the contractual requirement of invocation of an on-demand personal guarantee, in the absence of a separate invocation strictly in accordance with the deed of guarantee?
Analysis, Law, and Decision
The Tribunal noted that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) notice dated 2 February 2017, relied upon by the financial creditor, was addressed solely to the corporate debtor and was merely copied to the personal guarantor. Mere marking of the demand notice in Form B under Rule 7(1) to the personal guarantor does not constitute an invocation of personal guarantee. The notice neither called upon the personal guarantor to discharge any liability nor referred to the deed of guarantee. Therefore, this notice cannot be treated as a valid invocation of the guarantee.
The Tribunal emphasised that although the liability of the principal borrower and guarantor is co-extensive, the guarantor’s liability flows strictly from the contract of guarantee. Where the deed stipulates that liability arises “on demand”, a specific written demand in accordance with the terms of the deed is a condition precedent.
The Tribunal further noted that Rule 3(1)(e) of the 2019 Rules defines a “guarantor” as a debtor in respect of whom the guarantee has been invoked and remains unpaid. In the absence of invocation in accordance with the deed, no debt could be said to have become due from the personal guarantor.
The Tribunal dismissed the application under Section 95 IBC as not maintainable holding that no valid invocation of the personal guarantee had been affected in accordance with the terms of the deed.
[Bank of Baroda v. Katmula Srinivasa Reddy, 2026 SCC OnLine NCLT 519, decided on 29-1-2026]
Advocates who appeared in this case:
For the Petitioner: S. Sathinarayanan (Dr.)
For the Respondent: Aakanksha Nehra
For the Resolution Professional: Krishna Mohan and Sreenivasa Rao
