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2025 (5) TMI 1144 - AT - IBCRejection of application under Section 94 filed by the Appellant - initiation of personal insolvency against the Appellant the personal guarantor - notice gives any cause of action to file application under Section 94(1) or not. Whether notice dated 09.10.2023 issued under Section 13(2) of the SARFAESI Act 2002 which was addressed to the Appellant gives any cause of action to file application under Section 94(1)? - HELD THAT - On looking into Clause 7 of the Guarantee Agreement it requires demand made by the Bank. Notice under Section 13(2) which was addressed to the Guarantor i.e. Appellant clearly required Appellant to discharge liabilities within 60 days from the date of the Notice. The amount to be paid has also been mentioned as Rs.28, 56, 64, 336.06/-. It is true that the Notice also mentioned to take steps under Section 13(4) of the SARFAESI Act 2002. The question to be answered is as to whether the above notice had invoked the personal guarantee given by the Appellant or not. The judgment in Amanjyot Singh vs. Navneet Kumar Jain Ors. 2023 (1) TMI 253 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI cannot be read to mean that this Tribunal has held that the personal guarantee can never be invoked by notice under Section 13(2). This Tribunal held in the above case that the Bank has taken a categorical case that no steps have been taken against the Appellant hence there is no cause for the Appellant to pray for initiation of the CIRP against the Appellant the personal guarantor. In the above case notice under Section 13(2) was issued on 04.10.2013 and application was filed after 7 years. The dismissal of the Appeal in the Amanjyot Singh s case was on the facts of the said case and has no application in the facts of the present case. The invocation of personal guarantee has to be in accordance with the terms of the Guarantee Agreement which is a settled law. Clause 7 of the Guarantee Agreement does not require any particular mode and manner of the demand notice. When demand notice is issued against the personal guarantor asking the personal guarantor to discharge its liabilities the guarantee stands invoked. Whether notice under Section 13(2) in a particular case invoked the guarantee or not depends on the words and intent of the notice. For finding out as to whether Notice under Section 13(2) invoked the personal guarantee the letters and words of the Notice has to be looked into to come to any conclusion that whether personal guarantor has been asked to discharge its liabilities or not. In the facts of the present case the Notice under Section 13(2) issued by the State Bank of India is a clear demand notice from the Appellant to pay the amount of Rs.28, 56, 64, 336.06/-. The above judgment thus clearly holds that in a case where Notice under Section 13(2) makes a demand as per the Guarantee Agreement between the parties the Notice has to be treated as notice for invocation of Bank Guarantee. Thus the observation of the Adjudicating Authority made in paragraph 13 of the impugned order that application has been filed without any cause of action and is premature are unsustainable. Conclusion - The invocation of personal guarantee has to be in accordance with the terms of the Guarantee Agreement which is a settled law. Clause 7 of the Guarantee Agreement does not require any particular mode and manner of the demand notice. When demand notice is issued against the personal guarantor asking the personal guarantor to discharge its liabilities the guarantee stands invoked. The order of the Adjudicating Authority rejecting application under Section 94(1) cannot be sustained - Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the Section 13(2) notice dated 09.10.2023 invoked the personal guarantee and gave cause of action to file application under Section 94(1) of the IBC Relevant legal framework and precedents: Section 13(2) of the SARFAESI Act empowers secured creditors to issue notices demanding repayment from borrowers and guarantors. The invocation of a personal guarantee depends on the terms of the Guarantee Agreement and the nature of the demand notice. The Tribunal referred extensively to the precedent in "Mavjibhai Nagarbhai Patel vs. State Bank of India & Anr.", where a Section 13(2) notice addressed to personal guarantors was held to constitute a valid invocation of the guarantee, triggering the cause of action for insolvency proceedings under Section 94(1) of the IBC. Court's interpretation and reasoning: The Tribunal examined Clause 7 of the Guarantee Agreement, which obligates the guarantor to deposit sums forthwith on demand by the bank and authorizes the bank to sell securities in case of non-fulfillment. The notice dated 09.10.2023 was addressed specifically to the personal guarantor, demanded repayment of Rs. 28,56,64,336.06 within 60 days, and warned of enforcement actions under Section 13(4) of the SARFAESI Act. The Tribunal held that this constituted a clear and unequivocal invocation of the personal guarantee. Key evidence and findings: The notice explicitly called upon the guarantor to discharge liabilities within 60 days, specifying the amount due and future interest. The Guarantee Agreement did not prescribe any particular mode for demand, and the notice's language was consistent with the terms of the guarantee. Application of law to facts: The Tribunal distinguished the present case from the earlier decision in "Amanjyot Singh vs. Navneet Kumar Jain & Ors.", where the personal guarantee had not been invoked and no steps had been taken against the guarantor for several years. Here, the demand was recent and clear, thus giving the guarantor a valid cause of action to invoke insolvency proceedings. Treatment of competing arguments: The State Bank of India argued that the Section 13(2) notice was only for enforcement of security interest and did not invoke the personal guarantee. The Tribunal rejected this, emphasizing the clear demand language in the notice and the terms of the Guarantee Agreement. Conclusion: The Section 13(2) notice dated 09.10.2023 constituted a valid invocation of the personal guarantee, giving the guarantor a cause of action to file an application under Section 94(1) of the IBC. Issue 2: Whether the application under Section 94(1) was premature and without cause as held by the Adjudicating Authority Relevant legal framework and precedents: The Adjudicating Authority relied on the "Amanjyot Singh" judgment, which held that where no steps have been taken against the personal guarantor after issuance of a Section 13(2) notice, the application under Section 94(1) is premature. Court's interpretation and reasoning: The Tribunal clarified that the "Amanjyot Singh" decision was fact-specific and did not lay down a general principle that a Section 13(2) notice can never invoke a personal guarantee. The facts there showed no invocation or recovery steps against the guarantor for years. In contrast, the present case involved a recent and explicit demand notice. Key evidence and findings: The personal guarantor had been served a demand notice with a clear call for payment, and the principal borrower's loan had been declared NPA. The secured assets were already in possession of the bank and sale notices had been issued. Application of law to facts: The Tribunal found the Adjudicating Authority's conclusion that the application was premature unsustainable given the clear invocation of the guarantee and the ongoing enforcement actions. Treatment of competing arguments: The bank contended that the application was an attempt to delay enforcement and recovery. The Tribunal did not accept this argument as a ground to deny the guarantor's statutory right to initiate insolvency proceedings once the guarantee was invoked. Conclusion: The application under Section 94(1) was neither premature nor without cause. Issue 3: Whether the Adjudicating Authority erred in rejecting the Section 94(1) application without appointing a Resolution Professional and obtaining a report under Section 99 of the IBC Relevant legal framework: Section 94(1) of the IBC provides for initiation of insolvency proceedings against personal guarantors. Upon admission, the Adjudicating Authority is required to appoint a Resolution Professional and obtain a report under Section 99. Court's interpretation and reasoning: The Tribunal observed that since the Adjudicating Authority's rejection was based on the finding of no cause of action and prematurity, it did not proceed to consider appointment of Resolution Professional or report under Section 99. Having found the rejection unsustainable, the Tribunal held it unnecessary to delve further into these procedural aspects at this stage. Conclusion: The procedural errors alleged were not addressed due to the fundamental error in rejecting the application on merits. Issue 4: Interpretation of Guarantee Agreement and its role in invocation of personal guarantee Relevant legal framework: The terms of the Guarantee Agreement govern the conditions and manner of invocation of personal guarantees. Clause 7 required the guarantor to pay forthwith on demand and allowed the bank to sell securities in case of default. Court's interpretation and reasoning: The Tribunal emphasized that the Guarantee Agreement did not prescribe a particular form or mode of demand. A notice under Section 13(2) that clearly demands payment from the guarantor in accordance with the guarantee terms is sufficient to invoke the guarantee. Application of law to facts: The demand notice dated 09.10.2023 complied with these requirements, thus validly invoking the guarantee. Conclusion: The invocation of the personal guarantee was valid and in accordance with the Guarantee Agreement. 3. SIGNIFICANT HOLDINGS "The invocation of personal guarantee has to be in accordance with the terms of the Guarantee Agreement which is a settled law. Clause 7 of the Guarantee Agreement does not require any particular mode and manner of the demand notice. When demand notice is issued against the personal guarantor asking the personal guarantor to discharge its liabilities, the guarantee stands invoked." "The notice under Section 13(2) issued by the State Bank of India is a clear demand notice from the Appellant to pay the amount of Rs.28,56,64,336.06/-." "The observation of the Adjudicating Authority made in paragraph 13 of the impugned order that application has been filed without any cause of action and is premature are unsustainable." "The dismissal of the Appeal in the Amanjyot Singh's case was on the facts of the said case and has no application in the facts of the present case." "The order of the Adjudicating Authority rejecting application under Section 94(1) cannot be sustained." "Section 9 application being C.P.(IB) 317(AHM) 2024 is revived before the Adjudicating Authority to be heard and decided in accordance with law."
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