Demand-based corporate guarantee default arises only after notice, and Section 7 insolvency is barred if the default falls within the Section 10A period.

A corporate guarantee that requires payment only on demand does not make the guarantor's default automatically coincide with the borrower's default; the contractual terms govern when default arises. On the wording of the guarantee deed, payment became due only after a creditor's demand notice calling for payment within seven days, so non-payment after that period constituted the relevant default. If that default fell within the Section 10A suspension period, a Section 7 insolvency application against the corporate guarantor was not maintainable.

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Issues: (i) Whether the default in payment of the guaranteed debt by the corporate guarantor must necessarily coincide with the default of the principal borrower for purposes of a Section 7 application; (ii) Whether the deed of guarantee dated 17.05.2019 was a guarantee on demand; (iii) Whether the notice dated 01.10.2020 constituted the contractual demand on the guarantor, so that default arose only after expiry of the seven-day period; (iv) Whether the Section 7 application was barred by Section 10A.

Issue (i): Whether the default in payment of the guaranteed debt by the corporate guarantor must necessarily coincide with the default of the principal borrower for purposes of a Section 7 application.

Analysis: The limitation for an application under Section 7 is governed by Article 137 of the Limitation Act, 1963, and the trigger under the insolvency framework is the occurrence of default. Although a guarantor's liability is co-extensive with that of the principal borrower under the Indian Contract Act, the terms of the guarantee remain decisive. The scheme of the Code and the contract law principles permit the date of default of the guarantor to be distinct from the borrower's default where the guarantee so provides. The liability of the corporate guarantor therefore depends upon the contractual stipulations in the guarantee deed, not merely upon the borrower's default or NPA classification.

Conclusion: The default of the corporate guarantor is not automatically the same as the default of the principal borrower; it may arise at a different point in time depending on the guarantee contract, in favour of the Appellant.

Issue (ii): Whether the deed of guarantee dated 17.05.2019 was a guarantee on demand.

Analysis: The operative clauses required the guarantors to pay forthwith on demand, to deposit security on demand, and to remain liable notwithstanding variations in the loan arrangement. The wording also made payment due upon service of a notice requiring payment. These stipulations showed that enforceability against the guarantor was contingent upon a demand by the creditor, rather than arising merely on the borrower's default.

Conclusion: The deed of guarantee dated 17.05.2019 was a guarantee on demand, in favour of the Appellant.

Issue (iii): Whether the notice dated 01.10.2020 constituted the contractual demand on the guarantor, so that default arose only after expiry of the seven-day period.

Analysis: The notice expressly invoked the corporate guarantees and called upon the guarantors to pay within seven days. Once the creditor itself relied on that notice as invocation of the guarantee, the guarantor could not be treated as having defaulted on any earlier date. Default under the deed arose only upon non-payment after the stipulated period following demand.

Conclusion: The notice dated 01.10.2020 was the contractual demand, and default arose only after the seven-day period, in favour of the Appellant.

Issue (iv): Whether the Section 7 application was barred by Section 10A.

Analysis: Since the guarantor's default arose only after the demand notice dated 01.10.2020 and the payment period expired on 08.10.2020, the default fell within the prohibited period covered by Section 10A. In that situation, the financial creditor could not maintain the Section 7 application for initiation of insolvency proceedings against the corporate guarantor.

Conclusion: The Section 7 application was barred by Section 10A, in favour of the Appellant.

Final Conclusion: The appeal succeeds because the guarantor's liability under the deed was triggered only on demand, and the resulting default occurred during the Section 10A period, rendering admission of the insolvency application unsustainable.

Ratio Decidendi: Where a corporate guarantee expressly makes payment due only on demand, default by the guarantor arises upon non-payment after such demand, and if that default occurs within the Section 10A period, a Section 7 application is not maintainable.

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