Financial creditor's petition against personal guarantor dismissed for failure to properly serve mandatory demand notice under Section 95(4)(b)

NCLT Hyderabad dismissed a petition seeking initiation of insolvency resolution process against a personal guarantor. The court found that the financial creditor failed to properly serve the mandatory demand notice under Section 95(4)(b) of IBC. Despite claiming service of a demand notice dated 16.10.2021, postal records showed the notice was returned undelivered with "no such addressee" endorsement. The creditor had sent the notice to a property address already taken possession of under SARFAESI Act, making proper service impossible. The court held this reduced statutory compliance to mockery, rendering the petition misconceived and contrary to IBC provisions.

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Issues Involved:
1. Validity of the demand notice served on the Personal Guarantor.
2. Compliance with statutory requirements under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016.
3. Period of limitation for filing the petition.
4. Role and report of the Resolution Professional.
5. Admissibility of the petition for initiation of Insolvency Resolution Process (IRP) against the Personal Guarantor.

Issue-wise Detailed Analysis:

1. Validity of the demand notice served on the Personal Guarantor:
The Respondent/Personal Guarantor contended that the Petitioner failed to serve the demand notice in Form-B as required under Section 95(4)(b) of the IBC, 2016. The Tribunal examined the evidence and found that the second demand notice dated 16.10.2021, sent to the Personal Guarantor, was returned with the endorsement "left without instructions." Consequently, the Tribunal concluded that the demand notice was not served on the Personal Guarantor as required by law, rendering the petition invalid.

2. Compliance with statutory requirements under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016:
The Tribunal emphasized the importance of compliance with Section 95(4)(b) and (c) of the IBC, which mandates that an application under Section 95 must be accompanied by details and documents relating to the debts owed, failure to pay the debt within fourteen days of service of the notice of demand, and relevant evidence of such default. The Tribunal found that the Financial Creditor failed to provide proof of service of the demand notice, which is a critical statutory requirement. The Tribunal also noted that the Resolution Professional did not verify the compliance of these requirements, leading to the conclusion that the petition was not maintainable.

3. Period of limitation for filing the petition:
The Petitioner argued that the petition was within the period of limitation, citing the Supreme Court's ruling on the extension of limitation periods due to the COVID-19 pandemic. However, the Tribunal did not find this argument sufficient to overcome the lack of compliance with the statutory requirements for serving the demand notice.

4. Role and report of the Resolution Professional:
The Tribunal highlighted that the Resolution Professional's report is not binding on the Adjudicating Authority. The Resolution Professional recommended the admission of the petition without verifying the service of the demand notice. The Tribunal criticized the Resolution Professional for "non-application of mind" and failing to perform the duty of verifying statutory compliances by the Financial Creditor. The Tribunal reiterated that the Adjudicating Authority must conduct an independent assessment and not rely solely on the Resolution Professional's report.

5. Admissibility of the petition for initiation of Insolvency Resolution Process (IRP) against the Personal Guarantor:
Based on the findings that the demand notice was not served, statutory requirements were not met, and the Resolution Professional's report was unreliable, the Tribunal concluded that the petition was misconceived, devoid of merit, and contrary to the provisions of the IBC, 2016. Consequently, the Tribunal rejected the petition for initiating the Insolvency Resolution Process against the Personal Guarantor.

Conclusion:
The Tribunal rejected the petition filed by the Financial Creditor for initiating the Insolvency Resolution Process against the Personal Guarantor due to the failure to serve the demand notice, non-compliance with statutory requirements, and the unreliable report of the Resolution Professional. The petition was deemed misconceived and devoid of merit, leading to its dismissal without costs.

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