2025 (4) TMI 1194 - AT - IBC

Demand notices validly served under Sections 95 and 99 IBC, personal guarantor remains liable despite corporate debtor's CIRP proceedings

Paresh Rastogi, Piyush Rastogi and Deepak Rastogi Versus M/Omkara Assets Reconstruction Pvt. Ltd. And Mr. Umesh Gupta

NCLAT upheld the Adjudicating Authority's order dismissing appellant's challenge to insolvency proceedings. The tribunal found that demand notices were ... Non-service of the demand notice - delivery of Recall Notice, Invocation Notice and Demand Notice - various discrepancies in the report filed by the RP u/s 99 of the Code - acknowlegdement of liability to pay the debt - statutory requirements under Sections 95 and 99 of the Insolvency and Bankruptcy Code (IBC) - HELD THAT:- The Respondents had sent the Loan Recall Notice, Invocation Notice, and Demand Notice to the Given Address recorded in the Guarantee Deed. Appellant contends that the notices were either not served or not adequately proven to be served. Clause 22 of the Guarantee Deed explicitly states that all communications, including a Notice of Demand, sent to the address provided in the Guarantee Deed or the last known address shall be considered sufficient service. In another case the Hon'ble High Court of Delhi in Ajay Ahuja v. Subhiksha Trading Services Ltd. [2010 (12) TMI 1369 - DELHI HIGH COURT] provides us guidance. Even though this was a case of Transfer of Property Act, 1882 - being similar to Rule 3(g) of the PG Application Rules. Herein, while examining Section 106(4) of the Transfer of Property Act, 1882, viz. the requirement of affixing the notice in case the same was not served, held that by sending the notice on the correct address, which was returned back with remarks 'shifted', and 'left without instructions' the requirement of Section 106 of the Transfer of Property Act, 1882 was met. The claim of the Appellant that the Since the invocation notice and the demand notice were issued in accordance with the provisions of the Guarantee Deed and which constitutes a separate contract between the parties; therefore, the claim of the Appellant-PG is not maintainable - the grounds raised by the Appellant- PG on validity of service are without merits and are not acceptable and doesn’t provide any support to the Appeal. Accordingly, the arguments of the Appellant that service of various notices have not been done cannot be accepted. Despite multiple attempts to engage with the Appellant, they remained unresponsive and only raised objections later which appear more to cause delays rather participating in resolution process. Respondent No. 2- RP ensured the Appellant- PG was given an opportunity to present their case, but no response was received. The Appellant has not disputed the debt, the guarantee, or the last known address but only alleged non-delivery of the demand notice, which is unfounded. Only claim of lack of acknowledgment of notices etc is legally untenable and unacceptable. As noted earlier it was the duty of the Appellant to notify any change in their address, if any. Regarding the Appellant’s claim that Section 95 requirements were not met, Respondent No. 2 reviewed all documents, including those submitted via email on January 3, 2024 - the issuance of the Recall Notice, Invocation Notice, and Demand Notice to the Given Address constitutes valid service in accordance with the Guarantee Deed. Consequently, the Respondent’s objections regarding non- service of the notices are found to be contradict the terms of the Guarantee Deed, and cannot be accepted. The Resolution Professional’s report, prepared under Section 99 of the IBC, substantiates that the procedural requirements under Section 95—specifically the issuance and service of the Demand Notice in the prescribed manner—have been met. The evidence of service, including speed post receipts and email transmissions, supports the contention that the statutory process was duly followed. The Appellant’s argument that the non-receipt of the notices undermines the proceedings is not borne out by the documentary record - the contentions of the Appellant-PG for non- compliance of statutory requirements are devoid of merits and are rejected. Invocation of the Guarantee and Liability of the Appellant - HELD THAT:- The Guarantee Deed provides that liability arises upon the occurrence of default by the borrower, and the subsequent actions taken by the financial institution were in line with the contractual obligations. It is claimed that the guarantee becomes a debt once the said guarantee is invoked, wherein after the guarantor becomes liable. The Appellant has placed reliance upon Edelweiss Asset Reconstruction Company v Orissa Manganese and Minerals Limited and others [2019 (6) TMI 639 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] wherein it has been held that 'A contract of guarantee matures in to a binding obligation only upon its invocation. Contract of Guarantee is an autonomous contract and the admission of the principal debtor to CIRP does not mean that the debt stands proved as against the Guarantor in a Section 7 proceeding against the Corporate Guarantor automatically. The guarantee has to be invoked and the debt and default proved separately in the proceeding against the Guarantor.' The Appellant does not get any support from Edelweiss Asset Reconstruction Co. v. Orissa Manganese and Minerals Ltd. [2019 (6) TMI 639 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], as the existence of a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor does not preclude the initiation or continuation of proceedings against the Personal Guarantor. This principle has been upheld in decisions such as Lalit Kumar Jain v. Union of India [2021 (5) TMI 743 - SUPREME COURT] by the Hon’ble Apex Court, wherein it was held that even if the resolution plan is approved, the same does not discharge the personal guarantor. Further, this Tribunal in the matter of Mohan Kumar Garg vs. Omkara Assets Reconstruction Pvt. Ltd. & Anr [2023 (8) TMI 1636 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI], had held that the simultaneous proceedings in respect of the guarantor as well as the borrower can be proceeded with. It is a settled position of law that simultaneous proceedings can be initiated against the borrower as well as the guarantor. As the Respondent No1- Omkara has not received the outstanding amount, either in part or in full, hence, the contention of that since borrower is already undergoing CIRP, wherein resolution plan is being considered by the members of the COC, the Petition ought not be proceeded with, is bereft of any justification and needs to be rejected. Facts and materials on record reveal that, the Appellant-PG has not denied executing the Guarantee Deed, which binds him with joint and severe responsibility of repayment, in case of non-payment by the Borrower and Co- Borrower. Clause 1 of the Guarantee Deed clearly states that in the event of default by the Borrower or Co-Borrower, the Appellant-PG shall be liable to pay the defaulted amount - It had sufficient opportunity to submit the repayment plan, but it did not file any Repayment plan. Respondent No.2-RP was, therefore, constrained to file I.A No. 283 of 2025 under Section 114(1) read with Sections 115(2) and 106 of the Code, before the Adjudicating Authority, seeking the closure of the Insolvency Resolution Process of the Appellant, liberty for creditors to file a bankruptcy application under Chapter IV of the Code, and discharge from duties as there was absence of a viable repayment plan under Section 105 of the Code from the Appellant tantamount to rejection of repayment plan under Section 114(1) of the Code. Conclusion - i) The notices in question were sent to the last known address as stipulated in the Guarantee Deed, and such service is deemed valid under established legal principles. ii) The Resolution Professional has satisfactorily demonstrated compliance with the requirements of Sections 95 and 99 of the IBC. iii) The Appellant’s contentions regarding non-service and the alleged deficiencies in the report are without merit, as the burden of updating one’s address lies with the Appellant. iv) The simultaneous CIRP against the Corporate Debtor does not interfere with the obligations of the Personal Guarantor under the Guarantee Deed. There are no infirmity in the orders of the Adjudicating Authority - the appeal is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment were:a. Whether there was valid service of the Loan Recall Notice, Invocation Notice, and Demand Notice to the Appellant.b. Whether statutory requirements under Sections 95 and 99 of the Insolvency and Bankruptcy Code (IBC) were complied with.c. Whether the invocation of the Guarantee was properly executed, making the proceedings against the Appellants maintainable.2. ISSUE-WISE DETAILED ANALYSISIssue a: Validity of Service of NoticesRelevant legal framework and precedents: The service of notices is governed by Section 27 of the General Clauses Act, which presumes service when notices are sent to the correct address by registered post. The court also relied on precedents, including CC Alavi Haji v. Palapetty Muhammed and St. Alfred Education Trust v. Kone Elevator India Pvt. Ltd., which establish that service at the last known address is deemed valid.Court's interpretation and reasoning: The Court found that the notices were sent to the address provided in the Guarantee Deed, which was the last known address. The Appellant had agreed to Clause 22 of the Guarantee Deed, which deemed service at this address as valid.Key evidence and findings: The Respondents provided evidence of sending the notices to the last known address. The Appellant did not update the address or provide evidence of non-receipt.Application of law to facts: The Court applied the presumption of service under Section 27 and found that the notices were validly served.Treatment of competing arguments: The Appellant argued non-receipt and lack of service, but the Court dismissed these claims due to the presumption of service and the Appellant's failure to update the address.Conclusions: The service of notices was deemed valid, and the Appellant's objections were rejected.Issue b: Compliance with Statutory RequirementsRelevant legal framework and precedents: Sections 95 and 99 of the IBC outline the requirements for initiating insolvency proceedings, including the need for a demand notice and a report from the Resolution Professional.Court's interpretation and reasoning: The Court found that the Resolution Professional had complied with the statutory requirements, including the issuance of a demand notice and preparation of a report under Section 99.Key evidence and findings: The Resolution Professional's report and evidence of the demand notice being sent were presented. The Appellant did not dispute the existence of the debt or the guarantee.Application of law to facts: The Court found that the procedural requirements were met, and the Appellant's claims of non-compliance were unfounded.Treatment of competing arguments: The Appellant's claims of non-service and procedural lapses were dismissed as the evidence showed compliance with the statutory framework.Conclusions: The statutory requirements under Sections 95 and 99 were fulfilled, and the Appellant's objections were without merit.Issue c: Invocation of the GuaranteeRelevant legal framework and precedents: The invocation of a guarantee is governed by the terms of the Guarantee Deed and relevant case law, such as Edelweiss Asset Reconstruction Co. v. Orissa Manganese and Minerals Ltd. and Lalit Kumar Jain v. Union of India.Court's interpretation and reasoning: The Court found that the guarantee was invoked as per the contractual terms, and the Appellant's liability was established.Key evidence and findings: The Guarantee Deed and evidence of the invocation were presented. The Appellant did not deny executing the Guarantee Deed.Application of law to facts: The Court applied the principle that the guarantor's liability arises upon invocation of the guarantee, which was validly executed.Treatment of competing arguments: The Appellant's reliance on the ongoing CIRP of the Corporate Debtor was dismissed as irrelevant to the guarantor's liability.Conclusions: The invocation of the guarantee was valid, and the Appellant's liability was established.3. SIGNIFICANT HOLDINGSThe Court upheld the validity of service of notices, compliance with statutory requirements, and the invocation of the guarantee. Key legal reasoning included:'The non-service of demand notice as alleged by the Personal Guarantor will not absolve the Personal Guarantor from discharging its liability under the Deed of Guarantee.'Core principles established included the presumption of service under Section 27 of the General Clauses Act and the independent nature of a guarantor's liability despite ongoing CIRP against the principal debtor.Final determinations on each issue were in favor of the Respondents, with the Court dismissing the Appellant's appeals and upholding the initiation of the Personal Insolvency Resolution Process.