On-demand guarantee invocation through SARFAESI notice held valid, enabling insolvency proceedings against the personal guarantor.

An on-demand guarantee was held to be invoked where a notice under Section 13(2) of the SARFAESI Act was addressed to the personal guarantor, specified the amount due, and required payment within the stated time. The reference in the notice to possible further action under Section 13(4) did not change its character as a demand on the guarantor. On that basis, the notice furnished a valid cause for an application under Section 94(1) of the Insolvency and Bankruptcy Code, and the application was not premature. The rejection order was set aside and the insolvency application was revived for decision according to law.

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Issues: Whether a notice issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to a personal guarantor, demanding payment under the guarantee, constitutes invocation of the personal guarantee and furnishes cause for an application under Section 94(1) of the Insolvency and Bankruptcy Code, 2016.

Analysis: The guarantee deed required payment on demand by the Bank. The notice under Section 13(2) was addressed to the personal guarantor as a notice to discharge liabilities, specified the amount payable, and called upon payment within the stipulated time. The mere reference in the notice to further action under Section 13(4) did not detract from its character as a demand on the guarantor. A Section 13(2) notice can be treated as invocation of guarantee where its words and intent clearly require the guarantor to satisfy the debt. The earlier decision relied on by the Adjudicating Authority was distinguished on facts because there the Bank had categorically taken the stand that no steps had been taken against the guarantor.

Conclusion: The notice invoked the personal guarantee and the application under Section 94(1) was not premature. The rejection of the application was unsustainable.

Final Conclusion: The appeal succeeded, the rejection order was set aside, and the insolvency application was revived for decision in accordance with law.

Ratio Decidendi: Where the terms of an on-demand guarantee and the language of a notice under Section 13(2) clearly require the personal guarantor to discharge the debt, the notice amounts to invocation of the guarantee and provides a valid basis for proceedings under Section 94(1) of the Insolvency and Bankruptcy Code, 2016.

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