2026 (1) TMI 398 - AT - IBC

SARFAESI s13(2) demand notice to personal guarantor and guarantee invocation, enabling IBC s95 insolvency case upheld

The dominant issue was whether a demand notice issued to the personal guarantor under s 13(2) SARFAESI validly invoked the personal guarantee so as to ... Petition moved by the financial creditor u/s 95 - invocation of personal guarantee through notice u/s 13(2) of the SARFAESI Act though was not pleaded specifically before the Adjudicating Authority - Whether notice issued under Section 13(2) of the SARFAESI Act, 2002 which was addressed to the Appellant is sufficient to invoke guarantee and gives any cause of action to the financial creditor to file application under Section 95 of the Code. CD failed to fulfil the terms and conditions of the loan restructuring sanction letter and consequently the loan account of the CD was classified as Non-Performing Asset (NPA). HELD THAT:- Since the appellant has extended guarantee by executing a deed and the principal borrower/ CD failed to pay the amount of credit facilities extended by the Financial Creditor and the liability of the principal borrower and guarantor is coextensive, this demand notice was sufficient communication to the appellant to discharge his liability under the guarantee deed towards the credit facility extended by the creditor to the CD and is sufficient invocation of guarantee. Thus, the requirement of only sending a notice was contemplated in the guarantee deed and no specific or particular process or the format of notice or formality was stipulated therein. To our understanding if nothing special or specific has been given under the terms of the guarantee, the sending of notice to the guarantor specifically demanding outstanding payment within specific time frame, would be sufficient, in so far as invocation of guarantee is concerned, if it sufficiently demonstrate the liability of the guarantor and also having a clause for discharge of its liability for the credit facilities extended to the CD. We have already observed herein before that notice dated 29.02.2016, given by the financial creditor under Section 13(2) of the SARFAESI Act has sufficiently indicated the Appellant to discharge his liability for the amount mentioned in the notice of which the credit facilities were extended to the CD and simply by the fact that word ‘director’ has been suffixed after the name of the Appellant/Personal Guarantor, the same will not be sufficient to change the character of the Appellant from the guarantor of the CD and therefore, in our considered opinion, the personal guarantee has been rightly considered by the Tribunal to have been invoked by issuance of this notice given under Section 13(2) of the SARFAESI Act and we do not find any illegality therein. So far as the submissions of the Appellant, with regard to some defects arisen in not filing any authorisation letter or the affidavit before the Tribunal, is concerned, we are of the firm view that hyper technicalities so far as the procedure is concerned, should not come in the way of imparting substantial justice between the parties, more so when there is no conflict between the financial creditor and his agent, who has filed the petition before the Tribunal, the petition could not be rejected/ dismissed only on this hyper technical ground. Therefore, we also do not find any illegality in the approach of the Tribunal in dealing with this objection of the Appellant. Thus, we are of the considered opinion that there is no good ground exists on the basis of which any interference may be made in the impugned judgment and resultantly, the appeal lacks merit and is dismissed as such. Issues: (i) Whether the notice dated 29.02.2016 issued under Section 13(2) of the SARFAESI Act constituted a valid invocation of the personal guarantee; (ii) Whether procedural defects including alleged lack of authorization to file the petition vitiated admission under Section 95 of the IBC.Issue (i): Whether the Section 13(2) notice invoked the personal guarantee and gave cause of action to initiate insolvency proceedings against the personal guarantor.Analysis: Relevant authorities and the content of the guarantee deed require that invocation be determined by the terms of the Deed of Guarantee and the language of the demand notice. The guarantee deed permitted notice 'by way of request, demand or otherwise' to be given personally, at last known address or by post; no special formality was prescribed. The Section 13(2) notice expressly demanded payment of the outstanding liability within 60 days to discharge liabilities in respect of credit facilities extended to the corporate debtor and named the guarantor among addressees. Prior decisions distinguish on facts but accept that where the terms of guarantee are met by the content of a Section 13(2) notice, it may constitute invocation.Conclusion: The Section 13(2) notice dated 29.02.2016 is a valid invocation of the personal guarantee.Issue (ii): Whether alleged procedural defects and absence of authorization in filing the petition were incurable and warranted rejection of the petition.Analysis: Procedural irregularities that are hyper-technical and curable do not bar adjudication where substantive rights are not prejudiced and there is no conflict between creditor and its agent. Prior authority supports refusal to deny relief on purely technical grounds where the defect can be remedied and parties' rights remain determinable on merits.Conclusion: The procedural objections are hyper-technical and do not vitiate admission; they do not warrant interference with the impugned order.Final Conclusion: The impugned admission initiating insolvency proceedings against the personal guarantor is upheld; there is no ground to interfere with the Adjudicating Authority's order and the appeal is dismissed for lack of merit.Ratio Decidendi: Where a deed of guarantee permits demand by notice without prescribing a specific form, a Section 13(2) SARFAESI demand that, by its terms, calls upon the guarantor to discharge liabilities in respect of the corporate debtor constitutes valid invocation of the guarantee; procedural defects that are curable and not prejudicial do not invalidate admission under Section 95 of the IBC.