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. 1. ISSUES PRESENTED AND CONSIDERED (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 and thereby furnished cause of action to maintain an application under Section 95 of the Code against the personal guarantor. (ii) Whether the Section 95 application was liable to be rejected for alleged procedural defects, including the objection that it was filed without valid authorisation/affidavit, or whether such objections were merely hyper-technical and not fatal. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Validity of invocation of personal guarantee by Section 13(2) notice and maintainability under Section 95 Legal framework (as discussed by the Court): The Court treated the question of invocation as turning on (a) the terms of the deed of guarantee, particularly where it is 'payable on demand', and (b) whether the content and intent of the notice communicates a clear demand requiring the guarantor to discharge liability. The Court applied the approach that invocation 'has to be in accordance with the terms of the Guarantee Agreement' and that 'words and intent of the notice' are determinative. Interpretation and reasoning: The Court examined the text of the Section 13(2) notice dated 29.02.2016 and found it contained clear assertions of outstanding dues arising from credit facilities to the corporate debtor, and called upon the addressees to pay the specified amount and discharge liabilities in full within 60 days. The Court held that the notice's language and phraseology amounted to an unambiguous communication to the addressees, including the appellant, to discharge liability connected with the corporate debtor's facilities. The Court further examined the guarantee deed clause on service of notice and held that it contemplated only that a notice by request/demand could be given personally, left at last known place, or sent by post; it did not mandate any special format, mode, or particular formality. Therefore, a notice that specifically demands outstanding payment within a timeframe, sufficiently demonstrating the guarantor's liability in relation to the credit facilities, can validly invoke the guarantee. Conclusions: The Court conclusively held that the notice dated 29.02.2016 under Section 13(2) was a sufficient demand and therefore a valid invocation of the personal guarantee. The Court rejected the contention that describing the appellant as 'Director' in the notice negated invocation, holding that such suffix did not change the appellant's character as guarantor and did not defeat the clear demand to discharge liability. Consequently, the financial creditor had cause of action to proceed under Section 95, and the admission of the personal insolvency process was upheld on this ground. Issue (ii): Effect of alleged procedural defects/authorisation irregularities in filing Section 95 application Legal framework (as discussed by the Court): The Court addressed the objection as one of procedure, holding that procedural hyper-technicalities should not obstruct substantial justice, particularly where the asserted defect is rectifiable and there is no dispute between the creditor and the person acting for it. Interpretation and reasoning: The Court found the challenge regarding absence of authorisation letter/affidavit to be hyper-technical. It emphasised that when there is no conflict between the financial creditor and the agent who filed the petition, the petition ought not to be rejected on such technical grounds. The Court therefore endorsed the Adjudicating Authority's approach in negativing the objection. Conclusions: The Court conclusively held that the alleged procedural/authorisation defects were not fatal and did not warrant rejection of the Section 95 application. No illegality was found in the Tribunal's treatment of the objection, and this did not provide any ground to interfere with the admission order.