Continuing guarantee invocation cannot be supplied by Form B; prior demand and resultant default are required before insolvency proceedings.

A demand notice in Form B cannot substitute for a prior invocation where the guarantee is a continuing on demand guarantee: the statutory scheme requires an application to demonstrate the debt, service of a notice of demand and non payment within the prescribed period together with evidence of default, and the guarantor's liability arises only after invocation/demand under the deed. Because no separate invocation preceded issuance of Form B on the admitted facts, the precondition of an invoked guarantee and resultant default was not met and initiation of insolvency proceedings against the guarantor was impermissible.

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Issues: (i) Whether a demand notice issued in Form B under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 can be treated as a notice invoking a continuing guarantee for the purpose of initiating proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The statutory scheme requires that an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 be accompanied by particulars demonstrating (inter alia) the debt owed by the debtor, failure to pay within fourteen days of service of a notice of demand and relevant evidence of default. Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 prescribes service of a demand notice under clause (b) of sub-section (4) of Section 95 in Form B. Rule 3(1)(e) of the 2019 Rules defines 'guarantor' as a person in respect of whom the guarantee has been invoked by the creditor and remains unpaid in full or part. The definitions of "debt" and "default" in Sections 3(11) and 3(12) of the Code indicate that debt must be due and default is non-payment when the debt is due and payable. The deed of guarantee in the case is a continuing on-demand guarantee which makes the guarantor liable only upon demand in terms of the guarantee deed. Coordinate decisions of this Tribunal have held that where the deed of guarantee makes liability contingent on a demand, default on the part of the guarantor arises only after invocation/demand as per the guarantee, and that notice in Form B under Rule 7(1) is not a separate substitute for a prior invocation when the guarantee requires an explicit demand. Applying these principles to the admitted facts that no separate invocation/demand preceded issuance of Form B, the requirement that the guarantor's liability be invoked before initiating Section 95 proceedings is not satisfied.

Conclusion: Issue (i) is answered in favour of the appellant. A demand notice in Form B under Rule 7(1) of the 2019 Rules cannot be treated as a notice invoking a continuing guarantee where the deed of guarantee requires a distinct invocation; in absence of prior invocation and resultant default by the guarantor, initiation of proceedings under Section 95 is impermissible.

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