2026 (3) TMI 1536 - AT - IBC

Prior invocation of personal guarantee is mandatory before insolvency action; Form B notice cannot replace it.

Prior invocation of a personal guarantee is a mandatory precondition for initiating insolvency proceedings against a guarantor under the relevant rules. A ... Maintainability of application filed under section 95 - Prior invocation of personal guarantee - Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) - Pleading and reliance on invocation notice. Prior invocation of personal guarantee - Demand notice in Form B - Maintainability of Section 95 application - HELD THAT:- The Appellate Tribunal held that the Adjudicating Authority proceeded on an incorrect legal basis in treating the Rule 7 demand notice as the very act of invocation. Following its earlier decisions in State Bank of India vs. Deepak Kumar Singhania [2025 (4) TMI 455 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] and Mukul Somany vs. DBS Bank Ltd. & Anr. [2026 (2) TMI 537 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] it held that the legislative scheme requires the guarantor's liability to have arisen before issuance of the demand notice in Form B. Under the deed of guarantee, the personal guarantor became liable only upon demand, and therefore prior invocation was mandatory. Since the application rested only on the Form B notice and not on any prior invocation notice, the foundational requirement for maintaining proceedings under Section 95 was absent. [Paras 11, 13, 17] The admission of the Section 95 application was unsustainable because the personal guarantee had not been shown to have been invoked before issuance of the Form B demand notice. Pleading and reliance on invocation notice - Unpleaded document - Abandonment of reliance - HELD THAT:- The Appellate Tribunal rejected the creditor's attempt to place reliance on the alleged notice dated 11.06.2019 for two reasons. First, the Section 95 application itself did not set up any case of prior invocation apart from the Form B notice, and the list of supporting documents also referred only to that notice. Secondly, when the creditor and the Resolution Professional sought to place the alleged recall notice on record before the Adjudicating Authority, both expressly stated that they would not rely on it. Having abandoned reliance on that document before the Adjudicating Authority, they could not be permitted to revive it in appeal. The Tribunal further held that the subsequent declaration of law in State Bank of India vs. Deepak Kumar Singhania did not assist the creditor, since all material facts and documents necessary for a Section 95 application had to be pleaded from the outset. [Paras 14, 15, 17] The application to rely on the alleged earlier invocation notice was rejected, and the Section 95 proceedings could not be sustained on the basis of that document. Final Conclusion: The Appellate Tribunal allowed the appeal and set aside the order admitting the Section 95 application. It held that, in the absence of prior invocation of the personal guarantee and in the absence of any pleaded and sustainable reliance on an earlier invocation notice, the company petition was liable to be dismissed, while leaving it open to the financial creditor to take such other measures as are permissible in law. Issues: Whether a Section 95 application against a personal guarantor is maintainable without prior invocation of the guarantee, whether a demand notice in Form B under Rule 7(1) itself constitutes invocation of the guarantee, and whether a later-produced recall notice not pleaded in the application can be relied upon.Analysis: The statutory scheme under Section 95 and Rule 7 of the 2019 Rules requires that the guarantee be invoked before service of the demand notice in Form B. The definition of guarantor in Rule 3(1)(e) also proceeds on the basis that the guarantee has already been invoked and remains unpaid. The Deed of Guarantee itself contemplated demand by the creditor before liability of the guarantor would arise. A demand notice under Rule 7(1) is therefore not a substitute for invocation of the guarantee. Since the Section 95 application relied only on the Form B notice and did not plead any prior invocation notice, the creditor could not introduce the alleged recall notice at the appellate stage, especially after having stated before the Adjudicating Authority that it would not rely upon that document. The later decision reiterating the same legal position was treated as declaring the law applicable to the rule from the outset.Conclusion: The Section 95 application was not maintainable in the absence of prior invocation of the personal guarantee. The order admitting the application was unsustainable and was set aside; the appeal succeeded and the company petition was dismissed.Final Conclusion: Prior invocation of the personal guarantee is a mandatory precondition to initiation of insolvency proceedings against a personal guarantor under the relevant rules, and a Form B demand notice cannot by itself perform that function.Ratio Decidendi: For proceedings against a personal guarantor, the guarantee must be invoked before issuance of the Rule 7 demand notice, and a creditor cannot cure the absence of such invocation by relying on an unpleaded or disowned document at a later stage.