Personal guarantee invocation, moratorium scope, and limitation rules in insolvency proceedings against guarantors clarified.

A demand notice under Section 13(2) of the SARFAESI Act can validly invoke personal guarantees if it clearly calls on the guarantors to discharge the secured debt, even without a separate invocation format, and a later restructuring arrangement does not extinguish an earlier continuing guarantee. The moratorium under Section 14 in corporate insolvency applies to the corporate debtor and does not extend to personal guarantors, so recovery proceedings against them are not barred. Repeated acknowledgments in balance sheets can extend limitation, and a recovery certificate may give rise to a fresh cause of action for a Section 95 application.

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Issues: (i) Whether the demand notice issued under Section 13(2) of the SARFAESI Act constituted invocation of the personal guarantees; (ii) whether the moratorium in the corporate insolvency process barred proceedings and recovery action against the personal guarantors; (iii) whether the Section 95 application was barred by limitation.

Issue (i): Whether the demand notice issued under Section 13(2) of the SARFAESI Act constituted invocation of the personal guarantees.

Analysis: The notice was addressed to the corporate debtor and the personal guarantors, specifically referred to the guarantee arrangements, demanded payment of the outstanding dues from the guarantors, and made clear that the secured debt was backed by the personal guarantees. The existence of a later restructuring arrangement did not extinguish the earlier guarantee, and the earlier guarantee was treated as continuing. The absence of a separate invocation format did not matter where the notice itself clearly called upon the guarantors to discharge the liability.

Conclusion: The notice under Section 13(2) validly invoked the personal guarantees.

Issue (ii): Whether the moratorium in the corporate insolvency process barred proceedings and recovery action against the personal guarantors.

Analysis: The moratorium under Section 14 operates in relation to the corporate debtor, and its protection does not extend to a surety in a contract of guarantee to the corporate debtor. Consequently, pendency of the corporate insolvency process did not disable the financial creditor from pursuing remedies against the personal guarantors or invalidate the recovery proceedings against them.

Conclusion: The moratorium did not bar proceedings against the personal guarantors.

Issue (iii): Whether the Section 95 application was barred by limitation.

Analysis: The application was filed after repeated acknowledgments of debt in the corporate debtor's balance sheets for successive financial years. Such acknowledgments constituted acknowledgment of liability for limitation purposes and extended the period of limitation. The recovery certificate also gave rise to a fresh cause of action.

Conclusion: The application was within limitation.

Final Conclusion: The order admitting the insolvency application against the personal guarantors was upheld, as no ground was found to interfere with the decision on invocation of guarantee, the effect of moratorium, or limitation.

Ratio Decidendi: A demand notice under Section 13(2) of the SARFAESI Act can constitute a valid invocation of a personal guarantee when it clearly calls upon the guarantor to discharge the secured liability, the corporate-debtor moratorium does not extend to personal guarantors, and acknowledgments in the debtor's balance sheets can extend limitation against the guarantor.

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