TaxTMI 
TaxTMI 
2026 (7) TMI 249
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....Vijay Pandey, whereby the application filed by Respondent No. 1/ Small Industries Development Bank of India (SIDBI), under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (herein after referred as 'Code') came to be allowed and the Personal Insolvency Resolution Process (PIRP) was initiated against the Appellant on the basis of the report submitted by Mr. Rakesh Kumar Jindal/Respondent No. 2, the Resolution Professional, under Section 99 of the Code. Company Appeal AT (Ins) No. 773/2025 2. The second appeal has been filed by the Appellant- Maya Pandey, against the impugned order dated 13.02.2025 passed by the Ld. Adjudicating Authority (National Company Law Tribunal, Allahabad Bench) in Company Petition No. CP (IB) No. 51/ALD/2023 in the matter of Small Industries Development Bank of India vs. Maya Pandey, whereby the application filed by Financial Creditor-Small Industries Development Bank of India (SIDBI)/ Respondent No.1, under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 was allowed, and the Personal Insolvency Resolution Process (PIRP) was initiated against the Appellant on the basis of the report submitted by Mr. Rakesh Kumar Jindal/Respondent No.....
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.... the Corporate Debtor on 26.11.2021. v. The Respondent No.1 also filed an application under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 being OA No. 264 of 2022 before the Ld. Debts Recovery Tribunal, Lucknow Bench on 05.03.2022. vi. While the DRT Proceedings were going on, the Financial Creditor SIDBI issued a demand notice under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019 on 20.12.2022 to the guarantors including the appellants, calling upon them to pay an amount of Rs. 1,27,53,256/- within a period of ten days from receipt thereof, failing which insolvency proceedings were to be initiated. The Appellants did not reply to the aforesaid demand notice issued by Respondent No.1. vii. Thereafter, the financial creditor proceeded to file an application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 on 22.06.2023 before the Adjudicating Authority seeking initiation of Personal Insolvency Resolution Process against the appellant, which application forms the foundation of the ....
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....erein Respondent No. 2 was appointed as Resolution Professional. The Resolution Professional submitted his report under Section 99 recommending admission of the application, without appreciating the fundamental fact that no valid demand notice had been issued by Respondent No. 1 prior to initiation of insolvency proceedings. 8. Ld. Counsel submits that Respondent No. 1 has failed to comply with Clause 03 of the Deed of Guarantee dated 22.09.2017. The said clause unequivocally provides that upon default by the borrower, the guarantor becomes liable only "upon demand" made by the financial creditor. Therefore, the liability of the personal guarantor, i.e., the Appellant, does not arise automatically upon default by the borrower, but only upon a valid and specific demand being raised by Respondent No. 1. In absence of such demand, no enforceable debt can be said to have arisen against the Appellant. 9. He further submits that Respondent No.1, without invoking the personal guarantee in terms of Clause 03 and without issuing any demand notice thereunder, directly issued a demand notice dated 20.12.2022 under Section 95(3) of the Code calling upon the Appellant to pay Rs. 1,27,53,2....
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....rt of the Original Application (O.A.) filed before the Debt Recovery Tribunal and that the Appellant was served in those proceedings and proceeded ex parte. However, it is submitted that the Appellant was proceeded ex parte only on account of publication of notice of hearing, and not on account of service of the alleged demand letter dated 26.11.2021. Mere publication of notice for appearance in DRT proceedings cannot be equated with valid service of demand under Clause 03 of the Deed of Guarantee. 14. Ld. Counsel submits that the legal position regarding invocation of guarantee and existence of default stands settled by this Appellate Tribunal in "SBI vs. Deepak Kumar Singhania (CA (AT) (Insolvency) No. 191 of 2025)", wherein it has been held that default on the part of the guarantor must exist on the date of issuance of notice under Rule 7(1), and that a personal guarantor becomes a debtor only upon invocation of the guarantee. In the present case, since no valid invocation of guarantee was made prior to issuance of notice, no default can be said to have arisen on the part of the Appellant. 15. It is his submission that the entire initiation of insolvency proceedings agains....
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....ally, the same formed part of the pleadings in the proceedings before the Debts Recovery Tribunal (OA No. 264/2022), which were duly served upon the Appellant. 21. Ld. Counsel further submits that Clause 23 of the Deed of Guarantee governs the mode and proof of service and clearly stipulates that service shall be deemed sufficient if the notice is dispatched to the last known address of the guarantor. The clause further provides that a certificate issued by a responsible officer of SIDBI confirming dispatch shall constitute conclusive proof of service, irrespective of whether the notice is actually received or returned. 22. It is his submission that in the present case, this contractual requirement stands fully satisfied. Respondent No. 1 has placed on record multiple affidavits by its authorised officer confirming dispatch of the invocation letter, recall notice, and demand notice. These affidavits include those filed with the Section 95 application, in the DRT proceedings, and along with the reply in the present appeal. Each of these independently certifies that the notices were duly issued and dispatched to the Appellant. 23. He submits that in view of the express contr....
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....tatutory demand notice-individually and collectively establish that the Personal Guarantee was invoked repeatedly and consistently, leaving no scope for dispute on this aspect. 31. The Ld. Counsel further submits that the initiation of proceedings before the Debts Recovery Tribunal, Lucknow in OA No. 264 of 2022 constitutes independent and conclusive evidence of invocation, service and default. The said proceedings were instituted against both the Principal Borrower and the Appellant in her capacity as Personal Guarantor and were based on the same loan transaction and Deed of Guarantee. The invocation letter and recall notice were annexed to the pleadings in the DRT proceedings, which were duly served upon the Appellant. 32. It is further submitted that the Learned DRT, being satisfied with service, proceeded ex parte against the Appellant by order dated 20.02.2023. Subsequently, the DRT passed judgment dated 17.07.2023 and issued a Recovery Certificate. The judgment specifically records the invocation notices, service of pleadings, and the existence of debt and default. 33. The Ld. Counsel submits that despite due service, the Appellant chose not to appear or contest the ....
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.... proceedings, as evident from demand notices, DRT proceedings, and its own pleadings. Therefore, the objection regarding service is hyper-technical and untenable. 40. In his final submission, Ld. Counsel states that the invocation of the Personal Guarantee stands conclusively established through multiple independent evidences, the requirement of service stands satisfied both contractually and legally, and the Appellant's objections are devoid of merit. The Impugned Orders therefore warrant no interference and the Appeals are liable to be dismissed. Submissions of the Respondent No.2/ Resolution Professional 41. Ld. Counsel for Respondent No.2/ Resolution Professional submits that her submission herein are confined to the statutory role and actions undertaken by the Resolution Professional in discharge of duties under the Code, and are intended to assist this Hon'ble Tribunal in adjudicating the present appeal on the basis of correct facts and settled legal principles. 42. She submits that the Resolution Professional (R2), who has been appointed under Section 97 of the Insolvency and Bankruptcy Code, 2016, is an independent statutory authority and has no personal or pecu....
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....orporate Debtor was called upon to repay the dues forthwith. The Appellant's contention to the contrary is not only incorrect, but amounts to a deliberate attempt to mislead this Hon'ble Tribunal. 47. Ld. Counsel further submitted that the report prepared and submitted by the Resolution Professional under Section 99 of the Insolvency and Bankruptcy Code, 2016 is purely statutory in nature and forms part of the procedural mechanism under the Code. The said report is prepared in an objective and independent manner and cannot, by any stretch of imagination, be construed as being in favour of or prejudicial to any party. 48. It is further submitted that the contention of the Appellant alleging that the Invocation Letter dated 26.11.2021 was not produced before the Adjudicating Authority, is wholly incorrect and misleading. The said Invocation Letter was duly placed on record before the Adjudicating Authority by Respondent No. 2 along with the Rejoinder. Furthermore, the same has also been annexed in the present Appeal as Annexure-6 at Pages 251-271. 49. The Resolution Professional respectfully submitted that the Ld. Adjudicating Authority has passed a detailed and well-reasone....
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....rd by the Respondent No.1 along with its application filed under Section 95 of the Code. On this basis, it has been argued that no debt or default existed against the Appellant on the date of initiation of proceedings under Section 95 of the Code. 53. On the other hand, Respondent No.1/ SIDBI has contended that the Personal Guarantee was specifically invoked through a letter dated 26.11.2021. It has further been submitted that the said invocation was followed by a loan recall notice dated 04.02.2022 and subsequently the statutory demand notice dated 20.12.2022. The financial creditor also initiated recovery proceedings before the Debts Recovery Tribunal where the guarantee invocation letter dated 26.11.2021 was also placed on record. The Respondent No.1 has stated that the Appellant has in its rejoinder filed in this appeal in paragraph-13 has expressly admitted the contents of para-4.5, 4.6 & 4.7 of the reply filed by the Respondent No.1. Paragraph- 4.5 of the reply specifically records that the personal guarantee was invoked vide letter dated 26.11.2021 and duly served upon the Appellant. Paragraph- 4.6 records that the loan recall notice dated 04.02.2022 was issued and served....
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....gain sent a notice dated 26.11.2021 but fail to receive any amount. The said negligent and inattentive behaviour put the applicant in loss. n) The cause of action arose on 23.05.2017 when the applicant sanctioned and granted Term Loan/ Credit Facility of credit facilities/ Term Loan of Rs. 2,00,00,000/- (Rupees Two Crore Only) and it further arose on 22.09.2017 when the Defendants executed loan documents in favour of the applicant bank. The cause of action arose subsequently on various date when the default in payment have been made by the defendant or deposit were made or letter/notice were sent by the defendant and when the account of the defendant was classified as non-performing assets and balance confirmation except by defendant dated 22.08.2019 and reminder notice sent by applicant dated 01.06.2021 and 26.11.2021 also legal notice on 04.02.2022, when the applicant bank sent a legal notice through its counsel Shri Gaurav Kumar Srivastava, Advocate and is subsisting till the full outstanding amount is paid along with interest and cost to the applicant bank by the defendant." 57. It is clear from the Records that the Respondent No.1 has been relying upon the Invocati....
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....he DRT proceedings that the financial creditor/SIDBI submitted all documents showing debt, default and invocation of guarantee before the Ld. DRT, but the defendants, corporate debtor and the personal guarantors, who are appellant in that proceeding did not choose to appear before the Ld. DRT despite service of summons through all modes. We also note that Ld. DRT allowed the original application against the defendants viz. CD and Personal Guarantors herein and allowed the bank to recover the amount of loan. 59. We also note that in the demand Notice issued by the Respondent No.1 in Form-B on 20.12.2022 under Rule 7(1) of the IB Rules 2019 also the Invocation Notice is clearly mentioned. The relevant item no.14 of the Form-B wherein the notice invoking the guarantee is mentioned at Srl. No.6 is extracted below: - 14. List of documents attached to this notice in order to prove the existence of debt and the amount in default 6. Copy of Notice dated 26 November 2021 bearing reference no. 2022NOV26/LOO1250473/BMC issued upon Personal Guarantor Shri Vijay Pandey and Smt. Maya Pandey for invoking the guarantee of Guarantor with respect to Term Loan of Rs. 2 crore (Two Crore On....
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....ion notice and subsequent communications and proceedings which clearly indicate that the Appellants were in know of such notice. Therefore, the contention that invocation must fail solely because postal acknowledgments or envelopes have not been produced cannot be accepted in isolation from the contractual framework governing the parties. 63. Further in this regard, we take a look at the demand letter dated 04.02.2022 which has been issued by the Ld. Counsel of R1 to CD and the Appellants. It is seen from records that the proof of the dispatch of the said letter by speed post has been placed on record. These documents have been duly certified by the competent authority of the Respondent No.1 which thereby fully meets the criteria of invocation. Thereafter, a statutory demand notice dated 20.12.2022 was issued, which specifically referred to the earlier invocation of the guarantee. 64. These events are not isolated or disconnected acts. Rather, they constitute a continuous chain of actions undertaken by the Financial Creditor for enforcement of the guarantee. We note from the records that the invocation letter was issued on 26.11.2021 followed by issuance of the recall notice ....
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....igations under the Deed of Guarantee, which was duly served to the Appellant. True copy of the Invocation of Guarantee Notice dated 26.11.2021 is annexed herewith as Annexure R-2. 4.6 In continuation of the earlier demands and reminders, Answering Respondent through its Advocates issued a formal recall legal notice dated 04.02.2022 to the Principal Borrower as well as the guarantors, including the Appellant herein, thereby recalling the entire outstanding loan amount and calling upon them to make immediate payment of the dues. The said recall notice unequivocally demanded repayment of the outstanding principal, interest, and other charges due under the loan facility and also made it clear that in the event of failure to pay, Answering Respondent would be constrained to initiate appropriate legal proceedings. True copy of the Recall legal notice dated 04.02.2022 is annexed herewith as Annexure R-3. 4.7 It is pertinent to mention that owing to the persistent default and non-clearance of dues, the Answering Respondent has also initiated recovery proceedings before the Debts Recovery Tribunal, Lucknow, by filing Original Application No. 264 of 2022 ("OA") against the ....
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.... 25. Ld. Adjudicating Authority has placed excessive reliance on the concept of 'due' service of the demand notice as laid down in the statute and the documents including the guarantee agreement. It must be kept in mind that service of the demand notice at the correct address is mandated to ensure that the Personal Guarantor is imparted with the knowledge about the impending proceedings which are being initiated. In this case the Respondents have been imparted with the knowledge and that is why they had been able to file the Writ Petition before Hon'ble Apex Court. In that eventuality, when knowledge is already imparted and it is fully evident, harping on technicalities of service of the demand notice appears to be too hyper-technical and redundant, especially when seen from the context and the objective of I&B Code." 72. In the present case we have seen that the Appellants have been served with invocation of Guarantee through several distinct notices; in different manners and in different proceedings. The reliance on non-production of postal receipts for the notice dated 26.11.2021 is the only defence pleaded by the Appellants to argue that the notice invoking guarantee has n....