Tribunal Confirms Notice to Personal Guarantor as Valid Invocation Despite Procedural Challenges
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has upheld the invocation of a personal guarantee under the SARFAESI Act, dismissing procedural objections raised by Ujwal Gupta, the appellant and personal guarantor. The tribunal's decision comes as a crucial interpretation of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), in relation to the Insolvency and Bankruptcy Code, 2016.
The case arose when Union Bank of India issued a notice under Section 13(2) of the SARFAESI Act to Ujwal Gupta, demanding the discharge of outstanding liabilities linked to the corporate debtor, M/s Green World International Pvt. Ltd. Gupta contested the notice, arguing that it did not specifically address him as a personal guarantor, and thus could not be deemed a valid invocation of the guarantee.
However, the Principal Bench of NCLAT in New Delhi, comprising Justice Mohd. Faiz Alam Khan and Naresh Salecha, found that the notice sufficiently communicated the demand for payment in accordance with the terms of the guarantee deed. The bench emphasized that the content of the notice clearly demanded the discharge of liabilities, thus constituting a valid invocation of the personal guarantee.
The tribunal also addressed procedural objections raised by Gupta regarding the lack of an authorisation letter and affidavit accompanying the petition. It ruled that procedural technicalities should not obstruct substantive justice, especially in the absence of any conflict between the financial creditor and its agent.
Referring to past judgments, the tribunal reiterated that the invocation of a personal guarantee depends on the specific terms of the guarantee agreement and the content of the notice, rather than a particular mode or manner of demand.
This decision underscores the tribunal's stance on prioritizing substantive justice over procedural technicalities and provides clarity on the invocation of personal guarantees under the SARFAESI Act. The ruling is expected to have significant implications for similar cases, reinforcing the importance of the terms outlined in guarantee deeds.
Bottom Line:
Insolvency and Bankruptcy Code - Notice under Section 13(2) of the SARFAESI Act addressed to a personal guarantor demanding payment of outstanding liabilities can be treated as sufficient invocation of personal guarantee if it aligns with the terms of the guarantee deed.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 95, Section 61; SARFAESI Act, 2002 - Section 13(2); Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to the CD) Rules, 2019 - Rule 7(1)
