Tribunal says bank’s Section 13(2) notice expressly invoking guarantee was enough to trigger default; rejects objection that separate invocation notice was required
The National Company Law Tribunal (NCLT), Indore Bench, has admitted a petition filed by The Cosmos Co-operative Bank Ltd. under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), initiating insolvency proceedings against personal guarantor Rajendra Singhal for the dues of M/s Labhanshi Multitrade Private Limited.
The Tribunal held that the bank’s notice issued under Section 13(2) of the SARFAESI Act on 25 October 2024 amounted to a valid invocation of the personal guarantee, since it was expressly addressed to Singhal in his capacity as guarantor and specifically called upon him to pay the outstanding dues. The Bench said no separate invocation notice was necessary because the guarantee deeds were continuing guarantees payable on demand and stated that a bank demand itself would be sufficient notice to the guarantor.
Singhal had argued that the application was premature because the guarantee had never been validly invoked and that a SARFAESI notice could not substitute for contractual invocation under the Indian Contract Act. He also claimed that he had derived no personal benefit from the loan facilities and challenged the quantum of debt. The Tribunal rejected all these objections.
Relying on the National Company Law Appellate Tribunal’s ruling in Asha Basantilal Surana v. State Bank of India, the Bench observed that whether a Section 13(2) notice amounts to invocation depends on the wording and intent of the notice. It noted that no specific format is prescribed, and a clear demand made upon the guarantor in terms of the guarantee agreement is sufficient.
The Tribunal further held that the argument regarding absence of personal benefit was legally untenable, since the liability of a surety is co-extensive with that of the principal debtor under the Indian Contract Act, 1872. It also found that the bank had produced statements of account and demand notices showing an outstanding amount of Rs. 23.97 crore, with Rs. 22.88 crore as the amount in default, and that Singhal had failed to produce any material showing repayment.
Finding that the default occurred on 25 December 2024 after the guarantor failed to pay within the 60-day period mentioned in the SARFAESI notice, the Tribunal held that the application filed on 20 June 2025 was within limitation. It accepted the Resolution Professional’s report and admitted the petition, thereby commencing the insolvency resolution process against the personal guarantor.
During the moratorium period, the Tribunal ordered that pending proceedings relating to the debt would remain stayed, creditors could not initiate fresh legal action, and the personal guarantor would not transfer or encumber his assets. It also directed publication of public notice inviting claims from creditors and asked the Resolution Professional to proceed with preparation of the list of creditors and the repayment plan.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Personal guarantor - Notice under Section 13(2) of SARFAESI Act can amount to valid invocation of personal guarantee if it expressly invokes the guarantee and demands payment in terms of the deed of guarantee - Separate invocation notice not necessary where guarantee is payable on demand and contract treats bank's demand as sufficient notice - Application under Section 95 maintainable and liable to be admitted on proof of debt and default.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 95, 97, 99, 100, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 208, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Section 13(2), Indian Contract Act, 1872 Sections 126, 127, 128
Cosmos Co-operative Bank Ltd. v. Mr. Rajendra Singhal, (NCLT)(Indore) : Law Finder Doc id # 2987193
