Tribunal holds SARFAESI Act notice under Section 13(2) as valid invocation of personal guarantee; Insolvency resolution process initiated despite ongoing CIRP against corporate debtor
In a significant ruling dated 12th October 2026, the National Company Law Tribunal (NCLT), Principal Bench, admitted the insolvency petition filed by Yes Bank Limited against Mr. Rajesh Madan, the personal guarantor of M/s Johnson Watch Company Private Limited. The bench, presided over by Mr. Justice Anupinder Singh Grewal and Mr. Ravindra Chaturvedi, directed the initiation of the Personal Insolvency Resolution Process (PIRP) under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016.
The case arose from defaults committed by the corporate debtor, Johnson Watch Company Pvt. Ltd., which had availed multiple credit facilities from Yes Bank. Mr. Rajesh Madan, along with other individuals, had executed personal guarantee deeds securing the loans. Despite repeated reminders and notices issued by the bank, including a demand cum guarantee invocation notice and a formal notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), the dues remained unpaid. The corporate debtor's account was declared a Non-Performing Asset (NPA) on 16th March 2023.
Yes Bank filed the application under Section 95(1) of the IBC seeking to initiate insolvency proceedings against the personal guarantor. The personal guarantor challenged the petition on multiple grounds, including the alleged invalidity of the invocation of the guarantee, non-receipt of proper demand notices, absence of default, lack of independent verification by the Resolution Professional (RP), and the prematurity of the application due to the ongoing Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.
The Tribunal examined the objections carefully. It held that the notice under Section 13(2) of the SARFAESI Act, which explicitly demanded payment from the personal guarantor in terms of the guarantee deed, constituted a valid invocation of the personal guarantee. This view was supported by precedent from the National Company Law Appellate Tribunal (NCLAT) in Ujwal Gupta v. Union Bank of India, where it was held that such notice can amount to invocation depending on the terms of the guarantee and the content of the notice.
The Tribunal further ruled that the pendency of CIRP against the corporate debtor does not bar the initiation of insolvency proceedings against a personal guarantor. The personal guarantor's liability is independent and can be pursued irrespective of the status of the corporate debtor's insolvency. The contention that the application was premature was rejected based on the settled law, including the judgment in State Bank of India v. Mahendra Kumar Jajodia.
The Tribunal also dismissed the allegation that the Resolution Professional had failed to independently verify the claims. The RP's report under Section 99 of the Code was found to be complete and satisfactory, recommending admission of the petition.
Consequently, the Tribunal admitted the application and declared a moratorium under Section 101 of the IBC, prohibiting any pending or new legal actions against the personal guarantor related to the debt. The RP, Mavent Restructuring Services LLP, was directed to issue public notices inviting claims from creditors, prepare a list of creditors, and facilitate the preparation and submission of a repayment plan by the personal guarantor. Mr. Rajesh Madan was directed to cooperate fully by furnishing details of his assets, liabilities, income tax returns, and any asset transfers.
This ruling reiterates the position that personal guarantors to corporate debtors are independently liable under insolvency laws and that enforcement steps like notices under Section 13(2) of the SARFAESI Act can constitute valid invocation of guarantees. The decision provides clarity on the maintainability of insolvency proceedings against personal guarantors even when the corporate debtor's CIRP is pending.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Personal guarantor insolvency - Notice under Section 13(2) of SARFAESI Act can amount to valid invocation of personal guarantee if it clearly demands payment from personal guarantor in terms of guarantee deed - Pendency of CIRP against corporate debtor does not bar proceedings under Section 95 against personal guarantor - Petition admitted and moratorium declared.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 95, 99, 100, 101, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112;
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Section 13(2)
