NCLT Kolkata (2025.12.15) in UCO Bank Vs. Gouri Shankar Jain and Ors. [I.A. (IB) No. 2154/KB/2024 in C.P. (IB) No. 253/KB/2024] held that;
“A claim may even be time-barred against the principal debtor, but still enforceable against the guarantor” and “The extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract”
“When default is committed by the Principal Borrower, the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I&B Code.”
“We are not persuaded to accept the submission of the Appellant that Notice under Rule 7 (1) issued in Form – B to the Guarantor, demanding of the default amount, has to be treated as Notice for invoking guarantee. Default before issuance of Notice under Rule 7 (1), must exist on the part of the Guarantor. Hence, we reject the submission of the Appellant that Notice under Rule 7, sub-rule (1) is a Notice, invoking the guarantee.
The date of default on part of Guarantor being subsequent to 01.10.2020 when guarantee was invoked, the application was barred by Section 10A and the Adjudicating Authority committed error in admitting the Section 7 application.
If Deed of Guarantee specifies that the guarantee is payable on demand the Guarantor’s liability when the debt that has fallen due on account of Principal Debtor’s default, will arise only if a Demand Notice is issued and served upon the Guarantor and the Guarantor defaults in repaying the debt. Hence, there has to be a prior invocation of guarantee.
The decisions (supra) enumerate that neither Notice under Section 13(2) of SARFAESI, nor in Form-B under Rule 7 (ibid) constitutes Demand Notice for repayment of debt or invocation of guarantee.
Blogger’s Comments;
Generic notice under section 13(2) of Sarfaesi is for enforcement of security interest. It cannot be a substitute of recall notice on borrower or notice of invocation of the guarantee deed unless the same is properly worded in accordance with the terms of guarantee deed.
I am of the opinion that invocation of guarantee cannot be equated with enforcement of security interest. Section 13(2) notice under Sarfaesi specifically states that "in case of non payment of dues the lender will enforce the security interest". Section 13(2) notice is not the precursor to filing of the recovery suit. Non compliance of section 13(2) notice has specific consequences under section 13(4) of Sarfaesi only. How it can be deemed as an invocation of guarantee unless properly drafted in accordance with terms of guarantee deed.
Excerpts of the Order;
# 1. The Court convened in hybrid mode.
# 2. Heard the Ld. Counsel for the Personal Guarantor.
# 3. At hearing today Ld. Counsel appearing on behalf of the Personal Guarantor submitted that the application should be dismissed as the same is barred by limitation, in support, he would furnish the list of dates which are reproduced herein below:
# 4. It was submitted that since the Loan Agreement was of 2008, Deed of Guarantee was of 2008, the Default was of 2013, Form – B Demand Notice sent by Financial Creditor to the Personal Guarantor on 18.03.2024 claiming the same as invocation of guarantee cannot save the limitation due to the following reasons:
i. There is no prior invocation of guarantee before issuance of Form – B Demand Notice;
ii. Notice under Section 13 (2) of the SARFAESI Act is on 2013, it does not amount to an invocation in view of the law laid recently;
iii. A Demand Notice in Form – B sent under Rule 7 of the IBBI (Insolvency Resolution Process of Personal Guarantors) Regulations can also not be treated as notice invoking guarantee as held by Hon’ble NCLAT, New Delhi in State Bank of India vs. Deepak Kumar Singhania [Company Appeal (AT) (Insolvency) No.191 of 2025] [Paragraphs 7, 17, 20, 25, 26 & 27];
iv. The DRT being moved in 2013 and the guarantee having been invoked then by calling upon the guarantors to pay the amount dues from the Personal Borrowers, the limitation would expire three years from the date of such invocation and accordingly the present petition in 2025 is barred under laws of limitation.
# 5. We have noted the following statutory/regulatory definitions, provisions and decisions carefully and understood the implications thereof.
A. Personal Guarantor:
Regulation 3(1)(e) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, defines “Guarantor” as follows:
“3(1)(e). “Guarantor” means a debtor who is a personal guarantor to a Corporate Debtor and in respect of whom guarantee has been invoked by the creditor and remains unpaid in full or part.”
Thus, it is explicit that a Debtor who is a Personal Guarantor to a Corporate Debtor can be termed as a Guarantor in respect of whom guarantee has been invoked by the Creditor and remains unpaid in full of part.
B. Liability of a Personal Guarantor:
a. In Syndicate Bank vs. Channaveerappa Beleri & Ors, it was held that “A guarantor’s liability depends on terms of his contract”
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“A claim may even be time-barred against the principal debtor, but still enforceable against the guarantor” and “The extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract”.
(Emphasis added)
b. Similarly, in Archana Deepak Wani vs. Indian Bank [Company Appeal (AT) (Ins.) NO.301 of 2023), it was held that “liability of the guarantor must be strictly in terms of the Deed of Guarantee.”
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“When default is committed by the Principal Borrower, the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I&B Code.”
c. We have noted that the Deed of Guarantee in the present case clearly stipulates the following:
“If at any time, default is made by the Borrower in payment of any of the instalments of the Term Loans and the money in respect of the said Working Capital Facilities, the Guarantor hereby guarantees to pay on demand to the said Banks the whole of such sums.”
It is explicit that the default on the part of the guarantor will arise only when Demand Notice is issued as contemplated in the Deed of Guarantee. As noted earlier, the Financial Creditor has not established Service of Demand Notice upon the Personal Guarantor.
C. Invocation of Guarantee:
a. In Deepak Kumar Singhania (supra) having noted that:
“There is no case set up by the Appellant that at any time guarantee was invoked, except issuance of Notice in Form – B, which is claimed by the Appellant to be treated as Notice for invocation of guarantee”,
The Hon’ble NCLAT, New Delhi, held as under:
“We are not persuaded to accept the submission of the Appellant that Notice under Rule 7 (1) issued in Form – B to the Guarantor, demanding of the default amount, has to be treated as Notice for invoking guarantee. Default before issuance of Notice under Rule 7 (1), must exist on the part of the Guarantor. Hence, we reject the submission of the Appellant that Notice under Rule 7, sub-rule (1) is a Notice, invoking the guarantee. We, thus, do not find any error in the order of the Adjudicating Authority, rejecting Section 95 Application filed by the SBI. There is no merit in the Appeal. The Appeal is dismissed. There shall be no order as to costs.”
(Emphasis added)
Thus, Notice in Form – B under Rule 7(1) cannot be deemed to be a notice invoking the guarantee. Hence, for repayment or invocation of guarantee is sine qua non to the filing of a petition under Section 95(1) of the I&B Code, which is not established in the present case.
D. Default of the Personal Guarantor:
a. In Pooja Ramesh Singh vs. State Bank of India [Company Appeal (AT) NO.329 of 2023], it was held that “default in the guarantee arises only when after the guarantee has been invoked.”
Hon’ble Court noted the following:
“i. The Corporate Guarantee Deed dated 17.05.2019 is on demand guarantee deed and the default shall arise on the part of the Guarantor only when demand notice is issued as contemplated in the Deed of Guarantee. When the State Bank of India invoked the guarantee vide notice dated 01.10.2020, demand on the part of the Corporate Guarantee shall arise only subsequent to the notice dated 01.10.2020 i.e. non-payment of the amount within seven days i.e. default arise on 08.10.2020.
ii. Default on the part of the Guarantor having arisen on 08.10.2020 i.e. within the period which is covered as prohibited period under Section 10A, application under Section 7 was clearly barred by Section 10A. Issues No. II, III and IV are answered accordingly.
iii. The Adjudicating Authority in the impugned order has not adverted to the relevant clauses of the Deed of Guarantee as noted above. The date of default on part of Guarantor being subsequent to 01.10.2020 when guarantee was invoked, the application was barred by Section 10A and the Adjudicating Authority committed error in admitting the Section 7 application.”
E. Limitation:
a. IDBI Bank vs. Hemangi Patel [CA(AT) (Insolvency) No.991 of 2025, it was held that
“the limitation period for filing Section 95 application is 3 years, the same being governed by Article 137 of the Limitation Act.”
# 6. To summarise:
i. Liability of a guarantor would be strictly in terms of the Deed of Guarantee.
ii. If Deed of Guarantee specifies that the guarantee is payable on demand the Guarantor’s liability when the debt that has fallen due on account of Principal Debtor’s default, will arise only if a Demand Notice is issued and served upon the Guarantor and the Guarantor defaults in repaying the debt. Hence, there has to be a prior invocation of guarantee.
iii. Notice under Section 13(2) of the SARFAESI Act does not amount to an invocation of guarantee.
iv. Similarly, Notice under Form – B, sent under Rule 7 of the IBBI (Insolvency and Bankruptcy Board of India) is not to be treated as a notice invoking guarantee.
# 7. The Ld. Counsel appearing on behalf of the Financial Creditor was heard and he has not argued, citing any decision to the contrary, which would tempt us to take a different view.
# 8. The decisions (supra) enumerate that neither Notice under Section 13(2) of SARFAESI, nor in Form-B under Rule 7 (ibid) constitutes Demand Notice for repayment of debt or invocation of guarantee.
# 9. Having thus noted absence of prior invocation of guarantee and due to the inordinate delay in filing of Section 95 Petition, the instant petition is dismissed. No costs. I.A. (IB) NO.2154/KB/2024 is disposed of.
# 10. Certified copy of this order, if applied for with the Registry be supplied to the parties in compliance with all requisite formalities.
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