Guarantors Cannot Plead Non-Service Of Demand Notice After Admitting Receipt Before Supreme Court: NCLAT Chennai

Background of the Case

The financial creditor (State Bank of India) had provided financial assistance to M/s Seven Hills Health Care Pvt. Ltd., in which Dr. Jitendra Das Maganti and Dr. Renuka Rani Maganti were the personal guarantors. The bank issued demand notices to the guarantors, calling upon them to clear the liabilities exceeding Rs. 129 Cr, and also filed a section 95 IBC petition against the guarantors.

The guarantors filed a writ petition before the Hon'ble Supreme Court challenging the provisions relating to personal guarantors (Sections 95–100). In its petition, the guarantors admitted that SBI had issued a demand notice to them.

However, the NCLT, Amravati, dismissed the petition filed by the SBI on the ground that the demand notice was not properly served as per Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. Therefore, the present appeal was preferred by the bank before the NCLAT, Chennai.

Contention of the Parties

The financial creditor argued that no notice as such is required to be issued under Section 95 (4) of the Code in light of the provisions contained under Section 95 itself; however, it still issued a demand notice, which was served on the addresses mentioned on the Aadhaar card of the personal guarantor. Also, the guarantors have acknowledged the receipt of the demand notice before the Hon'ble Supreme Court in their petition challenging the constitutionality of sections 95-100 of the IBC.

Per contra, the guarantors argued that the demand notice was defective and not sent to the correct address listed on the guarantee deed. The failure of proper service of demand notice violates section 95(4)(b) of the IBC, 2016. Also, the guarantors pleaded that the admission before the Hon'ble Apex Court was contextual and not conclusive.

Observations of the NCLAT

The NCLAT concluded that section 95(4) of the IBC and Rule 7(1) of the 2019 Rules prescribe that the demand notice under section 95(4)(b) of the IBC is a mandatory step before invoking insolvency. This requirement is substantive and not merely procedural.

The tribunal observed that under any legal procedure, the admission of a particular fact is the best evidence, and the respondents have themselves admitted the service of the demand notice in their own pleadings before none other than the Hon'ble Apex Court, and that too in a proceeding under Article 32 of the Constitution of India. Therefore, now they cannot rescind their own acknowledgement.

The purpose of the service of demand notice is to ensure the personal guarantors are imparted with the knowledge about the proceedings being initiated. Here in this case the respondent has been duly imparted with that knowledge; that is why they had been able to file the Writ Petition before the Hon'ble Apex Court.

When it is evident that the knowledge has been imparted, then invalidating the demand notice appears to be too hyper-technical and redundant, especially when seen from the context and the objective of IBC, 2016.

Lastly, the tribunal set aside the NCLT's order while holding that the NCLT's interpretation was “hyper-technical” and inconsistent with the factual record. The section 95 petition filed by the SBI against the guarantors was restored, and the NCLT was directed to proceed on merits.

Case Name: State Bank of India Through Resolution Professional Shri Chillale Rajesh v. Dr. Jitendra Das Maganti & Anrs.

Case No.: Company Appeal (AT) (CH) (Ins) No.360 & 361/2024

For Appellant: Mr. Pranava Charan,

For Respondent: Mr. Dwarakesh Prabhakaran, Advocate for R1

Coram: Justice Sharad Kumar Sharma (Member-Judicial) and Jatindranath Swain (Member-Technical)

Judgment Date: 25.10.2025