S. 13(2) SARFAESI Act Notice Demanding Payment From Guarantor Constitutes Invocation Of Personal Guarantee: NCLAT Delhi

Background Facts:

M/s Surana Metacast (India) Private Limited (Principal Borrower) had taken loan from state bank of India for business purposes. In connection with the loan, the appellant had executed a Deed of Personal Guarantee.

However, the loan A/c was declared NPA on 01.05.2023 and the bank issued notice under Section 13(2) of the SARFAESI Act, 2002 to both the principal borrower and the personal guarantor, demanding repayment of ₹28,56,64,336.06.

Later, on 05.08.2024, insolvency proceedings were initiated against the principal borrower. Pursuant to this, the Personal Guarantor filed an application under Section 94(1) of the Code on 22.08.2024 to initiate personal insolvency proceedings against himself as the personal guarantor.

The NCLT dismissed the Section 94(1) application, holding that it was premature and filed without any cause. The tribunal noted that apart from the Section 13(2) notice, no further communication or notice invoking the guarantee had been issued to the Personal Guarantor.

NCLAT'S Findings:

The primary question before NCLAT was whether the notice dated 09.10.2023, issued under Section 13(2) of the SARFAESI Act and addressed to the Personal Guarantor, constituted a valid invocation of the personal guarantee, thereby giving rise to a cause of action under Section 94(1) of the IBC.

The NCLAT noted that the Section 13(2) notice was explicitly titled “Notice to Guarantor” and was addressed to the Personal Guarantor. The notice clearly required the Personal Guarantor to discharge the outstanding liability within 60 days.

The tribunal emphasized that the invocation of a personal guarantee must be in accordance with the terms of the guarantee agreement. It observed that Clause 7 of the Guarantee Agreement in the present case did not prescribe a specific form or mode for the demand notice. Therefore, any demand made against the personal guarantor requiring repayment of dues could be construed as invocation of the guarantee.

The NCLAT held that the language of the 13(2) notice issued by the State Bank of India demonstrated a clear demand upon the Personal Guarantor for payment of ₹28,56,64,336.06, and hence, constituted a valid invocation of the guarantee.

In “Mavjibhai Nagarbhai Patel vs. State Bank of India & Anr., 2024”., NCLAT held that where Notice under Section 13(2) makes a demand as per the Guarantee Agreement between the parties, the Notice must be treated as notice for invocation of Bank Guarantee.

Thus, the NCLAT held that where a Section 13(2) notice explicitly demands payment from the guarantor in terms of the guarantee agreement, it amounts to an invocation of the personal guarantee. Consequently, such a notice can provide a valid cause of action for initiating personal insolvency proceedings under Section 94(1) of the IBC.

Case Title: Asha Basantilal Surana v/s State Bank of India & Ors.

Case Number: Company Appeal (AT) (Insolvency) No. 84 of 2025

Judgment Date: 15/05/2025

For Appellant: Mr. Abhishek Naik, Ms. Gulafsha Kureshi, Ms. Deepsikha Mishra and Mr. Palak Zaidi, Advocates

For Respondents: Mr. Siddharth Singal, Ms. Richa Mishra, Ms.Harshita Agrawal, Ms. Mushkan Mangla and Mr. Akash Chatarjee, Advocates for R-2. Mr. Yash Sikka, Advocate for R-3.

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