NCLAT Rules SARFAESI Notice as Valid Invocation of Personal Guarantee, Overturns NCLT Order in Insolvency Case

New Delhi, May 30 (KNN) The National Company Law Appellate Tribunal (NCLAT) Delhi, in Company Appeal (AT) (Insolvency) No. 84 of 2025, has ruled that a notice issued under Section 13(2) of the SARFAESI Act to a personal guarantor constitutes a valid invocation of the personal guarantee, thereby giving rise to a cause of action under Section 94(1) of the Insolvency and Bankruptcy Code (IBC).

This judgment overturns the NCLT’s dismissal of the personal guarantor’s insolvency application on grounds of prematurity, affirming that a valid invocation had already taken place through the Section 13(2) notice dated 09.10.2023.

The case originated when M/s Surana Metacast (India) Private Limited, the principal borrower, defaulted on a loan taken from State Bank of India.

The loan account was declared a Non-Performing Asset (NPA) on 01.05.2023. Subsequently, the bank issued a demand notice to both the borrower and the personal guarantor, Asha Basantilal Surana, seeking repayment of Rs 28.56 crore.

In response to the financial distress, insolvency proceedings were initiated against the principal borrower on 05.08.2024. Thereafter, the personal guarantor filed for personal insolvency under Section 94(1) of the IBC on 22.08.2024.

However, the NCLT dismissed this application, citing absence of formal invocation of the guarantee.

NCLAT, however, observed that the Section 13(2) notice was clearly titled “Notice to Guarantor” and demanded payment within 60 days.

Referring to Clause 7 of the Guarantee Agreement, the Tribunal emphasised that no specific form was required for invocation, and a clear demand for payment sufficed.

The ruling affirms the principle laid down in Mavjibhai Nagarbhai Patel vs. State Bank of India & Anr., 2024, confirming that such a demand serves as effective invocation of a personal guarantee.

(KNN Bureau)