A Demand Notice under Rule 7 cannot be treated as an invocation of guarantee for Section 95 applications; both conditions of the definition of 'Guarantor' must be fulfilled.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Creditor has been filed challenging order dated 28.11.2024 passed by National Company Law Tribunal, Allahabad Bench, Prayagraj by which order, application under Section 95 filed by the State Bank of India has been rejected. Appellant aggrieved by rejection of its application under Section 95 has come up in this Appeal.

2. Brief facts of the case necessary to be noticed for deciding the Appeal are:-

(i) The Corporate Debtor – LML Ltd. was extended Financial Facilities by State Bank of India (“SBI”). The Respondent – Deepak Kumar Singhania executed a Deed of Guarantee dated 28.03.2005 along with other two Personal Guarantors in favour of SBI and a Multi-Partite Agreement dated 28.03.2005 was executed. The Guarantor undertook to pay to the Lender in event any default is committed by the Borrower upon demand.

(ii) The SBI filed application under Section 19 of the Recovery of Debts and Bankruptcy Act 1993 before the Debts Recovery Tribunal, which is pending disposal. With respect to Corporate Debtor an order of liquidation has been passed on 23.03.2018. The SBI issued a Demand Notice under Rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (hereinafter referred to as “2019 Rules”) upon the Guarantor - Deepak Kumar Singhania, calling upon the Respondent to make payment of Rs.125,05,28,848.56 as on 30.04.2022.

(iii) An application under Section 95 has been filed by the Appellant on 28.05.2022. The Adjudicating Authority appointed Resolution Professional (“RP”) by order dated 02.01.2024. The application was heard by Adjudicating Authority and orders were reserved on 20.11.2024. On 28.11.2024, the impugned order was passed by the Adjudicating Authority, rejecting Section 95 Application. The Adjudicating Authority held that Applicant having failed to invoke the guarantee, the application filed under Section 95 does not satisfy the mandatory pre-requisite for issuing a legally valid demand notice under Rule 7(1) for filing such application. Application under Section 95 was held as not maintainable and dismissed. It was held that the Respondent is not a Guarantor as defined in Rule 3(1)(e) of 2019 Rules.

(iv) Aggrieved by the impugned order this Appeal has been filed.

3. We have heard learned Counsel for the Appellant as well as learned Counsel for the Respondent.

4. Learned Counsel for the Appellant challenging the order impugned submits that Notice issued under Rule 7, sub-rule (1) of 2019 Rules has to be considered as Notice for invocation of guarantee for the purposes of filing Section 95 application. It is submitted that necessary requirements for filing an application under Section 95 were fulfilled by the SBI. All necessary documents as contemplated by Section 95, sub-section (4) were annexed along with the Application. Hence, the application was fully maintainable and could not have been rejected by Adjudicating Authority. The Adjudicating Authority committed error in rejecting the application on the basis of the fact that there was no Notice of invocation of guarantee by the Bank, prior to issuance of Demand Notice under Rule 7(1). Whereas Notice under Rule 7(1) itself is Notice for invoking the guarantee demanding the payment from Personal Guarantor. The definition of ‘Personal Guarantor’ as provided under Section 5, sub-section (22) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) shall automatically cover the Respondent, irrespective of the fact whether such contract or guarantee is invoked or not. The legislative scheme under Section 95 as well as under 2019 Rules, makes it clear that invocation of guarantee is not made the key ingredients for any individual to fall under definition of Personal Guarantor. It is submitted that although in Form-A under 2019 Rules, which is an application filed by Guarantor under Section 94, the details of i