Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(NCLT) 523

NATIONAL COMPANY LAW TRIBUNAL
Rajeev Bhardwaj, Judicial Member, Sanjay Puri, Technical Member
Bank of Baroda – Appellant
Versus
Katmula Srinivasa Reddy – Respondent
Company Petition IB/130/95/HDB/2023 U/s 95 of IBC

Advocates:
For the Petitioner: Dr. S. Sathinarayanan
For the Respondent: Ms. Aakanksha Nehra, Krishna Mohan, Mr. Sreenivasa Rao

For 'on demand' personal guarantees, valid contractual invocation is mandatory before Section 95 application; Form B notice and SARFAESI copy do not suffice, rendering petition not maintainable.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 95 read with Rule 7(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019 - Personal Insolvency Resolution Process against personal guarantor - Application dismissed - Guarantee deed stipulating liability arises 'on demand' requires valid invocation through specific written demand as condition precedent - SARFAESI notice addressed solely to corporate debtor and merely copied to guarantor does not constitute invocation - Statutory demand notice in Form B under Rule 7(1) is procedural requirement and cannot substitute contractual invocation - No valid invocation results in debt not becoming due against guarantor, rendering application not maintainable (Paras 32-44)

(B) Contract law - Guarantee contracts - Liability of guarantor co-extensive with principal borrower but arises strictly from terms of guarantee deed - Invocation must comply with contractual mode and manner - Default date for guarantor depends on guarantee terms, not automatically same as principal borrower (Paras 35-39)

Facts of the case:
Financial creditor sought initiation of personal insolvency resolution process against personal guarantor of corporate debtor whose account was classified as NPA, CIRP initiated and liquidation ordered. Credit facilities aggregating Rs 15 crores sanctioned, guarantor executed deeds of guarantee. Statutory demand notice issued in Form B on 06.08.2020 after 15 days non-payment claimed as default date. RP recommended admission. Guarantor contested on grounds of no prior invocation, limitation, non-service of notice, defective application.

Findings of Court:
No valid invocation of guarantee per deed terms; SARFAESI notice inadequate; Form B notice not invocation. Debt not due from guarantor. Other issues like limitation, service proof not examined.

Issues: Whether Form B demand notice satisfies contractual invocation requirement for 'on demand' guarantee; whether SARFAESI notice copied to guarantor invokes guarantee; maintainability of Section 95 application absent valid invocation.

Ratio Decidendi: Liability under 'on demand' guarantee crystallises only upon specific contractual invocation; procedural Form B notice under IBC does not fulfil this. Invocation sine qua non for guarantor becoming debtor under rules (Paras 32, 40-42).

Result: Company Petition dismissed.

Table of Content
1. details of credit facilities, guarantees, and defaults by corporate debtor. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10)
2. rp report recommends admission based on default evidence. (Para 11 , 12 , 13)
3. respondent's counter: limitation, non-service, no invocation, unconscionable guarantee. (Para 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27)
4. hearing and key considerations for section 95 application. (Para 28 , 29)
5. factual background: facilities, guarantees, notices issued. (Para 30 , 31 , 32 , 33 , 34)
6. guarantee liability requires strict contractual invocation; form b insufficient. (Para 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42)
7. no valid guarantee invocation; application dismissed. (Para 43 , 44)

ORDER

This petition is filed by the Bank of Baroda (Financial Creditor/FC) under Section 95 of the IBC 1, Insolvency and Bankruptcy Code, 2016. read with Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019, seeking an order for initiation of the Personal Insolvency Resolution Process (PIRP against Katmula Srinivasa Reddy, Personal Guarantor/ Respondent 1, who is the Personal Guarantor (PG) of M/s. Vijay Home Appliances Ltd., Corporate Debtor (CD).

APPLICATION

1. It is submitted that various credit facilities aggregating to Rs 15 Crores were sanctioned to the Corporate Debtor, M/s. Vijay Home Appliances Limited, vide sanction letters dated 03.01.2009 and 06.06.2011, which were reviewed on 07.12.2012. It is further submitted that the said facilities were thereafter revised and enhanced from time to time. It is averred that the Respondent stood as the Personal Guarantor and executed General Forms of Guarantee dated 30.03.2009, 09.06.2011, 23.06.2011, and 09.01.2013, thereby guaranteeing repayment of the said facilities along with applicable interest. It is further averred that the total outstanding debt stood at Rs 13,38,60,144 as on 31.07.2020, together with further interest and costs from 01.08.2020 till the date of payment.

2. It is further submitted that the loan account of the Corporate Debtor was classified as a Non-Performing Asset (NPA) on 29.11.2016. It is stated that thereafter, CIRP was initiated against the Corporate Debtor by this Tribunal vide order dated 24.04.2019 passed in CP (IB) No. 568/09/HDB/2018 under Section 9 of the IBC. It is further stated that liquidation of the Corporate Debtor was ordered by this Tribunal vide order dated 09.01.2020. In view of the default committed by the Principal Borrower and the commencement of CIRP followed by liquidation proceedings, it is stated that proceedings have been initiated against the Personal Guarantor for recovery of the guaranteed debt.

3. It is submitted that a statutory demand notice in Form B was issued to the Personal Guarantor on 06.08.2020, calling upon the Personal Guarantor to discharge the guaranteed liability. It is averred that the Personal Guarantor failed to make payment within the stipulated period of fifteen days and, accordingly, the effective date of default is stated to be 21.08.2020.

4. It is placed on record that upon presentation of the present application, this Adjudicating Authority, vide order dated 21.03.2024, appointed Mr. Kasa Venkata Ramanaiah, bearing Registration No. IBBI/IPA- 003/IP-N00066/2017-2018/10552, as the Resolution Professional and directed submission of a report under Section 99 of the Insolvency and Bankruptcy Code, 2016.

5. The Resolution Professional filed a report under Section 99 of the IBC on 12.04.2024 through IA No. 787/2024.

RP REPORT

6. After due examination of the application, the Resolution Professional recommended its admission based on the details recorded in the RP report, as mentioned hereunder:

6.1 The RP reports that the Guarantor has committed default in repayment of dues in respect of the guarantee extended to the Corporate Debtor, M/s Vijay Home Appliances Limited, to a

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2026 Supreme(Online)(NCLT) 523

NATIONAL COMPANY LAW TRIBUNALRajeev Bhardwaj, Judicial Member, Sanjay Puri, Technical MemberBank of Baroda – AppellantVersusKatmula Srinivasa Reddy – RespondentCompany Petition IB/130/95/HDB/2023 U/s 95 of IBC

For 'on demand' personal guarantees, valid contractual invocation is mandatory before Section 95 application; Form B notice and SARFAESI copy do not suffice, rendering petition not maintainable.

Cases Referred (3)

NATIONAL COMPANY LAW TRIBUNAL
Rajeev Bhardwaj, Judicial Member, Sanjay Puri, Technical Member
Bank of Baroda – Appellant
Versus
Katmula Srinivasa Reddy – Respondent
Company Petition IB/130/95/HDB/2023 U/s 95 of IBC