Proceedings against a personal guarantor under the Code are independent and maintainable notwithstanding pending recovery actions elsewhere. A demand notice under Section 13(2) of the SARFAESI Act constitutes a valid invocation of a guarantee if it contains a clear directive for the guarantor to satisfy the outstanding liability.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 95, 96, 97, 99, 100, 101, 238 - Indian Contract Act, 1872 - Sections 124, 126 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2) - Recovery of Debts and Bankruptcy Act, 1993 - Section 19 - Insolvency resolution process against personal guarantor - Maintainability of petition during pendency of other recovery proceedings - Whether a notice under Section 13(2) of SARFAESI Act constitutes valid invocation of personal guarantee. (Paras 9.2, 9.14, 9.15, 9.22, 9.23)

(B) Contract of Guarantee vs. Contract of Indemnity - Agreement specifically containing terms of guarantee and usage of word 'guarantor' renders the contract a guarantee agreement under Section 126 of Indian Contract Act, notwithstanding clauses creating joint and several liability or waiver of certain rights. (Paras 9.11, 9.12)

(C) Limitation and Date of Default - Limitation for personal guarantor commences from the date of default upon failure to pay within the notice period following the invocation of the guarantee, not from the date of default by the principal borrower. (Paras 9.19, 9.20)

Facts of the case:
The financial creditor initiated proceedings under Section 95 of the Insolvency and Bankruptcy Code against a personal guarantor following the default of the principal borrower. The guarantor contested the maintainability of the petition, arguing that the underlying document was a contract of indemnity rather than a guarantee, that the petition was premature due to pending recovery proceedings under other statutes, that the guarantee was not validly invoked, and that the petition was barred by limitation.

Findings of Court:
The court held that the agreement was a valid contract of guarantee. It further held that a notice issued under Section 13(2) of the SARFAESI Act, which contains a clear demand for payment to the guarantor, constitutes a valid invocation of the guarantee. Pendency of proceedings before other tribunals does not bar the initiation of insolvency proceedings due to the overriding effect of the Code under Section 238.

Issues: Whether the agreement is a contract of guarantee or indemnity, whether the SARFAESI notice constitutes valid invocation of guarantee, and whether insolvency proceedings are maintainable despite pending recovery actions in other fora.

Ratio Decidendi: The Code provides an independent mechanism for resolution that overrides other recovery laws under Section 238. A guarantee is validly invoked when a clear, written demand is made upon the guarantor following the principal debtor's default, regardless of whether the notice is issued under the SARFAESI framework, provided the content establishes the guarantor's liability.

Result: Company Petition admitted under Section 100 of the Insolvency and Bankruptcy Code; insolvency resolution process initiated.

Table of Content
1. initiation of personal insolvency based on admitted debt. (Para 1 , 2)
2. duty of rp to examine claims and default. (Para 10)
3. formal admission of irp and moratorium imposition. (Para 11 , 12 , 13 , 14 , 15 , 16)

ORDER

1. This Company Petition being CP(IB) No. 376 of 2025 is filed on 12.02.2025 by Canara Bank (the Applicant-Financial Creditor) under Section 95(1) of the 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 Debtors) Rules 2019 seeking initiation of Insolvency Resolution Process against Mr. Deepak Nagjibhai Patel for a default amount of Rs 51,34,29,353.81,/- in respect of Deed of Guarantee dated 21.02.2019 in favour of the Applicant/Financial Creditor.

2. The Financial Creditor has placed the facts through this Petition in the following manner: -

2.1. It is stated that the Financial Creditor has sanctioned Financial assistance of Rs. 38,00,00,000/- to the Principal Borrower i.e Swami Narayan Diamonds Private Limited. The sanction letter is attached as Exhibit 4 of the Application.

2.2. Further from time to time the Credit Facilities were extended by the Corporate Debtor by (i) Letter of Renewal dated February 21, 2019 (ii) Sanction Letter (Renewal) dated September 1, 2020 read with Letter of Renewal dated September 1, 2020 and (iii) Sanction Letter dated March 14, 2023 . The same has been duly accepted by the Corporate Debtor and the Personal Guarantor. The copies of same are attached at Exhibit 5, 8, 9 & 13 to the Application.

2.3. The aforementioned Credit Facilities were guaranteed by the Personal Guarantor by Guarantee Agreement dated 21.02.2019. The Guarantee Agreement is attached as Exhibit 7 of the Application.

2.4. It is stated that the personal guarantor agreed to

i. unconditionally and irrevocably guarantee the repayment of all amounts advanced and all liabilities guaranteed by the Bank and also all amounts which may be advanced and all guarantees which may be issued by the Bank from that day

ii. indemnify the Bank against all loss and to pay and satisfy to the Bank on demand the balance due from the Borrower

iii. that the Personal Guarantee shall be a continuing Guarantee and that the liabilities of the Personal Guarantor shall be joint and several

iv. the Personal Guarantor is the principal debtor, jointly with the Borrower

v. The Personal Guarantee shall be in addition to and shall not be in any way prejudice affected by any collateral or other security or guarantee now or hereafter to be held by the Bank

vi. any notice may be served on the Guarantor personally or by sending the same in a prepaid cover to the address registered with the Bank

vii. the Personal Guarantor authorizes the Borrower to act as his agent and give acknowledgement of liability in respect of the balance due under the Personal Guarantee from time to time; and declares that he is bound by such acknowledgment of liability given by the Borrower from time to time

2.5. Besides the above Credit Facilities, the Financial Creditor has also sanctioned certain term loans to the Corporate Debtor. Under the Government’s Guaranteed Emergency Credit Line (“GECL”) scheme, the Financial Creditor sanctioned a Working Capital Term Loan (“WCTL I”) of INR 5 Crore on November 9, 2020. Furthermore, under the GECL 1.0 extension scheme, the Financial Creditor sanctioned a Working Capital Term Loan (“WCTL II”) of INR 6.4 crore on November 25, 2021. WCTL I and WCTL II were accepted by the Corporate Debtor and Personal Guarantor. The Copies of the same have been attached as Exhibit 11 & 12 of the Application.

2.6. The outstanding amounts due to the Financial Creditor were duly acknowledged by the Borrower from time to time & the acknowledgment of liability by the Principal Borrower is binding on the Personal Guarantor. Thereafter, the Principal Borrower defaulted on its outstanding liabilities.

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2026 Supreme(Online)(NCLT) 1549

NATIONAL COMPANY LAW TRIBUNALNilesh Sharma, Judicial Member, Sameer Kakar, Technical MemberCanara Bank – AppellantVersusDeepak Nagjibhai Patel – RespondentI.A(I.B.C) 3003(MB) 2025 | C.P. (IB) 376(MB) 2025

Cases Referred (2)

NATIONAL COMPANY LAW TRIBUNAL
Nilesh Sharma, Judicial Member, Sameer Kakar, Technical Member
Canara Bank – Appellant
Versus
Deepak Nagjibhai Patel – Respondent
I.A(I.B.C) 3003(MB) 2025 | C.P. (IB) 376(MB) 2025