An insolvency petition against a personal guarantor is maintainable when the guarantee is validly invoked via demand notice, even if parallel recovery proceedings are pending in other forums, as the insolvency law provides an independent mechanism that overrides other recovery statutes.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 7, 78, 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 - Initiation of insolvency resolution process against a personal guarantor - A contract containing clauses where the guarantor unconditionally guarantees repayment as a principal debtor constitutes a contract of guarantee under Section 126 of the Contract Act, not mere indemnity under Section 124. (Paras 9.11, 9.12)

(B) Insolvency and Bankruptcy Code, 2016 - Pendency of proceedings before other forums - Pendency of recovery proceedings before a Debt Recovery Tribunal or proceedings under the SARFAESI Act does not bar the initiation of insolvency resolution proceedings. The code overrides other laws by virtue of Section 238. (Paras 9.22, 9.23)

(C) Limitation and Date of Default - Liability of a guarantor arises upon the valid invocation of the guarantee. A demand notice issued under Section 13(2) of the SARFAESI Act, which clearly demands payment of outstanding liabilities within a specific timeframe, constitutes a valid invocation of the personal guarantee. The date of default is the expiry of the notice period provided therein. (Paras 9.14, 9.15, 9.19)

Facts of the case:
A financial creditor sought to initiate an insolvency resolution process against a personal guarantor following default by the principal borrower. The guarantor contested the petition, arguing that the underlying document was an indemnity agreement rather than a guarantee, that the petition was premature or time-barred, and that the initiation was mala fide due to parallel recovery proceedings pending before other forums.

Findings of Court:
The court held that the document in question satisfied the requirements of a contract of guarantee. It rejected the argument that SARFAESI or DRT proceedings bar the jurisdiction of the insolvency tribunal. The court found that the guarantee was validly invoked through a notice, and the resulting default triggered a fresh period of limitation. The petition was deemed complete, and debt and default were established.

Issues: Whether the agreement was a guarantee or indemnity, whether the invocation of the guarantee was valid, whether the pendency of other recovery proceedings bars the insolvency petition, and whether the petition was within the limitation period.

Ratio Decidendi: A personal guarantee is an independent, special contract, and a demand notice under established recovery frameworks constitutes a valid invocation when it specifically calls upon the guarantor to discharge the liability. The insolvency resolution process under the Code is an independent proceeding and is not precluded by pending debt adjudication before other authorities.

Result: Company Petition admitted.

Table of Content
1. initiation of insolvency against personal guarantor based on debt and default. (Para 1 , 2)
2. role and recommendation of the resolution professional. (Para 3 , 4)
3. respondent's contention on nature of guarantee vs indemnity and date of default. (Para 5)
4. financial creditor's rebuttal on contractual nature and valid invocation. (Para 6)
5. court confirms contract is a guarantee, not mere indemnity. (Para 9)
6. admission of insolvency petition and commencement of moratorium. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16)

Under Section 95 of the IBC.

ORDER

(Per Bench)

1. This Company Petition being CP(IB) No. 377 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 Ms. Shweta Deepak 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 b

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2026 Supreme(Online)(NCLT) 1550

NATIONAL COMPANY LAW TRIBUNALNilesh Sharma, Judicial Member, Sameer Kakar, Technical MemberCanara Bank – AppellantVersusShweta Deepak Patel – RespondentCP(IB) No. 377 of 2025 | IA(I.B.C) 2976 of 2025

An insolvency petition against a personal guarantor is maintainable when the guarantee is validly invoked via demand notice, even if parallel recovery proceedings are pending in other forums, as the insolvency law provides an independent mechanism that overrides other recovery statutes.

Cases Referred (1)

NATIONAL COMPANY LAW TRIBUNAL
Nilesh Sharma, Judicial Member, Sameer Kakar, Technical Member
Canara Bank – Appellant
Versus
Shweta Deepak Patel – Respondent
CP(IB) No. 377 of 2025 | IA(I.B.C) 2976 of 2025