SARFAESI Notice Serves as Valid Guarantee Invocation, Arbitral Award Resets Limitation: NCLT Admits Insolvency Plea Against Guarantor

Mumbai, October 27, 2025 – The National Company Law Tribunal (NCLT), Mumbai Bench, has initiated an insolvency resolution process against a personal guarantor, holding that a notice issued under the SARFAESI Act can be construed as a valid invocation of a personal guarantee. The bench, comprising Member (Technical) Shri Anil Raj Chellan and Member (Judicial) Shri K. R. Saji Kumar, also ruled that an arbitral award acts as an acknowledgment of debt, thereby extending the limitation period for filing an insolvency application.

The ruling came in an application filed by Solapur Janata Sahakari Bank Limited under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016, against Mr. Mukund Pandharinath Kulkarni, a personal guarantor for loans extended to Shetkari Sakhar Karkhana (Chandrapuri) Limited.

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Background of the Case

Solapur Janata Sahakari Bank had sanctioned credit facilities totaling Rs. 15 crore to the corporate debtor, Shetkari Sakhar Karkhana, in 2015 and 2016. Mr. Kulkarni provided personal guarantees for these loans. Following defaults by the corporate debtor in 2016-17, the bank initiated several recovery actions.

A Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor in January 2019, which culminated in the approval of a resolution plan. Separately, the bank issued a notice under Section 13(2) of the SARFAESI Act in November 2017 and also obtained an arbitral award in its favour in March 2019. Subsequently, in November 2021, the bank filed the present application to initiate insolvency against the personal guarantor for an outstanding debt of over Rs. 14.75 crore.

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Key Arguments from Both Sides

Arguments of the Personal Guarantor:

Mr. Kulkarni's counsel, Adv. Jack Thalakottur, raised several objections to the maintainability of the application:

* Time-Barred: The application, filed in November 2021, was barred by limitation as the dates of default were in 2016 and 2017.

* No Valid Invocation: The notice under Section 13(2) of the SARFAESI Act was a statutory notice for enforcing security interest and could not be treated as a formal invocation of the personal guarantee.

* Discharge of Liability: The approval of the resolution plan for the corporate debtor had extinguished all related liabilities, thereby discharging the personal guarantor.

* Forum Shopping: The financial creditor was pursuing multiple remedies simultaneously across different forums, including arbitration and SARFAESI proceedings.

Arguments of the Financial Creditor:

Represented by Adv. Raina Birla, the bank contended: * The SARFAESI notice was addressed to the guarantors and explicitly demanded repayment, fulfilling the requirements of the guarantee deed. * The arbitral award passed on March 11, 2019, constituted a fresh acknowledgment of debt, resetting the limitation period. * The liability of a personal guarantor is co-extensive and independent of the corporate debtor's liability, and is not extinguished by the approval of a resolution plan.

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Tribunal's Analysis and Findings

The NCLT meticulously analyzed three primary legal questions before admitting the application.

1. Can a SARFAESI Notice be a Valid Invocation of Guarantee?

The Tribunal found that the notice dated November 21, 2017, though issued under the SARFAESI Act, was explicitly addressed to the guarantors and called upon them to repay the outstanding amount. The guarantee deed stipulated that the liability would arise "merely upon the Bank sending to the Guarantors a demand." The NCLT held that the SARFAESI notice satisfied this condition. It observed:

> "While the notice issued by the Financial Creditor on 21.11.2017 is a statutory notice issued under the SARFAESI Act, it also made a demand on the guarantors by addressing them to make payment within 60 days from the date of notice. A mere demand on the guarantor satisfies the requirement specified in the deed of guarantee... Thus, the notice fulfils the condition stipulated under personal guarantee and can be treated as valid invocation."

2. Is the Application Barred by Limitation?

Addressing the guarantor's primary defence, the Tribunal held that the arbitral award of March 11, 2019, gave a fresh cause of action to the financial creditor. Citing the Supreme Court's landmark judgment in Dena Bank v. C. Shivakumar Reddy , the bench affirmed that an arbitral award for payment of money falls within the ambit of a financial debt and can be considered an acknowledgment of debt. The Tribunal noted:

> "Given the fact that the Award was passed on 11.03.2019 and the present Application was filed on 01.12.2021, we are of the view that the Application is very much within the period of limitation."

3. Does a Resolution Plan Discharge the Guarantor?

The Tribunal swiftly dismissed the argument that the guarantor was discharged due to the corporate debtor's resolution plan. It relied on the authoritative Supreme Court ruling in Lalit Kumar Jain v. Union of India & Ors. , which conclusively held that the approval of a resolution plan does not automatically absolve a personal guarantor of their liabilities under an independent contract of guarantee.

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The Final Verdict

Finding merit in the financial creditor's application, the NCLT admitted the plea and initiated the Insolvency Resolution Process against Mr. Mukund Pandharinath Kulkarni. A moratorium under Section 101 of the IBC has been declared, staying all pending legal actions against the guarantor in respect of his debts. Mr. Sanjay Shrivastava has been appointed as the Resolution Professional to oversee the process.