IMPORTANT LEGAL DEVELOPMENT CONCERNING FILING OF PERSONAL INSOLVENCY RESOLUTION PROCESS CASES AGAINST THE PERSONAL GUARANTORS UNDER IBC
Issuance of Demand Notice in ‘Form B’ does not constitute invocation of guarantee: Recently, the Hon’ble National Company Law Appellate Tribunal (NCLAT), New Delhi in the matter of State Bank of India vs. Deepak Kumar Singhania [Company Appeal (AT)(Ins.) No. 191 / 2025, decided on February 28, 2025 • Para 17, 26, 27] has held that Demand Notice in ‘Form B‘ issued by Creditor in terms of Rule 7(1) of the Insolvency & Bankruptcy (Application to Adjudication Authority for initiation of insolvency resolution process for Personal Guarantors to Corporate Debtors) Rules, 2019 cannot be considered as invocation of guarantee to maintain an PIRP Application under Section 95, IBC. The judgment further stipulates that the creditor should have invoked the guarantee in terms of the Deed of Guarantee by making an demand for payment to the guarantor(s) on event of failure by the principal borrower to make payment, as such non – compliance of payment by the Guarantor(s) would thereby constitute a ‘default’ in terms of the Deed of Guarantee. Inasmuch as so, the default by the Guarantor must exist prior to the issuance of Demand Notice in ‘Form B’ under Rule 7(1), Personal Gurantor Rules, 2019.
In view of the above judgment, the question as to when the debt is due (in cases of where Deed of Guarantee stipulates payment on demand) would be the date on which demand is made to the Guarantor by the Bank as that is when the liability of the Guarantor under the Deed of Guarantor(s) actually arises, and date of default (in cases of where Deed of Guarantee stipulates payment on demand) would be the date of expiry of time period granted under the Demand Notice to make payment.
