Inconsistent Default Dates In SARFAESI And IBC Demand Notices To Guarantor Not Fatal To Insolvency Plea: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has recently observed that default under the Insolvency and Bankruptcy Code is a factual state of non-payment and minor variations in the dates of default in notices issued under SARFAESI and the Insolvency and Bankruptcy Code to a personal guarantor cannot defeat insolvency proceedings when the debt and failure to pay are otherwise clearly established.

A coram of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar was dealing with a petition filed by Omkara Assets Reconstruction Pvt Ltd under Section 95 of the Code against Mahendra Chandulal Shah. He had stood as a personal guarantor for credit facilities availed by C. Mahendra Exports Ltd.

“This Tribunal finds that default is a factual state of non-payment, and minor variance in dates, when the debt and non-payment are otherwise established, cannot defeat substantive justice,” the tribunal observed.

Omkara Assets sought initiation of the insolvency resolution process against Mahendra Chandulal Shah, the personal guarantor of C. Mahendra Exports Limited, for dues of over Rs. 120 crore as on November 30, 2023. The claim arose from personal guarantees given to secure credit facilities availed by the company, which the company defaulted. 

The guarantee was invoked through a SARFAESI notice dated June 13, 2023, followed by a demand notice issued on December 1, 2023 under the 2019 Rules. Despite service of both notices, the dues remained unpaid.

The guarantor opposed the application on limitation, arguing that the guarantee had been invoked in 2014 and that different dates of default were cited in the two notices.

Rejecting the objection, the tribunal said default is a factual condition arising from non-payment of an admitted liability and not a matter of technical narration. It held that once debt, execution of the guarantee, and continued non-payment are established, minor variations in default dates cannot defeat statutory remedies.

Finding the debt and default clearly proved, the tribunal admitted the petition, declared a moratorium, and appointed Rajat Mukherjee as the insolvency professional.