Demand Notice Is Not Guarantee Invocation: NCLT Guwahati Rejects UCO Bank's CIRP Plea Against Personal Guarantor

The National Company Law Tribunal (NCLT) at Guwahati has rejected UCO Bank's insolvency application seeking initiation of proceedings against Mallika Barooah in relation to dues claimed from Berial Engineers Private Limited.

The tribunal held that the bank failed to establish invocation of the guarantee and that the application was barred by limitation.

A bench of Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh passed the order while dealing with the bank's application against Barooah. The bank claimed that she was a personal guarantor to credit facilities extended to the company.

Holding that a guarantor's liability cannot crystallise without invocation of the guarantee, the tribunal observed,

“It is necessary to invoke the guarantee by issuance of a specific demand upon the guarantor before any liability can crystallize against the Personal Guarantor. The Applicant has failed to place on record any specific invocation notice addressed to the Respondent calling upon her to discharge liability under the alleged guarantee.”

UCO Bank sought initiation of insolvency proceedings against Barooah for an alleged default of ₹148.67 crore. The bank contended that Berial Engineers had availed various credit facilities over the years and that Barooah had executed guarantee documents in connection with those facilities.

The bank relied on proceedings before the Debt Recovery Tribunal (DRT). It also relied on a recovery certificate issued in April 2018, compromise arrangements, revival proposals, and a demand notice issued in April 2025 to contend that the debt remained unpaid.

The Resolution Professional appointed by the tribunal recommended rejection of the application. The Resolution Professional observed that Barooah had executed a guarantee in connection with the original cash credit facility sanctioned in May 2008. However, she was neither named as a guarantor nor a signatory to subsequent guarantee documents relating to enhanced credit facilities.

Barooah opposed the application. She contended that she had resigned from the company in March 2009 and had not executed subsequent guarantee documents. She also argued that the bank had never invoked the alleged guarantee through a specific demand addressed to her.

Barooah further argued that the claim was barred by limitation. She contended that the compromise and settlement documents relied upon by the bank neither bore her signature nor acknowledged any liability on her part.

After examining the record, the tribunal noted that Barooah had admittedly executed a letter of guarantee dated May 20, 2008 in connection with the original cash credit facility. However, it found that the bank had failed to place on record any material showing that the guarantee had been invoked through a specific demand addressed to her.

Explaining why the demand notice relied upon by the bank was insufficient, the tribunal observed:

“Rule 7(1) read with Section 95(4)(b) of the Code is simply a procedural prerequisite to the filing of an application under Section 95 that mandates service of a Form B notice on the guarantor demanding payment of the defaulted amount, but does not equate to invoking the guarantee itself, which must be done through a specific contractual demand addressed to the guarantor prior to this stage.”

Relying on the National Company Law Appellate Tribunal's decision in State Bank of India v. Deepak Kr. Singhania, the tribunal held that a demand notice under Rule 7(1) could not by itself constitute invocation of a personal guarantee.

The tribunal also rejected the bank's contention that the limitation stood extended on the basis of compromise proposals and revival arrangements. It observed that the documents relied upon by the bank had not been executed by or addressed to Barooah. Therefore, they could not amount to an acknowledgment of liability against her.

The bench noted that the recovery certificate relied upon by the bank had been issued on April 11, 2018. It further observed that no material had been produced to extend the limitation against Barooah thereafter.

Holding that the claim was time-barred, the tribunal concluded:

“Therefore, while the Respondent may originally have stood as a guarantor in respect of the 2008 facility, the present application under Section 95 of the Code against her is barred by limitation.”

While agreeing with the Resolution Professional's recommendation that the application be rejected, the tribunal clarified that it did not accept the finding that Barooah was never a guarantor. It held that the materials on record established that she had executed the guarantee relating to the original 2008 facility.

The tribunal further held that the bank had failed to establish valid invocation of that guarantee. It also held that the bank had failed to establish any basis for extending limitation against her.

Accordingly, the tribunal rejected the application.

For Applicant: Advocate S Chamaria

For Respondent: Advocates A Gautam and B Choudhary