NCLT Delhi Admits Yes Bank Plea Against Johnson Watch Guarantor, Says SARFAESI Notice Invokes Guarantee

On 12 October, the Principal Bench of the National Company Law Tribunal (NCLT), New Delhi, admitted an application filed by Yes Bank Limited under Section 95 of the Insolvency and Bankruptcy Code (IBC) against Anil Madan, personal guarantor of Johnson Watch Company Pvt. Ltd.

A Bench comprising President Justice Anupinder Singh Grewal and Technical Member Ravindra Chaturvedi held that a notice under Section 13(2) of the SARFAESI Act can validly invoke a personal guarantee if it demands payment from the personal guarantor in accordance with the terms of the guarantee. The Tribunal held:

“…whether a guarantee may be invoked by giving notice under Section 13(2) of the SARFAESI Act depends on the terms of the guarantee and the content of the notice. If the notice clearly demands payment from the personal guarantor in terms of the guarantee, it can be treated as an invocation of the guarantee.”

Johnson Watch Company initially availed a cash credit facility of Rs. 14 crore from Yes Bank in June 2013, secured by personal guarantees from Madan and other individuals. The bank subsequently increased the credit limit to Rs. 32 crore, reduced it to Rs. 27.90 crore, and further reduced it to Rs. 25.50 crore on 2 December 2022.

Following repayment defaults, the bank classified the company's account as a non-performing asset on 16 March 2023. It recalled the credit facilities and issued a notice under Section 13(2) of the SARFAESI Act on 10 July 2023, demanding Rs. 34.69 crore from the corporate debtor and the personal guarantors.

Madan challenged the validity of the guarantee invocation. His counsel argued that the bank had not served an earlier notice dated 24 May 2023 on him and that the SARFAESI notice sought to enforce the security interest against the borrower rather than independently invoke the personal guarantee.

The Tribunal rejected these objections, holding that the notice under Section 13(2) of the SARFAESI Act could validly invoke the personal guarantee because it demanded payment from the personal guarantors.

It relied on Ujwal Gupta v. Union Bank of India and Anr., (2026) ibclaw.in 18 NCLAT, in which the National Company Law Appellate Tribunal held that such a notice could constitute a valid invocation of a personal guarantee.

Further, the Bench rejected Madan's contention that the application was premature because corporate insolvency resolution proceedings against Johnson Watch Company were pending.

Relying on judicial precedents, including State Bank of India v. Mahendra Kumar Jajodia, it held that insolvency proceedings against a personal guarantor could proceed independently of the status of the corporate debtor's insolvency proceedings.

Accordingly, the NCLT admitted Yes Bank's application and initiated the personal insolvency resolution process against Madan.