NCLT Mumbai Rejects Think Hard India Plea Against Guarantor For Non-Invocation Of Guarantee

On 5 June, the Mumbai Bench of the National Company Law Tribunal (NCLT) dismissed an insolvency application that Think Hard India Pvt Ltd filed against Narendra Rajani, the personal guarantor of Seya Industries Ltd, holding that no liability had arisen against the guarantor because the creditor had not validly invoked the personal guarantee.

Judicial Member Ashish Kalia and Technical Member Charanjeet Singh Gulati dismissed the petition under Section 95 of the Insolvency and Bankruptcy Code, which sought initiation of insolvency proceedings against Rajani for an alleged outstanding debt exceeding Rs.412.55 crore. The Tribunal observed:

“Since in this case the Guarantee has not been invoked separately and prior to the issue of demand notice, there is no liability can be said to exist on the respondent herein. Moreover, even the demand notice in Form B issued in terms of Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019, has not been evidenced to have been served on the Respondent.”

Think Hard India extended a secured business loan of up to Rs.152 crore to Seya Industries under a loan agreement dated 6 January 2020. Rajani executed a personal guarantee on 27 July 2020 to secure the company's obligations. After the borrower defaulted, the creditor issued a demand notice in Form B on 15 September 2022 and then initiated insolvency proceedings against the guarantor.

The Tribunal examined the guarantee deed and held that it constituted an “on demand” guarantee, under which liability arises only when the lender specifically invokes it. It found that Think Hard India did not place on record any separate invocation notice issued before the insolvency demand notice.

The Bench further found that no proof existed of service of the Form B demand notice on Rajani. It noted that the notice was addressed to Pooja Rajani, not to Narendra Rajani, and the creditor did not produce any acknowledgment, postal receipt, or delivery record bearing the guarantor's name. It recorded:

“It is further noted that no proof of service of the demand notice in Form B has been placed on record, whether by way of postal receipt, courier tracking record, or any other evidence of delivery. Moreover, the notice is addressed to Ms. Pooja Rajani and not to Narendra Rajani, who is the Respondent/Personal Guarantor in the present petition. The Respondent, in his reply dated 20.03.2023 addressed to the Resolution Professional, has pointed out that no acknowledgment bearing his signature has been produced on record.”

Relying on the National Company Law Appellate Tribunal's ruling in Deepak Kumar Singhania v. State Bank of India, the Tribunal held that a statutory Form B notice cannot substitute the separate invocation of a personal guarantee required to trigger insolvency proceedings.

The Bench held that Think Hard India failed to establish that it had invoked the guarantee or that any debt had crystallised against the guarantor.

Accordingly, the NCLT dismissed the insolvency petition as not maintainable.