NCLAT, January 7, 2026 : The National Company Law Appellate Tribunal has clarified that a demand notice issued under Section 13(2) of the SARFAESI Act does not lose its legal effect merely because a personal guarantor is described as a “Director”, as long as the notice clearly demands payment of dues in terms of the guarantee. The ruling reinforces that substance prevails over form when determining whether a personal guarantee has been validly invoked.
A Bench of National Company Law Appellate Tribunal, comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Naresh Salecha (Technical Member), dismissed an appeal filed by Ujwal Gupta, upholding the initiation of personal insolvency proceedings against him. The Tribunal held that “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.”
The dispute arose from credit facilities granted by Union Bank of India to Green World International Pvt. Ltd. under sanction letters issued in 2013 and later restructured in 2015. In connection with these facilities, Ujwal Gupta executed a deed of personal guarantee on 1 March 2013, undertaking joint and several liability for the borrower’s dues. After the borrower defaulted, the loan account was classified as a non-performing asset on 30 January 2016.
Following the default, the bank issued a demand notice dated 29 February 2016 under Section 13(2) of the SARFAESI Act to the corporate debtor and its guarantors, calling upon them to clear outstanding dues within 60 days. Years later, insolvency proceedings were initiated against the personal guarantor under Section 95 of the Insolvency and Bankruptcy Code, 2016, which were admitted by the National Company Law Tribunal, New Delhi. Challenging this admission, the guarantor approached the appellate tribunal.
The appellant’s principal argument was that his personal guarantee had never been validly invoked. He contended that the SARFAESI notice described him only as a “Director” of the company and not as a “personal guarantor”, and therefore could not form the basis for insolvency proceedings against him. According to him, the absence of a specific reference to his capacity as guarantor rendered the notice defective.
Rejecting this contention, the NCLAT examined the wording of the demand notice and the terms of the guarantee deed. It noted that the notice clearly referred to the credit facilities extended to the corporate debtor, recorded persistent defaults despite repeated demands, and expressly called upon the addressees to discharge the outstanding liability within a stipulated period. The Tribunal found no ambiguity in the demand, observing that the notice unmistakably sought recovery of dues arising from the loan transaction secured by the personal guarantee.
The Bench also examined the guarantee deed and found that it did not prescribe any special format or mode for invoking the guarantee. The deed merely required a demand calling upon the guarantor to pay the outstanding dues. In such circumstances, the Tribunal held that a notice demanding payment within a fixed timeframe, clearly indicating the liability sought to be enforced, was sufficient to constitute invocation of the guarantee.
Placing reliance on its earlier decision in Asha Basantilal Surana v. State Bank of India, the NCLAT reiterated that a demand notice under Section 13(2) of the SARFAESI Act can amount to a valid invocation of a personal guarantee if it is in consonance with the terms of the guarantee agreement. The addition of the word “Director” after the appellant’s name, the Tribunal held, did not alter his legal status as a personal guarantor or dilute the effect of the demand.
Accordingly, the appellate tribunal upheld the order of the NCLT admitting the application under Section 95 of the Code and allowed the insolvency proceedings against the personal guarantor to continue. The appeal was dismissed, with the Bench finding no illegality in the invocation of the guarantee or in the initiation of personal insolvency proceedings.
Case Reference : Counsel Appearance: For the Appellant – Advocates Palash S. Singhai, Sonam Sharma and Harshal Sareen; for the Respondents – Advocates Viren Sharma, Yash Srivastava and Naveli Garg for Respondent No. 1, and Advocate Shivam Gautam for Respondent No. 2.
