Demand Notice Delivered to Last Known Address of Personal Guarantor is Valid Service u/s 95(4) of IBC: NCLAT [Read Order]

The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has held that, for the purposes of Section 95(4) of the Insolvency and Bankruptcy Code, 2016 (Code), delivering a demand notice to the personal guarantor's last known address as listed in the deed of guarantee will be considered valid service.

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A sanction letter was issued by Omkara Assets Reconstruction Private Limited Creditor (Respondent No. 1 Financial Creditor), formerly Dewan Housing Finance Corporation Ltd.-DHFL and later Piramal Capital & Housing Finance Limited, in favor of Andes Town Planners Pvt. Ltd., the Corporate Debtor, and Rohtas Projects Ltd., the Co-Borrower, for a project loan of Rs. 90 crores. Irrevocable personal guarantees used as security for the loan.

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In favor of Respondent No. 1 Omkara, Mr. Paresh Rastogi and Mr. Piyush Rastogi, who are both directors of Corporate Debtor, as well as Mr. Pankaj Rastogi and Mr. Deepak Rastogi, executed a Deed of Guarantee. In order to invoke the deed of guarantee, Respondent No. 1 sent a recall notice to each of the four guarantors. Respondent No. 1 sent a demand notice for Rs. 161,92,58,947/-as of May 9, 2022, via courier to all guarantors at their last known address and email in accordance with Section 95(4)(b) of the Code.

After the Resolution Professional submitted a report under section 99 of the Code recommending the admission of the application, the Adjudicating Authority admitted an application under section 95 of the Code seeking the start of the Personal Insolvency Resolution Process (PIRP). The current appeals have been filed in opposition to this order.

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The appellant argued that they were never issued with the Loan Recall Notice, which was allegedly dated 02.01.2020.  In the petition, Respondent No. 1 has not produced any documentation proving that this notification was served. A guarantee must be invoked in order for an individual to be eligible as a guarantor and be subject to insolvency proceedings, according to Rule 3(1)(e) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (RPPG Rules).

In light of the aforementioned, it was argued that no personal guarantee had been used in this instance, and there was no proof that the purported demand/guarantee invocation notice dated 02.01.2020 had been delivered. Additionally, it was argued that the contested order violated Section 95 of the Code and was made without giving established legal principles the proper consideration. In particular, the appellant was not served with the demand notice in accordance with Section 95(4)(b) of the Code and Rule 7(1) of the IRPPG Rules.

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As per the Guarantee Deed, the Respondent No. 1 argued that the Recall Notice, Invocation Notice, and Demand Notice issued to the Given Address constitute legal service because notice served at a party's last known address is considered genuine.

Another argument was that the Appellant-Personal Guarantor should have notified the Applicant if the Given Address had changed. When the Recall Notice, Invocation Notice, and Demand Notice were sent to the Given Address, the Appellant-Personal Guarantor cannot now claim that they were not delivered because no such notification or revised address was given. Additionally, the concurrent actions concerning the borrower and the guarantor were argued to be feasible.

The Tribunal pointed out that Clause 22 of the Guarantee Deed clearly stipulates that any correspondence, including a Notice of Demand, addressed to the last known address or the address specified in the Guarantee Deed will be deemed sufficient service. It also stated that the appellants had accepted Clause 22 by signing the guarantee agreement and that any communication or Notice of Demand served at the Given Address or last known address would be considered legitimate.

The Tribunal noted that notice is considered effective when it is sent by registered mail to the correct address in accordance with section 27 of the General Clauses Act, 1897. The notice is deemed served at the moment it would typically arrive at its destination in the regular course of business, unless the addressee can demonstrate otherwise. It added that the appellant's claims that the service of the demand notice was unaffected by these circumstances could not be upheld.

The Tribunal observed that Respondent No. 1 had sent the Demand, Invocation, and Recall Notices to the personal guarantor's last known address as specified in the Deed of Guarantee. The Appellant had also used this address for other financial transactions, and its legitimacy had not been contested.  Additionally, the appellant's objections lacked an updated address.

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The Tribunal observed that the Resolution Professional's Report, as required by section 99 of the Code, attested to adherence to section 95, which includes the appropriate issue and delivery of the Demand Notice. The claims that the statute was properly followed are supported by evidence such as email exchanges and speed post receipts. The documentary record does not support the appellant's claim that the proceedings are compromised by the notices' non-receipt.

The Tribunal noted that both the borrower and the guarantor may be the targets of concurrent proceedings. The argument that the petition should not proceed because the borrower's CIRP and resolution plan are still being considered by the Committee of Creditors (CoC) was rejected because Respondent No. 1 has not received the overdue amount.

To Read the full text of the Order CLICK HERE

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