Respondents’ Admission of Demand Notice in SC Pleadings Overrides Technical Objections: NCLAT Sets Aside Rejection of SBI’s Application u/s 95 [Read Order]
The Tribunal ruled that the Adjudicating Authority’s insistence on “due service” was hyper‑technical, given the guarantors had knowledge of the proceedings and even challenged Section 95 of the Insolvency and Bankruptcy Code (IBC) before the Apex Court.
The National Company Law Appellate Tribunal (NCLAT), Chennai bench, has overturned the rejection of State Bank of India’s (SBI) insolvency applications under Section 95 of the Insolvency and Bankruptcy Code, 2016, against personal guarantors of respondents. The tribunal held that the respondents’ own admission of receiving a demand notice in their writ petitions before the Supreme Court overrides technical objections about service.
The NCLT had dismissed SBI’s applications on the ground that the demand notice was not duly served on the guarantors, as required under Section 95(4)(b) read with Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.
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The tribunal held that the variance in addresses and pin codes between the guarantee agreement and the notice undermined proof of service, thereby vitiating the proceedings.
On appeal, SBI argued that service of demand notice is not mandatory under Section 95, unlike Section 8, applicable to operational creditors. It contended that Rule 7(1) is subordinate legislation and cannot override the Code.
Alternatively, SBI submitted that notices were in fact issued and dispatched, with postal receipts evidencing service. More importantly, it pointed out that the guarantors themselves had acknowledged receipt of the demand notice in their writ petitions filed before the Supreme Court challenging the constitutional validity of Sections 95–100 of the Code.
The tribunal examined Section 95 in detail and held that Rule 7(1) and Form B make service of demand notice a condition precedent for initiating insolvency against personal guarantors. The tribunal rejected SBI’s argument that the requirement is merely directory.
However, it found that the respondents’ own pleadings before the Supreme Court amounted to an admission of service. In W.P. Nos. 843 and 941 of 2022, the guarantors had specifically referred to the demand notice dated 17 August 2021 and the amount claimed by SBI.
The two-member bench of SharadKumar Sharma (Judicial Member) and Jatindranath Swain(Technical Member) observed that “admission of a particular fact is the best evidence” and once respondents acknowledged receipt, they could not later deny service by raising technical objections.
The appellate tribunal criticised the NCLT for adopting a hyper‑technical approach focused on addressing discrepancies.
It was observed that the purpose of the service is to impart knowledge of impending proceedings, which was clearly achieved since the guarantors had sufficient awareness to challenge the provisions of the Code before the Apex Court. In such circumstances, the tribunal held that rejection of SBI’s applications on the ground of non‑service was unsustainable.
By setting aside the NCLT’s rejection, NCLAT has paved the way for insolvency resolution proceedings against the guarantors under Section 95.
