Withdrawal of SARFAESI Notice Does Not Invalidate Recovery Certificate: NCLAT Allows SBI's Insolvency Petitions Against Guarantors [Read Order]

The Principal Bench of National Company Law Appellate Tribunal (NCLAT), New Delhi, allowed SBI’s insolvency petitions against personal guarantors on limitation grounds and held that withdrawal of a second SARFAESI notice did not invalidate the recovery certificate or original demand. Thus, petitions filed were held within time and remanded for admission.

The Appellant, State Bank of India (SBI), a nationalized Bank, filed an appeal against two orders dated 09.12.2024 passed by NCLT Mumbai in C.P.(IB) 15/2023 and C.P.(IB) 62/2023, which dismissed petitions under Section 95 IBC against two personal guarantors on limitation grounds. Since the facts in both cases were identical except for the filing dates which differed by about one month and thus, this order addressed both appeals together.

The Appellant advanced a loan of Rs. 10.50 crores to Asis Global Limited on 23.09.2009, with personal guarantees from the respondents. The loan was later enhanced to Rs. 20 crores with guarantee agreements which were executed in 2010 and 2012. After the loan became an NPA, SBI issued a SARFAESI notice on 31.12.2013, and filed proceedings before the DRT Mumbai in 2016. The DRT issued a recovery certificate on 22.03.2018, after the borrower paid Rs. 2.50 crores in instalments.

Further, the principal borrower filed an insolvency petition under Section 10 IBC on 20.11.2018, acknowledging its debt to SBI. The company was subsequently ordered into liquidation on 18.03.2021. SBI issued a demand notice under Section 95(4)(b) IBC on 30.05.2022, and filed insolvency petitions against the personal guarantors on 30.11.2022, and 28.12.2022. The NCLT dismissed both petitions on limitation grounds, prompting SBI's appeals to the NCLAT.

Section 95(4)(b) of Insolvency and Bankruptcy Code, 2016, explained that: Application by creditor to initiate insolvency resolution process.

“(4) An application under sub-section (1) shall be accompanied with details and documents relating to-

(b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and”

The Counsel for the Appellant, Harshit Khare and Prafful Saini, stated that the Adjudicating Authority erred in not properly applying the Supreme Court's Order in Suo Motu W.P.(C) 3/2020 regarding exclusion of the COVID-19 period from limitation calculations and argued that where the unexpired period of limitation exceeds 90 days from 15.03.2020, the actual unexpired days must be reckoned from March 1, 2022, relying on Prakash Corporates Vs Dee Vee Projects Ltd., [(2022)5 SCC 112].

Further, the Counsel submitted that the personal guarantors had neither pleaded certain facts nor produced relevant documents (including the second SARFAESI notice dated 24.10.2024) before the NCLT, despite having the opportunity to do so before the orders were passed on 09.12.2024.

On the other hand, the Counsel for the Respondent, Pranjit Bhattacharya and Salonee Shukla, argued that there was no proper invocation of the guarantee, as neither the Rule 7 notice nor the Section 13(2) SARFAESI notice could be construed as demand invoking personal guarantee, by relying on SBI Vs Deepak Kumar Singhania [2025 SCC OnLine NCLAT 461] and Amanjyot Singh Vs Navneet Kumar Jain [2023 SCC OnLine NCLAT 1621].

The Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) explained that: Enforcement of security interest.

“Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).”

The Counsel also relied on Canara Bank Vs Hides International Ltd., [Manu/DA/0003/2015] which stated that SBI's second SARFAESI notice dated 25.10.2024, withdrew the first notice of 31.12.2013, thus, negating any valid demand.

Further, the Counsel argued that the date of default mentioned in Part III of the petition dated 28.02.2014 cannot be altered for computing limitation, and that SBI's reliance on three additional documents not produced before the NCLT is impermissible under Xentis Infotech Ltd. vs UCO Bank [C.A.9325 of 2022].

The Tribunal consisted of Judicial Member, Justice N. Seshasayee and Technical Member, Arun Baroka, heard and reviewed the matter.

The Tribunal, after considering the submissions made, on the withdrawal of the SARFAESI notice, held that the second notice dated 24.10.2024, cannot invalidate the recovery certificate or negate the original demand made in 2013. The invocation of guarantee was complete when first made, and subsequent events—the DRT's recovery certificate (22.03.2018), the corporate debtor's Section 10 IBC petition acknowledging debt (20.11.2018), and the balance sheet signed by directors (05.09.2019)—continuously extended the limitation period.

Further, the Tribunal applied Supreme Court's COVID-19 order in Suo Motu W.P.(C) 3/2020 and IL & FS Financial Services Ltd., Vs Adhunik Meghalaya steels Pvt. Ltd., [2025 SCC OnLine SC 1567], held that the entire period from 15.03.2020, to 28.02.2022, must be excluded from limitation calculations. Computing from 20.11.2018, and excluding the COVID period, the petitions filed in November and December 2022 were well within time.

Accordingly, the Tribunal set aside the NCLT's orders, allowed both the appeals and directed admission of both insolvency petitions.

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