RP Required to Confirm Demand Notice Service before Admitting to Adjudicating Authority: NCLT

The Amaravati Special bench of the National Company Law Tribunal (NCLT) held that proof of due service of the demand notice presented to the corporate debtor or its guarantor must first be verified by the resolution professional. The creditor cannot present the same directly to the adjudicating authority/tribunal. The applicant, the State Bank of India (SBI) lend money to Seven Hills Healthcare Pvt. Ltd. (“Seven Hills/Corporate Debtor”). Dr Jitender Das Maganti stood as a guarantor for the repayment. He entered into a guarantee agreement on January 20, 2015, and a supplemental consortium agreement with SBI and other creditors on January 20, 2010. Another deed of guarantee was executed with SBI on January 20, 2015. Subsequently, Seven Hills failed to repay the amount. SBI invoked the personal guarantee and issued a demand notice to Dr Maganti on September 3, 2021, which was delivered on September 8, 2021. After receiving no payment, SBI filed an application for initiating an insolvency resolution process against Dr Maganti under Section 95(1) of the IBC before the National Company Law Tribunal (NCLT), Amravati. The application was filed for a default amount of Rs. 129,58,95,550.79/-. Dr. Maganti contended that the demand notice was not served at the correct address and denied that he provided any guarantee. He also argued that the petition was not maintainable, there was no evidence of the guarantee being invoked, and the guarantee was not invoked within the period of limitation. Dr Maganti further claimed that SBI was not a member of the consortium of lenders and thus had no authorization to prosecute the petition. SBI denied all the allegations and asserted that the application was maintainable under Section 95 of the IBC. Dr Maganti was trying to divert the NCLT's attention by raising baseless reasons for the application's non-maintainability. It reiterated that the demand notice was issued and delivered. It was further submitted that Dr Maganti did not deny the execution of the personal guarantee and that the guarantee agreement included provisions for all consortium members to initiate proceedings independently. The NCLT bench of Dr Venkata Ramakrishna Badarinath Nandula (Judicial Member) held that SBI had established a valid financial debt owed by Seven Hills and Dr Maganti, meeting all conditions to admit the petition under the IBC. It stated that a guarantee becomes a debt once invoked, making the guarantor liable. This was supported by the NCLAT's decision in Edelweiss Asset Reconstruction Company vs. Orissa Manganese and Minerals Limited which stated that a guarantee contract matures into a binding obligation only upon invocation. Thus, it was held that the creditor must prove due invocation of the guarantee. The NCLT examined the guarantee agreement between Dr Maganti and SBI, noting that notices to the guarantor should be sent to the address specified in the agreement. However, Dr Maganti argued that the demand notice was fabricated and not delivered, citing discrepancies such as different ink pens and seals on the notices, a 17-day delay between the notice date and the postal receipt, and a mismatch between the address on the postal receipt and the address in the guarantee agreement. The NCLT criticized SBI for presenting proof of due service directly to the adjudicating authority without submitting it to the RP. The bench dismissed the SBI's application. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates