Delivery Of Demand Notice To Last Known Address Of Personal Guarantor Shall Be Deemed Valid Service U/S 95(4) Of IBC: NCLAT

Brief Facts:

Sanction Letter- issued in favour of Andes Town Planners Pvt. Ltd (“Corporate Debtor”) and Rohtas Projects Ltd (“Co- Borrower”) for a project loan of Rs. 90 crores by Omkara Assets Reconstruction Private Limited Creditor” (Respondent No.1/ Financial Creditor) - earlier Dewan Housing Finance Corporation Ltd.-DHFL and subsequently Piramal Capital & Housing Finance Limited. The Loan was secured by way of irrevocable personal guarantees.

Deed of Guarantee- executed by Mr. Paresh Rastogi and Mr. Piyush Rastogi both being directors of Corporate Debtor along with Mr. Pankaj Rastogi and Mr Deepak Rastogi in favour of Respondent No. 1- Omkara.

Recall Notice was issued by the Respondent No.1 to all four guarantors wherein the Deed of Guarantee was invoked by the Respondent No. 1.

Demand Notice was issued under Section 95(4)(b) of the Code by the Respondent No. 1 to all the guarantors via courier, on the last known address and email for Rs. 161,92,58,947/- as on May 9, 2022.

An Application under section 95 of the Code was filed seeking initiation of Personal Insolvency Resolution Process (PIRP) which came to be admitted by the Adjudicating Authority subsequent to a report submitted by the Resolution Professional under section 99 of the Code recommending the admission of the application. Against this order, the present appeals have been filed.

Contentions:

The Appellant submitted that the Loan Recall Notice, purportedly dated 02.01.2020, was never served upon the Appellant. Respondent No. 1 has failed to provide any proof of service of this notice within the petition.

It was also argued that as per 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), a guarantee must be invoked for an individual to qualify as a guarantor and be subjected to insolvency proceedings.

Based on the above, it was submitted that in this case, no personal guarantee has been invoked, and there is no evidence of delivery of the alleged demand/guarantee invocation notice dated 02.01.2020.

It was further submitted that the Impugned Order was issued without due consideration of established legal principles and in violation of Section 95 of the Code. Specifically, the demand notice was not properly served on the Appellant, as required under Section 95(4)(b) of the Code, read with Rule 7(1) of the IRPPG Rules.

Per contra, the Respondent No. 1 submitted that the issuance of the Recall Notice, Invocation Notice, and Demand Notice to the Given Address constitutes valid service in accordance with the Guarantee Deed as service of notice at a party's last known address is deemed valid.

It was also argued that If the Given Address had changed, the Appellant - Personal Guarantor was responsible for informing the Applicant. Since no such intimation or updated address was provided, the Appellant - Personal Guarantor cannot now claim that the Recall Notice, Invocation Notice, or Demand Notice was not delivered when they were sent to the Given Address.

It was also submitted that the simultaneous proceedings in respect of the guarantor as well as the borrower can be proceeded with.

Observations:

The Tribunal noted that Clause 22 of the Guarantee Deed explicitly states that all communications, including a Notice of Demand, sent to the address provided in the Guarantee Deed or the last known address shall be considered sufficient service.

It further added that by signing the guarantee deed, the Appellants had agreed to Clause 22, and they had acknowledged that service of any communication or Notice of Demand at the Given Address or last known address would be deemed valid.

The Supreme Court in Alavi Haji v. Palapetty Muhammed (2007) has held that “This Court has already held that when a notice is sent by registered post and is returned with a postal endorsement "refused" or "not available in the house" or "house locked" or "shop closed" or "addressee not in station", due service has to be presumed.”

Similarly, the Madras High Court in St. Alfred Education Trust Vs. Kone Elevator India Pvt. Ltd. [OSA No. 251 of 2020] held that if the notice is sent to the correct and last known address of the defendant, the same has to be deemed to be served, whether it is actually served or not.

Based on the above, the Tribunal observed that as per section 27 of the General Clauses Act, 1897, service of notice is deemed effective when sent to the correct address by registered post. Unless the addressee proves otherwise, the notice is considered served at the time it would ordinarily reach its destination in the normal course of business.

It further said that under these conditions the arguments of the Appellant cannot be accepted that service of demand notice was not affected.

The Tribunal noted that Respondent No. 1 sent the Recall Notice, Invocation Notice and Demand Notice to the last known address of the personal guarantor as provided in the Deed of Guarantee, This address had also been used by the Appellant for other financial transactions and its validity had also not been disputed. The Appellant also failed to provide an updated address in their objections.

The Tribunal noted that the Report of the Resolution Professional under section 99 of the Code confirmed compliance with section 95 including proper issuance and service of Demand Notice. Evidence such as speed post receipts and email transmissions supports the contentions that statutory was duly followed. The Appellant's argument that the non-receipt of the notices undermines the proceedings is not borne out by the documentary record.

It further added that the existence of a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor does not preclude the initiation or continuation of proceedings against the Personal Guarantor as held by the Supreme Court in Lalit Kumar Jain v. Union of India, (2021), wherein it was held that even if the resolution plan is approved, the same does not discharge the personal guarantor.

The Tribunal observed that simultaneous proceedings can be initiated against both borrower and the guarantor.Since the Respondent No. 1 has not received the outstanding debt, the argument that the petition should not proceed due to the borrower's ongoing CIRP and resolution plan consideration by Committee of Creditors(CoC) was rejected.

Accordingly, the present appeals were dismissed.

Case Title: Paresh Rastogi and Ors. Versus M/Omkara Assets Reconstruction Pvt. Ltd. and Ors.

Case Number:Company Appeal (AT) (Insolvency) Nos. 2053, 2054 and 2117 of 2024

Judgment Date: 18/03/2025

For Appellant : Mr. Sumesh Dhawan, Ms. Swastika Kumari and Mr. Sagar Thhakar, Advocates

For Respondent : Mr. Satendra Rai and Mr. Pareesh Virmani, Advocates for R-1. Mr. Vishal Ganda, Ms. Charmi Khurana, Mr. Anshit Aggarwal and Mr. Umesh Gupta, Advocates for RP.