Discrepancy In Addresses Used For Serving Demand Notice, NCLT Amravati Dismisses SBI's Petition For Initiating IRP Process Against Personal Guarantor

Brief Facts:

Dr Renuka Rani Mahanti (“Dr Renuka”) stood as a personal guarantor for the repayment of financial assistance availed by M/s Seven Hills Health Care Private Limited (“Seven Hills/Corporate Debtor”), with a guarantee in favour of the State Bank of India (“SBI”). Dr Renuka also entered into a Supplemental Consortium Agreement with SBI and other creditors on 20.01.2010. Additionally, another Deed of Guarantee was executed with SBI on 20.01.2015. On 13.03.2018, Seven Hills was admitted, and an order of moratorium was passed by the adjudicating authority due to Swan Hills' failure to make the payment. Consequently, SBI filed an application before the NCLT to initiate the Insolvency Resolution Process against Dr Renuka under Section 95(1) of the IBC. SBI invoked the personal guarantee and issued a demand notice to Dr Renuka on 03.09.2021, which was delivered on 08.09.2021.

Upon the presentation of the application, the NCLT passed an order for the appointment of the Interim Resolution Professional (IRP), Mr. Chillale Rajesh, as suggested by SBI. The NCLT directed the IRP to file his report.

The IRP submitted his report dated 05.12.2023, recommending the admission of the application filed under Section 95 of IBC, 2016. The report stated that the application satisfied all the ingredients of Section 95 of IBC. The IRP did not receive any evidence of repayment of the debt claimed in the Section 95 petition from Dr Renuka and found no document cancelling the Personal Guarantee agreement dated 20.01.2015. Furthermore, there was no court or forum order cancelling or setting aside the Personal Guarantee agreement. The IRP had communicated with Dr Renuka, who denied making any payments and refuted other claims made in the IRP's email.

Dr Renuka contended that SBI had not served the demand notice and copy of the petition at her correct address. She denied giving any guarantee and argued that the petition was not maintainable, lacked evidence of any guarantee being invoked, and that the guarantee was not invoked within the period of limitation. She also claimed that SBI was not a member of the consortium of lenders and thus had no locus or authorization to prosecute the petition.

SBI countered by stating that Dr Renuka was merely trying to divert the NCLT's attention. SBI asserted that the application was maintainable under Section 95 of IBC, 2016, as Dr Renuka was the Personal Guarantor for Swan Hills, which had defaulted in repaying the loan. SBI issued a demand notice in Form B to Dr Renuka through Indian Post on 03.09.2021, delivered on 08.09.2021. She failed to reply or clear the due amount. The track report confirmed the notice was delivered. Further, SBI contended that each member of the consortium was entitled to independently initiate proceedings against Dr Renuka.

Observations of the NCLT:

The NCLT held that SBI established a lawful financial debt due and unpaid by Swan Hills and Dr Renuka. The core issue was whether the service of a demand notice on Dr Renuka was mandatory for initiating the insolvency resolution process under Section 95 of the IBC. The NCLT noted that a guarantee becomes a debt once invoked, requiring the creditor to prove the debt and the debtor's failure to pay.

The NCLT observed discrepancies in the addresses used for the demand notice and found that SBI failed to send the notice to the correct address as per the guarantee agreement. SBI's claim that the demand notice was sent and delivered was unsupported by consistent documentation, leading to doubts about the notice's authenticity. The NCLT agreed with Dr Renuka's contention that the demand notice was improperly addressed and not genuinely served.

The NCLT noted that the Resolution Professional (RP) failed to verify compliance properly. The RP's report contained inconsistencies regarding the dispatch and coverage period of the demand notice. The NCLT concluded that SBI's approach in filing proof of service directly before the Adjudicating Authority, without placing it before the RP, was improper. There was no unequivocal admission by Dr. Renuka regarding the receipt of the demand notice.

Therefore, the NCLT determined that SBI failed to establish compliance with the necessary requirements under Section 95 of the IBC. Consequently, the application for initiating the insolvency resolution process was rejected, and SBI was allowed to initiate a fresh process as per the law.

Case Title: State Bank of India vs Dr Renuka Rani Maganti and Anr.

Case No.: CP (IB) NO.50/95/AMR/2022

Advocate for the Applicant/SBI: Mr Maharshi Viswaraj

Advocate for the Resolution Professional: Resolution Professional in Person

Advocate for the Personal Guarantor: Mr M. Sridhar

Date of Pronouncement: 22.07.2024

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