Date Of Default For Guarantors Is When Guarantee Is Invoked, Not When Loan Turns NPA: NCLT Mumbai

The National Company Law Tribunal at Mumbai has recently held that the date of default for a personal guarantor starts from the date on which the guarantee is invoked, and not from the date on which the borrower's loan account is declared a non performing asset, adding that a notice issued under the SARFAESI Act may be considered for determining this date.

A coram of Judicial Member K R Saji Kumar and Technical Member Anil Raj Chellan made the finding while hearing a personal insolvency application filed by Bhavna Ravi Matta, guarantor to North American Mercantile India Pvt Ltd.

Matta had initially stated the date of default as December 9, 2019, the day the loan account was declared NPA. But the tribunal held that it should be April 25, 2020, being sixty days after the SARFAESI demand notice and therefore the date on which the guarantee stood invoked.

The coram said, “In the case of personal guarantors, the date of default is the date when the guarantee is invoked. In the present case, the Demand Notice under Section 13(2) of the SARFAESI Act has to be considered for the invocation of guarantee.”

It added, “By the Demand Notice dated 25.02.2020, the Applicant was called upon to make the payment within 60 days. Accordingly, as per the Demand Notice, the date of default would fall on 25.04.2020.”

Matta had sought to initiate insolvency resolution proceedings against herself under Section 94 of the Insolvency and Bankruptcy Code, stating a default of Rs 9.55 crore. According to her application, the loan had been sanctioned by Abhyudaya Co Operative Bank, and she had executed a personal guarantee on two occasions.

The account was declared NPA on 9 December 2019 and a SARFAESI demand notice was issued on 25 February 2020. The debt was later assigned to Asrec India Ltd, which opposed the application on the ground that insolvency proceedings were being used to circumvent the possession or recovery actions.

Asrec also told the Tribunal that enforcing its security interest would yield a higher recovery than any repayment plan.

Rejecting the objections, the tribunal held the application to be within limitation. “There is nothing to suggest that any payment has been made by the borrower or the guarantors.” It also observed, “It is trite law that process under Section 94 of the IBC is independent mechanism in itself, and pendency of proceedings under the SARFAESI Act, cannot inhibit the same.”

The tribunal admitted the application and directed initiation of the insolvency resolution process.

Case Title: Bhavna Ravi Matta

Case Number: C.P. (IB) No. 1043/MB/2022

For Applicant: Advocate Manoj Kumar Mishra

For Respondent: Advocate Ayush Kothari along with Advocate Shreyansh Desai instructed by V. Deshpande & Co 

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