Calling Guarantor 'Director' In SARFAESI Notice Doesn't Invalidate Invocation Of Guarantee: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently ruled that merely describing a personal guarantor as a “Director” in a SARFAESI demand notice does not invalidate the invocation of the personal guarantee, as long as the notice clearly demands payment of the outstanding dues under the guarantee deed.

The tribunal said the real test is not how the person is described, but what the notice actually asks for.

The bench of Justice Mohd. Faiz Alam Khan and Naresh Salecha observed, “Therefore, whether a guarantee may be invoked by giving notice under Section 13(2) of the SARFAESI Act depends on the terms of the guarantee and the content of the notice. If the notice clearly demands payment from the personal guarantor in terms of the guarantee, it can be treated as an invocation of the guarantee. The facts and the wording of the notice are crucial in this determination.”

The dispute relates to credit facilities granted by Union Bank of India to Green World International Pvt. Ltd. The borrower had executed a personal guarantee for the loan.

When the borrower defaulted, the account was classified as a non-performing asset. The bank then issued a demand notice under Section 13(2) of the SARFAESI Act. The notice asked the addressees to clear the outstanding dues within 60 days.

The personal guarantor later argued that his guarantee was never invoked. He contended that the notice addressed him as a “Director” of the company and not in his capacity as a “personal guarantor.” On that basis, he questioned the initiation of insolvency proceedings against him under Section 95 of the Insolvency and Bankruptcy Code.

The tribunal was not persuaded. It noted that the notice clearly referred to the credit facilities extended to the company. It also recorded that repeated demands had gone unanswered. The notice specifically called upon the addressees to discharge the outstanding liability.

According to the NCLAT, the message was unambiguous. The addressee was being asked to clear the dues arising from the loan.

The tribunal also examined the guarantee deed. It found that the deed did not prescribe any special format or procedure for invocation. In such a case, the tribunal said, a notice demanding payment within a fixed time is sufficient, as long as the liability is made clear.

The NCLAT relied on its earlier ruling in Asha Basantilal Surana vs State Bank of India(2025). That decision held that a Section 13(2) notice can amount to invocation of a personal guarantee if the demand is in line with the guarantee agreement.

Applying that principle, the tribunal held that adding the word “Director” after the appellant's name did not change his status as a personal guarantor. The personal guarantee, it said, had been validly invoked through the SARFAESI notice.

The appeal was dismissed, and the insolvency proceedings against the personal guarantor were allowed to continue.

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