Resolution Professional Must Confirm Proper Service Of Demand Notice Before Admitting It To Adjudicating Authority: NCLT Amravati

The National Company Law Tribunal (NCLT), Armravati Special Bench of Dr Venkata Ramakrishna Badarinath Nandula (Judicial Member) 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. Brief Facts: 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/-. Contentions of Dr. Jitendra Maganti (Respondent): 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. Contentions of the SBI: 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, and Dr Maganti failed to reply or clear the due amount. SBI also argued that the application was within the period of limitation, supported by a revival letter signed by Dr Maganti on August 14, 2017, acknowledging the debt. SBI 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. Observations of the NCLT: The NCLT 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[Company Appeal No 437/2018], 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 found that the addresses indeed did not match, invalidating the presumption of service under Section 27 of the General Clauses Act. The Resolution Professional (RP) had not verified the correct address and recommended the application's acceptance without due diligence. The NCLT criticized the RP's report for failing to confirm proper service of the demand notice, noting that the notice dated 17.08.2021, dispatched on 03.09.2021, did not account for interest and penalties up to 31.08.2021, supporting the contention that the notice was fabricated. Lastly, the NCLT criticized SBI for presenting proof of due service directly to the adjudicating authority without submitting it to the RP. This improper procedure and evidence inconsistencies led the NCLT to doubt the legitimacy of the demand notice and its service. Consequently, SBI's application was dismissed. Case Title: State Bank of India vs Dr Jitendra Das Maganti and Anr. Case No.: CP (IB) No.49/95/AMR/2022 Advocate for the Applicant/Creditor: Mr Maharshi Viswaraj Advocate for the Personal Guarantor (Respondent No. 1): Mr. M. Sridhar Date of Pronouncement: 22nd July 2024 Click Here To Read/Download Order Or Judgment

Resolution Professional Must Confirm Proper Service Of Demand Notice Before Admitting It To Adjudicating Authority: NCLT Amravati

Smita Singh

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Smita Singh

Resolution Professional Must Confirm Proper Service Of Demand Notice Before Admitting It To Adjudicating Authority: NCLT Amravati

Smita Singh

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Smita Singh

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