Refusal Of Demand Notice By Guarantor Counts As Valid Service: NCLT Hyderabad

The National Company Law Tribunal (NCLT) at Hyderabad has recently held that refusal by a personal guarantor to accept delivery of a demand notice constitutes valid and deemed service under the Insolvency and Bankruptcy Code, 2016, and has admitted the petition filed by STCI Finance Ltd. to initiate personal insolvency proceedings against  Ramnath Nandakumar, personal guarantor of Natems Sugar Pvt. Ltd.

The coram of Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri noted that the courier tracking report established refusal of service of the statutory demand notice dated May 15, 2021, sent to the guarantor's notified address. The tribunal recorded that the refusal amounted to valid and deemed service under the Code.

"The tracking reports establish that the demand notice dispatched via private courier on 17.05.2021 was refused by the Personal Guarantor on 08.06.20219, as evidenced by the courier tracking report bearing the remark “Not Delivered (Receiver refused service)”. Such refusal constitutes valid and deemed service in accordance with settled legal principles", it said.

STCI Finance had sanctioned a Rs 60 crore loan to Natems Sugar in March 2018, secured by a joint personal guarantee executed by Nandakumar and Nanda Kumar Ramanujalu. The company defaulted on repayment beginning December 31, 2019, and admitted the default multiple times, but no payment was made despite repeated notices.

The lender invoked the personal guarantee on October 24, 2020, and then issued the statutory demand notice before filing the petition under personal guarantee insolvency petition on October 6, 2023.

The guarantor opposed the petition, arguing that the notice was not properly served and that the application was barred by limitation. The tribunal rejected both objections, holding that the notice was sent to the address expressly designated in the guarantee deed and no change of address was ever communicated. It also held that the limitation period begins from the date of invocation of the guarantee, not from the date of default by the borrower, making the petition within time.

The tribunal found that the existence of debt and default were established and admitted the petition, commencing the personal insolvency resolution process against Mr. Nandakumar and imposing a 180-day moratorium. Mr. Nethi Mallikarjuna Setty has been appointed as Resolution Professional.