DRT Decree and Contractual Deeming Clause Validate Notice Service for Section 95 Insolvency Proceedings

The Appellants are Personal Guarantors for the Corporate Debtor, M/s. GVS Infra and Industries Private Limited, having executed a personal guarantee in favor of the Respondent (State Bank of India) on December 23, 2009, for a credit facility of Rs. 100 crores.

Following the classification of the Corporate Debtor’s account as a Non-Performing Asset (NPA), a Section 13(2) notice was issued on December 31, 2011.

The Respondent initiated proceedings before the Debt Recovery Tribunal (DRT), which resulted in a decree against both the Corporate Debtor and the Personal Guarantors on February 26, 2019, followed by a Recovery Certificate on March 19, 2019.

After a previous Section 95 application was withdrawn due to service issues, the Respondent filed a fresh application under Section 95 of the IBC (CP(IB) No. 33/95/HDB/2024).

The Adjudicating Authority (NCLT, Hyderabad) admitted the application on February 12, 2026, appointed a Resolution Professional (RP), and subsequently admitted the insolvency process after considering the RP’s report under Section 99.

1. Whether the initiation of Section 95 proceedings was valid despite the Appellants' claim that the personal guarantee was never invoked.

2. Whether the demand notice was legally served upon the Appellants in compliance with the Personal Guarantors Rules, 2019.

3. Whether the Resolution Professional complied with the procedural requirements of Section 99(2) regarding the service of notice and application of mind to the Appellants' correct address.

The court applied Section 95 (Application by creditor), Section 99 (Submission of report by RP), and Section 100 (Admission/Rejection of application) of the Insolvency and Bankruptcy Code, 2016.

Rule 3 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, regarding the service of demand notices.

Contractual "deeming service" principle found in Clause 20 of the Guarantee Deed, which stipulates that dispatch of notice by registered post to the provided address constitutes sufficient service.

Regarding the invocation of the guarantee, the Tribunal held that the DRT decree dated February 26, 2019, which established joint and several liability for the Appellants, rendered the debt "due" and effectively proved the invocation of the guarantee; the Appellants could not contest invocation while a valid DRT decree remained operative.

On the issue of service, the Appellants argued that the notice sent to the "Masab Tank" address was received by an unrelated individual and the "Amba Gardens" notice was returned.

The Tribunal rejected this, noting that under Clause 20 of the Guarantee Deed, the mere dispatch of notice to the registered address constitutes "deemed service".

The Tribunal further observed that Rule 3 of the 2019 Rules must be read in conjunction with the specific contractual terms of the Guarantee Deed.

Regarding the RP’s notice under Section 99(2), the Tribunal found that the tracking reports, when read with the letter addressed to the Masab Tank location (which was also the address on the DRT decree), sufficiently proved service.

The court characterized the Appellants' arguments as "submissions in desperation" to avoid the consequences of an unsatisfied decree.

The court upheld the NCLT’s order dated February 12, 2026, but directed the RP to provide the Appellants an opportunity to submit a repayment plan in accordance with the IBC and the Personal Guarantors Rules, 2019.