Invocation of personal guarantee is a mandatory prerequisite before issuing demand notice in Form B.

M/s. Ortel Communications Ltd. (Corporate Debtor) executed loan agreements with SREI Equipment Finance Ltd. (Financial Creditor/Respondent No. 1) on 01.07.2018, for which the Appellant executed a Deed of Guarantee

Following the Corporate Debtor's default and commencement of CIRP on 27.11.2018, the Financial Creditor issued a demand notice in Form B under Rule 7(1) of the Personal Guarantors Rules, 2019, on 15.02.2022

The Appellant contended that the guarantee was never invoked as per Clause 3(a) of the Deed

During the NCLT proceedings, the Financial Creditor and Resolution Professional explicitly stated they would not rely on an alleged prior loan recall notice dated 11.06.2019

The Adjudicating Authority (NCLT) admitted the Section 95 application on 22.07.2024, ruling that the Form B notice itself substantively constituted 'invocation'

1. Whether a demand notice issued in Form B under Rule 7(1) of the 2019 Rules constitutes a valid 'invocation' of a personal guarantee

2. Whether an application under Section 95 of the IBC is maintainable if the guarantee was not invoked prior to the issuance of the Form B demand notice

3. Whether the Financial Creditor can rely on a previously waived document (the 11.06.2019 notice) during the appeal to prove invocation

The court applied Section 95 of the IBC and Rules 3(1)(e) and 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019

Rule 3(1)(e) defines a "guarantor" as a debtor whose guarantee has been invoked and remains unpaid

The Tribunal relied on the precedent in State Bank of India v. Deepak Kumar Singhania, which established that a personal guarantor becomes a 'debtor' only upon invocation; therefore, a default must exist prior to the issuance of a Form B notice

This principle was reiterated in Mukul Somany v. DBS Bank Ltd.

The Tribunal held that the NCLT erred in treating the Form B demand notice as an invocation of the guarantee.

It reasoned that under Rule 3(1)(e), an individual only qualifies as a 'guarantor' for the purpose of insolvency proceedings if the guarantee has already been invoked

Since 'default' under Section 3(12) of the IBC implies non-payment of a debt that has become 'due,' and a guarantor’s liability under the Deed only becomes 'due' upon demand, the invocation must precede the statutory demand notice in Form B

The Tribunal observed that the Financial Creditor’s Section 95 application relied solely on the Form B notice dated 15.02.2022 and contained no pleadings regarding any prior invocation

Furthermore, the Tribunal rejected the Respondent’s attempt to introduce the 11.06.2019 notice via IA No. 910 of 2026, holding that since the Respondents had formally waived reliance on said document before the NCLT, they were estopped from invoking it at the appellate stage

It held that the Section 95 application was non-maintainable because the guarantee was not invoked prior to the Form B notice

Company Petition IB-337(ND)/2022 was dismissed

The Tribunal clarified that this dismissal does not preclude the Financial Creditor from initiating other legal measures as permissible by law