Imp. Rulings - Sarfaesi Section 13(2) notice & Invocation of Guarantee.
Index;
NCLAT (2026.01.07) in Ujwal Gupta Vs. Union Bank of India & Anr. (Company Appeal (AT) (Ins) No. 2001 of 2024) held that;
NCLAT (2025.05.15) in Asha Basantilal Surana Vs. State Bank of India & Ors. [(2025) ibclaw.in 359 NCLAT, Company Appeal (AT) (Insolvency) No. 84 of 2025 & I.A. No. 334 of 2025]
NCLAT (2024.12.18) in Mavjibhai Nagarbhai Patel vs State Bank of India and Ors. [(2024) ibclaw.in 841 NCLAT, Company Appeal (AT) (Insolvency) No. 1702 of 2024 & Others]
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Section 13(3) of SARFAESI reads as under;
# Section 13(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
Section13(3) specifically provides that section 13(2) notice shall give details of the amount payable, meaning thereby that the amount has to be payable as on the date of section 13(2) notice. Thus recall notice/notice for invocation of guarantee must precede section 13(2) notice or section 13(2) notice, should cross‑refer the contractual basis for acceleration (e.g., “pursuant to Clause X of the Facility Agreement dated _, the entire facility has become immediately due and payable upon classification of the account as NPA”).
Generic notice under section 13(2) of Sarfaesi is for enforcement of security interest. It cannot be a substitute of recall notice on borrower or notice of invocation of the guarantee deed unless the same is properly worded in accordance with the terms of guarantee deed.
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NCLAT (2026.01.07) in Ujwal Gupta Vs. Union Bank of India & Anr. (Company Appeal (AT) (Ins) No. 2001 of 2024) held that;
“# 22. We have heard Ld. Counsel for the parties and perused the record. The question which has arisen for consideration in this Appeal is as to whether notice dated 29.02.2016 issued under Section 13(2) of the SARFAESI Act, 2002 which was addressed to the Appellant is sufficient to invoke guarantee and gives any cause of action to the financial creditor to file application under Section 95 of the Code.
# 27. Thus, in our considered opinion, it was a crystal clear communication not only to the Appellant but to all the addressees to discharge their liability with regard to the credit facilities extended to CD by the financial creditor and there appears no ambiguity in this. Since the appellant has extended guarantee by executing a deed and the principal borrower/ CD failed to pay the amount of credit facilities extended by the Financial Creditor and the liability of the principal borrower and guarantor is coextensive, this demand notice was sufficient communication to the appellant to discharge his liability under the guarantee deed towards the credit facility extended by the creditor to the CD and is sufficient invocation of guarantee.
# 32. Thus, what has been highlighted by the aforesaid judgment is that it would be the terms and conditions of the agreement executed between the parties with regard to the guarantee which would be relevant to assess as to whether the guarantee has been sufficiently invoked or not. 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. “
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NCLAT (2025.05.15) in Asha Basantilal Surana Vs. State Bank of India & Ors. [(2025) ibclaw.in 359 NCLAT, Company Appeal (AT) (Insolvency) No. 84 of 2025 & I.A. No. 334 of 2025] held that.-
# 8. The first question which has arisen for consideration in the Appeal is as to whether notice dated 09.10.2023 issued under Section 13(2) of the SARFAESI Act, 2002 which was addressed to the Appellant gives any cause of action to file application under Section 94(1). . . . . . .
# 12. Thus, the dismissal of the Appeal in the Amanjyot Singh’s case was on the facts of the said case and has no application in the facts of the present case. The invocation of personal guarantee has to be in accordance with the terms of the Guarantee Agreement which is a settled law. Clause 7 of the Guarantee Agreement does not require any particular mode and manner of the demand notice. When demand notice is issued against the personal guarantor asking the personal guarantor to discharge its liabilities, the guarantee stands invoked. Whether notice under Section 13(2) in a particular case invoked the guarantee or not depends on the words and intent of the notice. For finding out as to whether Notice under Section 13(2) invoked the personal guarantee, the letters and words of the Notice has to be looked into to come to any conclusion that whether personal guarantor has been asked to discharge its liabilities or not. In the facts of the present case, we are of the considered opinion that the Notice under Section 13(2) issued by the State Bank of India is a clear demand notice from the Appellant to pay the amount of Rs.28,56,64,336.06/-.
# 14. The above judgment, thus, clearly holds that in a case where Notice under Section 13(2) makes a demand as per the Guarantee Agreement between the parties, the Notice has to be treated as notice for invocation of Bank Guarantee. We, thus, are of the view that the observation of the Adjudicating Authority made in paragraph 13 of the impugned order that application has been filed without any cause of action and is premature are unsustainable.
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NCLAT (2024.12.18) in Mavjibhai Nagarbhai Patel vs State Bank of India and Ors. [(2024) ibclaw.in 841 NCLAT, Company Appeal (AT) (Insolvency) No. 1702 of 2024 & Others]
“# 16. The liability of the guarantor has to be read from the deed of guarantee. Further, the terms of the deed of guarantee are extremely material as the invocation of the guarantee was to be purely in accordance with the terms of guarantee……...It is clear from the reading of the clauses in the deed of guarantee that guarantee was given by the personal guarantor in unequivocal terms and the guarantee amount was to be paid by the guarantor once the guarantee was invoked.
# 18. In the present case, after the corporate debtor was admitted into the corporate insolvency resolution process …………When we see the section 13(2) notice under the SARFAESI Act as placed at pages 549 to 551 of the appeal paper book (“APB” in short) we find that there is clear indication of the names of all the personal guarantors therein which includes the present appellant (and also the other two appellants whose appeals are also under consideration before us). Paragraph 11 of section 13(2) of the SARFAESI Act addressed to the corporate debtor notice which was also forwarded to the personal guarantors including the appellant is relevant to be noticed which is as extracted below: ……
# 20. Since the guarantee deed specifically mentioned that the guarantee was in the nature of an on-demand guarantee, the default was to arise on the part of the guarantor only when the demand notice was issued as contemplated in the deed of guarantee. Thus, the period of limitation of the personal guarantor was to commence once the demand was made on the guarantor by respondent No. 1-bank. Hence, the notice dated June 4, 2021 issued by respondent No. 1-bank to the personal guarantor has to be treated to be notice on demand as contemplated in the deed of guarantee. The rule 7(1) notice dated June 28, 2021 had therefore rightly recorded that the debt was due on June 4, 2021 being the date of demand notice under section 13(2) of the SARFAESI Act and that the date of default occurred on August 4, 2021 on the expiry of 60 days from June 4, 2021.”
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