NCLT Amravati Rules Service Of Demand Notice Must Be Verified By Resolution Professional Before Submission To Adjudicating Authority

NCLT Amravati Rules Service Of Demand Notice Must Be Verified By Resolution Professional Before Submission To Adjudicating Authority

Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) of The National Company Law Tribunal (NCLT), Amravati Special Bench, has dismissed a petition filed by the State Bank of India (SBI) seeking to initiate an insolvency resolution process against Dr. Jitender Das Maganti, the personal guarantor for Seven Hills Healthcare Pvt. Ltd. (Corporate Debtor). The Tribunal emphasized that proof of due service of a demand notice to the corporate debtor or its guarantor must first be verified by the resolution professional, rather than being presented directly to the adjudicating authority.

SBI had extended a loan to Seven Hills Healthcare Pvt. Ltd., with Dr. Jitender Das Maganti acting as a guarantor for repayment. Dr. Maganti had signed a guarantee agreement on January 20, 2015, and had entered into a supplemental consortium agreement with SBI and other creditors on January 20, 2010. A further deed of guarantee was executed on January 20, 2015.

When Seven Hills failed to repay the loan, SBI invoked the personal guarantee and issued a demand notice to Dr. Maganti on September 3, 2021, which was delivered on September 8, 2021. Upon receiving no payment, SBI filed an application under Section 95(1) of the Insolvency and Bankruptcy Code (IBC) with the NCLT Amravati, seeking to initiate an insolvency resolution process against Dr. Maganti for a default amount of ₹129,58,95,550.79.

Dr. Maganti contested the petition on multiple grounds. He claimed that the demand notice was not served at the correct address and denied providing any guarantee. He further argued that the petition was not maintainable, lacked evidence of the guarantee being invoked, and was filed beyond the limitation period. Additionally, Dr. Maganti contended that SBI was not a member of the consortium of lenders, thereby lacking the authority to prosecute the petition.

SBI refuted Dr. Maganti's claims, asserting that the application was maintainable under Section 95 of the IBC. The bank argued that Dr. Maganti was attempting to mislead the NCLT with unfounded objections to the application's maintainability. SBI maintained that the demand notice was duly issued and delivered, and Dr. Maganti neither responded nor settled the outstanding amount. SBI also highlighted that the application was within the limitation period, supported by a revival letter signed by Dr. Maganti on August 14, 2017, acknowledging the debt. Furthermore, SBI stated that Dr. Maganti did not deny the execution of the personal guarantee, which included provisions for all consortium members to independently initiate proceedings.

The NCLT noted that SBI had established the existence of a valid financial debt owed by Seven Hills and Dr. Maganti, fulfilling the conditions to admit the petition under the IBC. The Tribunal highlighted that a guarantee becomes a debt upon invocation, rendering the guarantor liable. This principle was supported by the National Company Law Appellate Tribunal (NCLAT) decision in Edelweiss Asset Reconstruction Company v. Orissa Manganese and Minerals Limited, which clarified that a guarantee contract matures into a binding obligation only upon invocation.

The NCLT scrutinized the guarantee agreement between Dr. Maganti and SBI, emphasizing that notices to the guarantor should be sent to the address specified in the agreement. Dr. Maganti, however, contended that the demand notice was fabricated and not delivered, pointing out 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 Tribunal found that the addresses did not match, invalidating the presumption of service under Section 27 of the General Clauses Act. It also criticized the resolution professional (RP) for failing to verify the correct address and for recommending the acceptance of the application without conducting due diligence.

Furthermore, the NCLT noted that the demand notice dated August 17, 2021, dispatched on September 3, 2021, did not account for interest and penalties up to August 31, 2021, bolstering Dr. Maganti's contention that the notice was fabricated.

Lastly, the Tribunal admonished SBI for directly presenting proof of due service to the adjudicating authority without first submitting it to the RP, deeming this an improper procedure. The inconsistencies in the evidence and procedural lapses led the NCLT to question the legitimacy of the demand notice and its service. As a result, the Tribunal dismissed SBI's application to initiate the insolvency resolution process against Dr. Maganti.