IBC Section 7 Petition Fails Without Valid Delivery Of Invocation Notice: NCLT Mumbai

Introduction:

In insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), the role of a corporate guarantor can be pivotal. The recent decision by the National Company Law Tribunal (NCLT), Mumbai Bench, in M/s Q West Infrastructure Pvt. Ltd. vs. M/s Grevek Investments & Finance Pvt. Ltd.[1], delivered on 24 March 2025, addresses a crucial aspect of such proceedings: whether a corporate guarantee can be enforced without proof of proper service of a demand-cum-invocation notice.

This case involved a financial creditor seeking to invoke a corporate guarantee after a default by the principal borrower. The petition was dismissed by the Tribunal, which emphasized procedural compliance—particularly the need for verifiable delivery of the demand notice. The decision provides insight into how tribunals assess obligations under a corporate guarantee in the context of revised settlement terms and procedural requirements.

Factual Background:

The financial creditor, Q West Infrastructure Pvt. Ltd., had entered into an Inter-Corporate Deposit (ICD) Agreement with Starwort Engineers Pvt. Ltd., the principal borrower. Grevek Investments & Finance Pvt. Ltd. acted as the corporate guarantor for the repayment of the loan under this ICD Agreement. The agreement was executed on 10 November 2020. The lender disbursed ₹11 crore under this arrangement, with an interest rate of 15% per annum. The amount was disbursed via cheque on 11 November 2020, and the repayment, including accrued interest (amounting to ₹12.65 crore), was due by 10 November 2021. A demand promissory note was also issued by the principal borrower in support of this transaction.

As the original due date approached, the borrower requested a one-year extension. The creditor granted this extension through a letter dated 8 November 2021, making the new repayment due date 10 November 2022. However, the borrower again failed to repay the outstanding amount. Thereafter, on 15 February 2023, the creditor and borrower entered into a Settlement Agreement, which modified the repayment terms. The revised terms allowed for the loan to be repaid in two installments of ₹5.5 crore each—one by 30 June 2023 and the other by 15 December 2023. The creditor submitted that a default occurred when the borrower failed to comply with this revised schedule, and it accordingly issued a demand-cum-invocation notice on 1 January 2024.

While the financial creditor had already filed a Section 7 IBC application against the principal borrower (which was admitted on 16 July 2024), it also sought to initiate insolvency proceedings against Grevek, the corporate guarantor, under a separate petition.

Issues Raised:

The Tribunal looked at whether a Settlement Agreement between the creditor and the borrower changed or discharged the guarantor’s responsibilities under the earlier agreement. Since the guarantor was not part of the new agreement, the Tribunal considered if it could still be held responsible for repayment. Another key issue was whether a demand-cum-invocation notice had to be delivered for the guarantee to be validly enforced. The Tribunal also examined what amounts to a valid invocation under the IBC, focusing on the steps a creditor must take before approaching the Tribunal.

Submissions by the Parties:

Q West Infrastructure contended Grevek remained liable under terms of corporate guarantee long after execution of Settlement Agreement occurred anyway. Clause 5.2 of Settlement Agreement made it abundantly clear that original obligations stayed remarkably intact in event of default somehow. It argued further that guarantor liability remained intact since Corporate Guarantee stood independently valid and hadn’t been revoked specifically. Creditor pointed squarely at Supreme Court’s judgment in Laxmi Pat Surana versus some other party pretty recently. Liability of corporate guarantor in Union Bank of India was deemed coextensive with principal borrower’s obligations rather extensively somehow. Default by borrower triggered equal liability on part of guarantor enabling creditor quite rapidly to initiate proceedings under Section 7 IBC against both.

Grevek Investments & Finance Pvt. Ltd. raised three main objections in response to the insolvency application.

• First, it argued that its guarantee was no longer valid because the financial creditor and the borrower had entered into a Settlement Agreement. Grevek referred to Recital G of that agreement, which stated that it was meant to fully and finally settle the earlier Inter-Corporate Deposit (ICD) Agreement. Grevek’s position was that once the original agreement was replaced, the guarantee linked to it also ended.
• Second, Grevek pointed out that it had not been involved in the Settlement Agreement. It was neither consulted nor did it sign the new terms. The company said that since its guarantee was tied to the original ICD Agreement, it could not automatically be held responsible for a new arrangement that it had no role in.
• Lastly, Grevek questioned the demand-cum-invocation notice dated 1 January 2024. The company said there was no evidence that this notice had been delivered, as required by Clause 23 of the Corporate Guarantee. That clause asked for proof of delivery through postal records or a formal certificate, which, according to Grevek, was missing.

Tribunal’s Analysis:

The NCLT Bench comprising Hon’ble Reeta Kohli (Judicial Member) and Hon’ble Madhu Sinha (Technical Member) noted that the existence of the loan, the ICD Agreement, and the Corporate Guarantee was not in dispute. However, it recognized that the Settlement Agreement changed the repayment terms and was executed without including the guarantor. This raised the question of whether Grevek could still be held accountable under the original guarantee. Referring to Clause 6 of the Corporate Guarantee, the Tribunal noted that the ICD Agreement could be modified without involving the guarantor. Yet, it stated that this did not imply automatic extension of the guarantor’s obligations to new terms agreed without its participation.

The Tribunal focused its analysis on Clause 23 of the Corporate Guarantee, which laid down conditions for serving a demand-cum-invocation notice. The clause required either acknowledgment by the guarantor or postal proof/certificate of posting by a responsible officer. The creditor had not submitted any such evidence. Nor had it countered Grevek’s objection regarding non-delivery of the notice. Without this procedural step, the Tribunal found that the creditor had failed to invoke the guarantee as per contract. It further observed that invocation of a corporate guarantee is not a mere formality—it is a contractual requirement. Invocation triggers liability, and if not done according to the agreed method, such liability cannot arise.

Conclusion:

The NCLT dismissed the Section 7 application against Grevek Investments & Finance Pvt. Ltd. because the corporate guarantee was not validly invoked. It concluded that creditors must follow the agreed process in the guarantee document and cannot assume continued liability when repayment terms are altered without the guarantor’s consent. The ruling gives clarity on how such cases will be treated when there is a change in terms and lack of proper notice.

[1] C.P. No. 260/IB/MB/2024.

King Stubb & Kasiva,
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