The borrower defaulted in 2019, months before the COVID suspension. The bank called on its guarantor in October 2020, in the middle of it. Whose date of default does section 10A look at? Watch the guarantee renewed and invoked in the Gallery, find the guarantor’s own date of default at the Bar, and test your deed against the window at the Bench.
Pooja Ramesh Singh v. State Bank of India & Anr.
Comp. App. (AT) (Ins.) No. 329 of 2023 · NCLAT, Principal Bench, New Delhi · 28.04.2023 · Justice Ashok Bhushan, Chairperson & Barun Mitra, Member (Technical) (per Ashok Bhushan, J.)
Start with the story. Climb when you want the rule behind it.
Provisions IBC ss. 3(11), 3(12), 7 & 10A · Contract Act s. 128 · Limitation Act Art. 137Question Under an on-demand guarantee, does the corporate guarantor default with the borrower — or only after the bank’s demand?Outcome“…the application under Section 7 filed by the Bank being barred by Section 10A could not have been admitted.” · Para 34
Seat one · five minutes · the story
The Gallery
One loan account, two dates of default — and the COVID window between them.
1
Loans to a Nagpur company, guaranteed by its group. In February 2013 Spanco Nagpur Discom Ltd. (SND) signs for a term loan of up to ₹80 crore, and for a working-capital facility of up to ₹78.75 crore with State Bank of India. Two companies of its group, Essel Infraprojects Ltd. and Essel Utilities Distribution Company Ltd., sign combined corporate guarantees on 25 February and 1 March 2013. Paras 1(i)–(ii), 30.
2
The guarantee is renewed. A further combined guarantee covers loans of up to ₹185.27 crore sanctioned to SND on 17 July 2018. On 17 May 2019 the two guarantors sign a fresh deed — the one this case turns on. Its clause 1 says that if the borrower defaults, the guarantors shall pay “forthwith on demand”. Paras 1(iii)–(iv), 25.
3
The account fails. On 5 December 2019 SND’s loan account is declared a non-performing asset (NPA). The bank says the default must be taken three months earlier, on 5 September 2019, under the RBI circular — months before section 10A suspended insolvency petitions for defaults arising from 25 March 2020. Paras 1(v), 4.
4
The notice. On 1 October 2020 — inside that suspension — the lenders’ consortium led by SBI sends a notice recalling loans totalling ₹410 crore and invoking the corporate guarantees. The guarantors are given seven days to pay: until 8 October 2020. Paras 1(vi), 28.
5
The petition. On 10 May 2021 SBI files under section 7 against Essel Infraprojects as guarantor, claiming a default of ₹177.37 crore. (SND itself is admitted into insolvency on 29 September 2022.) The guarantor’s answer: its guarantee was invoked on 1 October 2020, squarely within the section 10A period. Paras 1(vii)–(ix).
6
The NCLT counts from the borrower. On 1 March 2023 the NCLT, Mumbai admits the petition. The account became an NPA on 5 December 2019, it reasons, so the notice of 1 October 2020 cannot change a date of default that was 5 September 2019. Para 1(x).
★
The appeal succeeds. On 28 April 2023 the NCLAT allows the appeal of the guarantor’s suspended director, Pooja Ramesh Singh. The 2019 deed was payable on demand, so the guarantor defaulted only when the seven days ran out on 8 October 2020 — inside the section 10A period. The section 7 petition was barred, and the admission is set aside. Paras 32–34.
Six expressions this page uses
Principal borrower — the party that took the loan; here Spanco Nagpur Discom Ltd. (SND).
Corporate guarantor — a company that promises the lender that another’s loan will be paid; here Essel Infraprojects Ltd.
Default — non-payment of a debt that is due and payable; the trigger for a section 7 petition.
On-demand guarantee — a guarantee under which the guarantor must pay when the lender demands payment.
Invocation — the lender’s written call on the guarantee; here the notice of 1 October 2020, with seven days to pay.
Section 10A window — no insolvency petition can ever be filed for a default arising from 25 March 2020 to 24 March 2021. See No. 5, Ramesh Kymal.
Self-checkThe borrower defaulted before COVID. Why could SBI not take the guarantor into insolvency?
Because the guarantor’s default was its own. Its 2019 deed made the money payable on demand. The bank’s demand came on 1 October 2020 with seven days to pay, so the guarantor defaulted on 8 October 2020 — inside the section 10A period, for which a section 7 petition is barred. Paras 26, 29, 32.
Move to the Bar
One debt, two dates of default — one before COVID, one inside the window. Which one does section 10A look at?
Read the deed for the demand — then set the guarantor’s own date of default against the window.
Bar · 1
Four questions the decision answers
1.
Is a corporate guarantor’s default the same default as the principal borrower’s — so that limitation for a section 7 petition runs from the same date against both? Paras 5–24.
2.
Is the Deed of Guarantee of 17.05.2019 a guarantee on demand, so that limitation against the guarantor runs only from the demand? Paras 25–26, 33.
3.
Was the notice of 01.10.2020 the demand the deed contemplated — placing the guarantor’s default after it, inside the section 10A period? Paras 27–31, 33.
4.
Was the bank’s section 7 petition therefore barred by section 10A? Paras 32–34.
A note on the answers: Para 33 records formal answers to Issues II, III and IV only. Issue I is answered in the discussion, at Para 24.
Bar · 2
Two maps of the same default
Our reading of the mechanism · select a box, arrow or badge for its paragraph reference. Red, with a × badge, marks the guarantor’s default dated from the borrower’s (05.09.2019) — the route the Tribunal rejected for this deed. On small screens, swipe the chart sideways.
The dates that decided it: borrower’s default, on the bank’s case, 05.09.2019 · NPA 05.12.2019 · section 10A period from 25.03.2020 · invocation 01.10.2020, seven days to pay · guarantor’s default 08.10.2020 · petition filed 10.05.2021. Counted from the borrower, the default came before the window; counted from the guarantor’s own default, it fell inside it (Paras 1, 4, 27, 32).
Bar · 3
The holdings — our reading, then the Court
Five propositions to take into the briefOur reading is this page’s interpretation; The Court is verbatim, with paragraph numbers from the judgment.
Holding 1 · Q1 · “Due” from both, but “default” by each
Our readingWhen the borrower defaults, the amount becomes due from the guarantor as well. But “default” under s. 3(12) also needs the debt to be payable and unpaid by the debtor — and for a corporate guarantor, the debtor is the guarantor. So the two dates of default may coincide or differ, depending on the guarantee.
The Court · Para 10“Section 3(12) uses two additional words i.e (i) “payable”; and (ii) “is not paid by the debtor”. The expression ‘debtor’ as used in Section 3(12), in the present case, is to be read as ‘Corporate Guarantor’.”
The Court · Para 24“When default is committed by the Principal Borrower the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I&B Code. … The expression ‘is not paid by the debtor’ has to be given some meaning. … There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee.”
Holding 2 · Q1 · The deed, not the loan agreement, fixes the guarantor’s default
Our readingThe loan agreement and the guarantee are separate contracts. When the guarantor has to pay — and so when it defaults — is read from its deed. That is the Supreme Court’s rule in Syndicate Bank, which the Tribunal applied.
The Court · Para 24“As laid down by the Hon’ble Supreme Court in “Syndicate Bank vs. Channaveerappa Beleri & Ors.” (supra), a guarantor’s liability depends on terms of his contract. … It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor’s liability has to be read from the Deed of Guarantee.”
Holding 3 · Q2 · This deed is a guarantee on demand
Our readingThree clauses carried it: clause 1 (pay “forthwith on demand”), clause 13 (deposit security on demand) and clause 20 (the guaranteed amount payable on a notice requiring payment). So the guarantor’s limitation — and its default — wait for the demand.
The Court · Para 26“The relevant clauses of the Deed of Guarantee, as noted above, clearly contemplate demand by the Bank upon the Guarantor. … Clause 20 again makes it clear that what was guaranteed by the Guarantor was that amount shall be payable to the Bank on serving the Guarantor with notice requiring payment of the amount.”
The Court · Para 33“Issue No. II: The Deed of Guarantee dated 17.05.2019 is guarantee on demand and the limitation of Guarantor shall ensue only when demand is made to the Guarantor.”
Holding 4 · Q3 · The October 2020 notice was the demand; default followed the seven days
Our readingThe notice of 01.10.2020 expressly invoked the guarantees and called on the guarantors to pay within seven days. The guarantor could not be in default before that time ran out — not on the borrower’s date (05.09.2019), and not on the NPA date (05.12.2019). The bank’s own petition pleaded the invocation, which sealed the point (Paras 30–31).
The Court · Para 27“In view of the clear stipulation in the Deed of Guarantee, default on the part of the Guarantor cannot be treated to be on 05.09.2019, when it is alleged that the Principal Borrower committed default, nor the default on the part of the Guarantor can be on date of NPA i.e. 05.12.2019 for the purpose of present case.”
The Court · Para 29“When the Bank has given time to the Guarantor to make payment on 01.10.2020, there can be no default on part of the Guarantor on any earlier date. The default on part of the Guarantor thus has to be subsequent to the notice dated 01.10.2020 i.e. Non-payment within seven days as required.”
Holding 5 · Q4 · A default inside the window bars section 7 — admission set aside
Our readingWith the guarantor’s default on 08.10.2020, inside the section 10A period, the section 7 petition was barred. The NCLT had not looked at the deed’s clauses (Para 32(iii)), and its admission order could not stand.
The Court · Para 32(ii)“Default on the part of the Guarantor having arisen on 08.10.2020 i.e. within the period which is covered as prohibited period under Section 10A, application under Section 7 was clearly barred by Section 10A.”
The Court · Para 34“We, thus, are of the view that the application under Section 7 filed by the Bank being barred by Section 10A could not have been admitted. In result, the Appeal is allowed. The impugned order dated 01.03.2023 is set aside.”
What the order does not decide: the appeal was allowed and the admission of 01.03.2023 set aside, with no further directions (Para 34). The Tribunal decided only that this section 7 petition was barred by section 10A. It did not decide the amount claimed (₹177.37 crore is the bank’s figure, Para 1(vii)), the guarantor’s liability under the deed, the bank’s other remedies, or whether a fresh demand could found a fresh petition.
Bar · 4
Why the Court got there
Our readingThe Tribunal began with the statute. Article 137 runs from “when the right to apply accrues”, and section 7 allows a petition “when the default has occurred” — so the real question was when this guarantor defaulted (Paras 6–7).
Our readingTwo Supreme Court decisions on guarantees supplied the answer. A continuing guarantee is broken only when the guarantor fails its own obligation (Margaret Lalita Samuel). And the parties may agree that a guarantor’s liability arises later than the borrower’s — as it does when a guarantee is payable on demand (Syndicate Bank).
The Court · Para 14 · on Margaret Lalita Samuel (SC)“The Hon’ble Supreme Court in the above case has observed that cause of action arises when the contract of continuing guarantee is broken i.e. breach is committed by the Guarantor to the guarantee given.”
Syndicate Bank (SC), Para 9 · reproduced at Para 15“The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor.”
Syndicate Bank (SC), Para 11 · reproduced at Para 15“In a case where the guarantee is payable on demand, as held in the case of Bradford (supra) and Hartland (supra), the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.”
Our readingBoth sides relied on Laxmi Pat Surana, where the Supreme Court said the creditor’s right against a corporate guarantor is triggered the moment the borrower defaults. The Tribunal read that passage in its setting: an answer to whether a guarantor of a non-corporate borrower can face section 7 at all, in a case run on the NPA date, and a passage built on acknowledgments under section 18 of the Limitation Act (Paras 18–23).
The Court · Para 20 · on Laxmi Pat Surana (SC)“The observations made by the Hon’ble Supreme Court in the above paragraphs were in reference to question no. (i) and the proceedings were initiated by the Bank treating the date of declaration of NPA as date of default for the Corporate Guarantor.”
The Court · Para 22 · on Laxmi Pat Surana (SC)“We may notice that the above observations are founded by next stipulation i.e. thus, when the principal borrower and/or the corporate guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom … it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act.”
Our readingThen the deed. Clauses 1, 13 and 20 each called for a demand, and clause 20 made the guaranteed amount payable only on a notice requiring payment (Paras 25–26).
Deed of Guarantee, clause 20 · reproduced at Para 25“The Guarantors agree that amount due under or in respect of the aforesaid credit facilities and hereby guaranteed shall be payable to the Bank on the Bank serving the Guarantors with a notice requiring payment of the amount…”
Our readingFinally, the bank’s own case. Part IV of its petition gave the NPA date, but it also pleaded that the notice of 01.10.2020 had invoked the guarantee. Having relied on that invocation, the bank could not place the guarantor’s default before it (Paras 30–31).
The Court · Para 31“When the notice dated 01.10.2020 is relied by the Financial Creditor with further stipulation that the Financial Creditor has invoked the corporate guarantee, the default of corporate guarantor has to be subsequent to 01.10.2020.”
Our readingThe filing date did not help the bank. The petition came on 10.05.2021, after the section 10A period had closed, yet it was barred: section 10A turns on when the default arose, not on when the petition is filed — the point the Supreme Court settled in Ramesh Kymal, No. 5 in this series (Paras 1(vii), 32).
Move to the Bench
Here the demand rule defeated the bank. Does it always favour the guarantor — and what if the deed never mentions a demand?
Keep the borrower’s default, the demand and the guarantor’s default on three separate dates.
Bench · 1
Three over-readings to stop
Over-reading 01
Every guarantor’s default waits for a demand.
The error: treating this case as a rule that a corporate guarantor can never default until it is asked to pay.
The Court · Para 24“There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee.”
The move: the deed decides. Find the demand clause first. Where the deed has none, the Laxmi Pat Surana line reproduced at Para 23 — liability that “triggers the moment principal borrower commits default” — may put the guarantor’s default on the borrower’s date.
Over-reading 02
The guarantor defaults on the date of the invocation notice.
The error: dating the default to the day the bank writes, rather than the day the time to pay runs out.
The Court · Para 32(i)“When the State Bank of India invoked the guarantee vide notice dated 01.10.2020, demand on the part of the Corporate Guarantee shall arise only subsequent to the notice dated 01.10.2020 i.e. non-payment of the amount within seven days i.e. default arise on 08.10.2020.”
The move: count the time to pay that the notice gives. The default is the non-payment after it — here seven days, to 08.10.2020 (Paras 1(vi), 29). Near the edges of the window, those days can decide the case.
Over-reading 03
The guarantor walks free of the debt.
The error: reading a section 10A bar as a release of the guarantee, or as a finding that nothing is owed.
The Court · Para 34“We, thus, are of the view that the application under Section 7 filed by the Bank being barred by Section 10A could not have been admitted.”
The move: read it for what it decides: this section 7 petition could not be admitted. The Tribunal still treated the amount as due from the guarantor once the borrower defaulted (Para 24), and decided nothing about the debt, the deed’s other terms or the bank’s other remedies.
Bench · 2
Both edges of the authority
Our readingThe rule cuts both ways. Two days earlier the same bench applied it in Archana Deepak Wani v. Indian Bank — No. 11 in this series — where waiting for the demand gave the bank a later limitation start and saved its petition. Here the same rule moved the guarantor’s default into the section 10A period and defeated the petition.
For the corporate guarantor
Date the default from the deed and the bank’s own notice
Read the deed for a demand. Pay “forthwith on demand”, deposit on demand, payable on a notice requiring payment — clauses 1, 13 and 20 carried this case (Paras 25–26).
Count the days in the notice. Invocation on 01.10.2020 with seven days to pay put the default on 08.10.2020 (Paras 29, 32).
Hold the bank to its pleading. Part IV pleaded the invocation; having relied on it, the bank could not date the guarantor’s default earlier (Paras 30–31).
Answer “co-extensive” with s. 3(12). Section 128 makes the debt due from the guarantor, but default also needs non-payment by the debtor — the guarantor (Paras 10, 24).
For the creditor bank
Show that the guarantor’s default fell outside the window
Read the deed before pleading. If it has no demand clause, press the Laxmi Pat Surana line that the right against the guarantor is “triggered the moment the principal borrower commits default” (Para 21), and distinguish this case as a demand-deed case (Paras 24–26).
Plead one date of default — the right one. Here Part IV gave the NPA date but relied on the invocation; the Tribunal took the invocation (Paras 30–31).
Mind when you invoke. Under a demand deed the guarantor’s default follows the demand. A demand served inside the window carried this guarantor’s default into it (Paras 29, 32).
Use the limitation edge. The same answer to Issue II means limitation against the guarantor runs only from the demand (Para 33) — the point that saved the bank in Archana Deepak Wani.
Bench · 3
Test the argument in your own brief
Is a section 7 petition against the corporate guarantor barred by section 10A on this reasoning?Assume the borrower has defaulted and the creditor has filed under section 7 against its corporate guarantor. Answer all four; the result addresses section 10A only — not limitation, debt or admission on the merits.
1. Does the guarantee deed require a demand by the creditor before the guarantor must pay?Clauses 1, 13 and 20 carried this deed — Paras 25–26.
2. Has the creditor made that demand — invoking the guarantee and calling on the guarantor to pay?The notice of 01.10.2020 gave seven days — Paras 28–29.
3. Did the time to pay under that demand run out between 25 March 2020 and 24 March 2021?Here the guarantor’s default, 08.10.2020, fell inside — Para 32.
4. Did the borrower’s own default arise between 25 March 2020 and 24 March 2021?Here the bank dated it 05.09.2019, before the window — Paras 4, 27.
Pending
Answer the four questions to see how Pooja Ramesh Singh applies.
An argument check, not a prediction of admission. It does not decide whether a particular letter is a valid invocation, when a notice was received, or limitation. The window is the section 10A period as extended by notification: defaults arising from 25 March 2020 to 24 March 2021. Paragraphs refer to the judgment.