NCLAT Chennai Slams “Hyper-Technical” Dismissal, Revives SBI’s Insolvency Plea Against Seven Hills Health Care Guarantors
NCLAT Chennai Slams “Hyper-Technical” Dismissal, Revives SBI’s Insolvency Plea Against Seven Hills Health Care Guarantors
Introduction
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Member-Judicial) and Jatindranath Swain (Member-Technical), set aside the order of the NCLT, Amravati, and restored the insolvency petition filed by the State Bank of India (SBI) against the personal guarantors of M/s Seven Hills Health Care Pvt. Ltd. The Tribunal held that the NCLT’s dismissal of the petition for alleged improper service of the demand notice was “hyper-technical” and contrary to the objectives of the Insolvency and Bankruptcy Code (IBC), 2016.
Factual Background
The financial creditor, State Bank of India, had extended financial assistance to M/s Seven Hills Health Care Pvt. Ltd., in which Dr. Jitendra Das Maganti and Dr. Renuka Rani Maganti were personal guarantors. Upon default, SBI issued demand notices to both guarantors, seeking recovery of dues exceeding ₹129 crore, and subsequently filed a petition under Section 95 of the IBC before the NCLT, Amravati. The guarantors filed a writ petition before the Hon’ble Supreme Court challenging the constitutional validity of Sections 95–100 of the IBC, wherein they admitted that SBI had issued the demand notice. However, the NCLT dismissed SBI’s petition on the ground that the demand notice was not properly served as required under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. Aggrieved, SBI preferred an appeal before the NCLAT, Chennai.
Procedural Background
Following the NCLT Amravati’s order dated earlier this year, SBI challenged the dismissal before the NCLAT, arguing that the NCLT had erred in interpreting the service requirement under Rule 7(1) in an excessively technical manner. The matter was heard by the Chennai Bench, which examined whether the alleged defect in service rendered the insolvency petition invalid despite acknowledgment of notice by the guarantors before the Supreme Court.
Issues
1. Whether the demand notice issued under Section 95(4)(b) of the IBC was validly served upon the personal guarantors.
2. Whether the NCLT Amravati erred in dismissing the insolvency petition on technical grounds despite the guarantors’ acknowledgment of notice before the Supreme Court.
3. Whether the guarantors’ admission before the Supreme Court constituted conclusive evidence of service and knowledge of the proceedings.
Contentions of the Parties
Appellant (SBI): SBI contended that while Section 95(4) does not mandatorily require the issuance of a demand notice, it nevertheless served one at the addresses mentioned on the guarantors’ Aadhaar cards. It further argued that the guarantors had themselves admitted before the Supreme Court that they had received the demand notice and were aware of the insolvency proceedings. Therefore, the NCLT’s decision to dismiss the petition on grounds of improper service was erroneous and overly technical.
Respondents (Guarantors): The guarantors argued that the demand notice was defective as it was not sent to the address mentioned in the guarantee deed and hence violated Section 95(4)(b) of the IBC. They contended that their acknowledgment before the Supreme Court was only contextual to the constitutional challenge and not an admission of valid service.
Reasoning and Analysis
The Tribunal reasoned that the purpose of a demand notice under Section 95(4)(b) is to ensure that the personal guarantor is made aware of the initiation of proceedings. In this case, such awareness was clearly established through the guarantors’ own pleadings before the Supreme Court. The Bench clarified that procedural lapses should not outweigh substantive justice, especially when the objective of the IBC is to ensure an expeditious resolution process. The NCLT’s strict interpretation of service requirements ignored the factual matrix and admissions on record, leading to an unjust dismissal of SBI’s petition.
Order
The NCLAT set aside the NCLT Amravati’s order and restored SBI’s Section 95 petition against Dr. Jitendra Das Maganti and Dr. Renuka Rani Maganti, the personal guarantors of M/s Seven Hills Health Care Pvt. Ltd. The Tribunal directed the NCLT to proceed with the matter on merits in accordance with law.
Implications
This decision reinforces the principle that acknowledgment of notice or knowledge of proceedings is sufficient compliance under the IBC, even if minor procedural irregularities exist. It discourages overly technical objections that frustrate the Code’s objective of efficient insolvency resolution.
In this case the appellant was represented by Mr. Pranava Charan, Advocate. Meanwhile the respondent was represented by Mr. Dwarakesh Prabhakaran, Advocate for R1.
