NCLT Rejects Canara Bank Rs 742 Crore Insolvency Plea Against NSD Nirman

The National Company Law Tribunal (NCLT) in Mumbai has rejected an insolvency plea filed by Bandra-based Canara Bank seeking Rs 742.06 crore from Uttar Pradesh-based N.S.D. Nirman Private Limited, ruling that the claim against the corporate guarantor was barred by limitation.

Canara Bank had filed the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against N.S.D. Nirman. The company had served as a corporate guarantor for the principal borrower, Frost International Ltd. Canara Bank claimed an outstanding default of Rs 742.06 crore as of March 31, 2025, alongside future interest, costs, and charges.

The tribunal focused its review on establishing the exact date when the limitation period for enforcing the corporate guarantee began. Canara Bank contended that the guarantee had been invoked through a subsequent notice dated January 20, 2025.

However, the tribunal examined an earlier notice issued on September 1, 2018, and concluded that the guarantee had already been invoked at that time. The bench noted that the guarantee was an on-demand guarantee and that the September 1, 2018 notice provided five days to make the payment. As a result, the limitation period against the corporate guarantor commenced on September 6, 2018.

Under Article 137 of the Limitation Act, 1963, an application under Section 7 of the IBC is governed by a three-year limitation period. The tribunal found that Canara Bank had not presented any valid acknowledgement by N.S.D. Nirman that could have extended the limitation window after the 2018 invocation.

The bench firmly rejected the bank's reliance on the January 20, 2025 demand notice, ruling that a subsequent demand notice cannot revive a time-barred claim once the limitation period has started.

The tribunal clarified that while insolvency proceedings against a corporate guarantor can be initiated independently of proceedings against the principal borrower, they must strictly comply with the prescribed limitation period. Concluding that the January 2025 notice fell well outside the permissible time frame, the bench ruled the application hopelessly barred by limitation and dismissed it.