NCLT Mumbai Rejects Canara Bank's ₹742 Cr. Plea Against Frost International's Guarantor As Time Barred

On 8 July, the Mumbai Bench of the National Company Law Tribunal (NCLT) held that a second demand notice cannot revive a time-barred insolvency claim arising from an on-demand corporate guarantee, where limitation had already commenced upon invocation of the guarantee.

Judicial Member Nilesh Sharma and Technical Member Sameer Kakar rejected Canara Bank's Section 7 application seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Globiz Exim Pvt Ltd, the corporate guarantor for Frost International Ltd, over an alleged default of Rs. 742.06 crore. The Bench observed:

"Accordingly, none of the authorities relied upon by the Applicant dilute the settled legal principle that, in the case of an on-demand guarantee, limitation commences upon a valid invocation of the guarantee and can thereafter be extended only by a valid acknowledgement in accordance with Section 18 of the Limitation Act. As already observed, the Applicant has failed to establish any such valid acknowledgement after the invocation dated 01.09.2018. The subsequent demand notice dated 20.01.2025 cannot revive a time-barred claim."

Canara Bank filed the insolvency petition claiming Rs. 742.06 crore as outstanding as on 31 March 2025, arising from a corporate guarantee executed by Globiz Exim for the borrowings of Frost International Ltd. Frost International was classified as a non-performing asset on 17 July 2018, following which recovery proceedings were initiated before the Debt Recovery Tribunal (DRT) in October 2018. Frost International was later admitted into CIRP on 9 March 2023.

The Bank had invoked the corporate guarantee through a demand notice dated 1 September 2018. However, it issued a fresh demand notice on 20 January 2025, which the corporate guarantor challenged as being barred by limitation.

The Tribunal noted that Canara Bank failed to place the original demand notice dated 1 September 2018 on record despite it being the first invocation of the corporate guarantee. It termed the Bank's conduct "deplorable" and held that the Bank had not approached the Tribunal with clean hands. It observed:

"The Applicant has not placed the said notice dated 01.09.2018 before us; and that we are of the view that the conduct of the Applicant in this regard is deplorable and as per catena of judgments cited by the respondent, the applicant has not approached this Tribunal with clean hands."

While considering the limitation issue, the Tribunal distinguished the National Company Law Appellate Tribunal's decision in State Bank of India v. Gaurishankar Poddar, observing that although limitation against a guarantor begins upon a valid demand, Canara Bank had failed to produce any acknowledgement satisfying Section 18 of the Limitation Act after the 2018 invocation.

It also held that the decision in Rajender Kumar Pahwa v. Canara Bank did not assist the Bank, as it did not lay down that issuance of a second demand notice after limitation had commenced under an on-demand guarantee would create a fresh cause of action. The Bench held:

"Once the guarantee stood invoked through the demand notice dated 01.09.2018, limitation commenced upon expiry of the stipulated demand period. In the absence of any valid acknowledgement before expiry thereof, the Applicant cannot avoid the limitation merely by issuing another demand notice in January 2025."

Rejecting Canara Bank's contention that authentication of the debt in the National e-Governance Services Ltd (NeSL) record or admission of its claim during the CIRP of the principal borrower extended the limitation period, the Tribunal held that such administrative acts do not constitute acknowledgements under Section 18 of the Limitation Act.

Accordingly, the NCLT rejected the Section 7 application.

For FC: Adv. Parimal Prasad a/w Adv. Tejas Singh

For CD: Adv. Malhar Zatakia, Adv. Vidisha Rohira, Adv. Shrishty Jaura, Adv. Astitva Skivastava, Adv. Shivam Mishra