NCLT Mumbai Rules: Time-Barred Section 7 Claim Not Revived by Fresh Guarantee Invocation

Overview of the Decision

The National Company Law Tribunal, Mumbai Bench, in Canara Bank Limited Vs Globiz Exim Private Limited, has clarified a crucial aspect of limitation in insolvency proceedings against corporate guarantors. The Tribunal held that where an on-demand corporate guarantee has already been validly invoked and the limitation period arising from that invocation has expired, a subsequent demand notice cannot restart or extend limitation so as to sustain a fresh Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC).

The Bench further frowned upon suppression of material documents by the Financial Creditor and concluded that the Section 7 petition against the Corporate Guarantor was barred by limitation under Article 137 of the Limitation Act, 1963, read with Section 238A of the IBC.

Factual Matrix

Parties and Nature of Petition

  • Financial Creditor (FC): Canara Bank Limited
  • Corporate Debtor (CD): Globiz Exim Private Limited (Corporate Guarantor for borrowings of Frost International Ltd.)
  • Petition: Section 7 IBC application seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the CD as corporate guarantor.

The FC claimed a default amount of Rs. 7,42,06,10,813.68 as on 31.03.2025, with the date of default stated to be 29.01.2025, and relied on a demand notice dated 20.01.2025 allegedly invoking the corporate guarantee.

An Interim Resolution Professional, Mr. Mukesh Kumar Grover (Reg. No. IBBI/IPA-001/IP-P0038/2017-2018/10640), was proposed in the application.

Credit Facilities and Guarantee Structure

The case arose from credit facilities extended to Frost International Ltd., where Globiz Exim Private Limited stood as Corporate Guarantor under consortium arrangements between Canara Bank and Syndicate Bank (later merged into Canara Bank).

Sanctions were granted under various sanction letters (e.g., 07.01.2014, 21.07.2014, 03.01.2015, 06.06.2016, 15.02.2017, 16.01.2018), and the Corporate Guarantor executed corporate guarantees, including:

  • Corporate guarantee dated 12.05.2014 (and its extensions)
  • Corporate guarantee dated 26.11.2015

The guarantees were part of a consortium framework that included:

  • Inter-se agreement (12.05.2014 and 26.11.2015)
  • Supplemental Working Capital Consortium Agreements
  • Deeds of Hypothecation
  • Omnibus Counter Guarantee for ILC/FLC limits

The FC’s own sanctioned exposure, as reflected in the sanction and consortium documents, was Rs. 155 crores (Rs. 5 crores fund-based and Rs. 150 crores non-fund-based).

Default by Principal Borrower and Parallel Proceedings

Key undisputed events:

  • Account of Frost International Ltd. classified as NPA on 17.07.2018.
  • Recall/Recovery proceedings filed by the FC before the Debt Recovery Tribunal, Allahabad on 26.10.2018, against the principal borrower and, as pleaded, against the guarantor as well.
  • CIRP of the principal borrower admitted by NCLT Mumbai on 09.03.2023 pursuant to a Section 7 petition filed by Bank of India.
  • The FC’s claim in the CIRP of the principal borrower was admitted by the Resolution Professional.

Financial Creditor’s Case

Basis of the Section 7 Application

The FC built its Section 7 case on the following planks:

  1. Status as Financial Creditor

    • Canara Bank asserted that it is a financial creditor by virtue of the loan facilities and the corporate guarantee executed by the CD for borrowings of Frost International Ltd.

  2. Invocation of Corporate Guarantee – 20.01.2025

    • The FC relied on a demand-cum-invocation notice dated 20.01.2025 addressed to the Corporate Guarantor, claiming it constituted a valid invocation of the corporate guarantee.
    • The date of default in the Section 7 form was linked to this demand, i.e., 29.01.2025.

  3. Service of the 20.01.2025 Notice

    • When the Tribunal, on 10.06.2025, required proof of service of the invocation notice, the FC filed an additional affidavit dated 07.07.2025.
    • The FC produced the original envelope, which contained remarks by the postal authorities such as “No such firm at the address/Left”.
    • The FC invoked presumptions of deemed service under:
      • Section 27 of the General Clauses Act, 1897
      • Section 114(f) of the Indian Evidence Act, 1872 / Section 119(f) of the Bharatiya Sakshya Adhiniyam, 2023
    • Reliance was placed on Mukund Rajhans vs. Rajasthan Patrika Pvt Ltd., Company Appeal (AT) (INS) 1398 of 2023, to contend that service should be treated as complete in such circumstances.

  4. Limitation and Acknowledgements

    • The FC contended that multiple acknowledgements of debt, including those reflected in the NeSL Record of Default, extended the limitation period.
    • Special emphasis was placed on the NeSL authentication dated 05.11.2023, which the FC argued preserved limitation.
    • The FC also referred to the admission of its claim in the CIRP of the principal borrower as an event impacting limitation.

  5. Consortium Rights

    • It was urged that under the consortium and inter-se agreements, each consortium member has an independent and several right to invoke the corporate guarantee.
    • On this footing, Canara Bank argued that it could independently proceed against the Corporate Guarantor for the entire debt claimed.

  6. Judicial Precedents Relied Upon

The FC relied on, inter alia:

  • State Bank of India vs. Gaurishankar Poddar & Ors. (Comp. App. (AT) (Ins.) Nos. 689 & 663 of 2024)
  • Canara Bank vs. Sanjana Uday Desai, (2025) ibclaw.in 2226 NCLT
  • Lalit Mishra vs. Sharon Bio Medicine Ltd., Company Appeal (AT) (Insolvency) No. 164 of 2018
  • Paresh Rastogi vs. Omkara Assets Reconstruction Pvt. Ltd. and Anr., (2025) ibclaw.in 194 NCLAT
  • Rajender Kumar Pahwa vs. Canara Bank & Ors., (2025) ibclaw.in 697 NCLAT
  • Arunkant Rai vs. Allahabad Bank & Anr., (2020) ibclaw.in 194 NCLAT

The thrust of these authorities, as presented by the FC, was that:

  • Guarantees can be enforced independently of actions against the principal borrower;
  • Acknowledgements of liability can extend limitation; and
  • Insolvency proceedings are primarily for resolution, not merely for recovery.

Corporate Debtor’s Defence

Core Objections Raised

The Corporate Debtor mounted a detailed challenge, structured around three main axes: