NCLT Admits PNB’s Insolvency Plea Over ₹74 Crore Corporate Guarantee Default, Holds Petition Within Limitation [Read Order]
Records of default authenticated by NeSL, coupled with statements of account, established the existence of financial debt and default.
The National Company Law Tribunal (NCLT) Allahabad Bench admitted Punjab National Bank’s insolvency petition under Section 7 of the Insolvency and Bankruptcy Code(IBC) against a corporate guarantor of Bhagwati Rice Mills Pvt. Ltd., holding that the ₹74.35 crore default was proven through records and a valid guarantee invocation, and that the petition filed on 15 January 2025 was within the three‑year limitation period.
The petition was filed by PNB on 15 January 2025, alleging a default of ₹74.35 crore as of 30 November 2024 arising from cash credit and working capital term loan facilities sanctioned to the principal borrower. The bank invoked the corporate guarantee executed by Jay Ambey Rice Mills Ltd. on 23 November 2022, following the borrower’s account being classified as an NPA on 8 June 2023.
The applicant, financial creditor PNB, submitted that it had extended credit facilities totaling ₹66 crore to Bhagwati Rice Mills Pvt. Ltd., including cash credit and working capital term loans, which were backed by a corporate guarantee from Jay Ambey Rice Mills Ltd. for ₹52.77 crore.
PNB maintained that the default by the guarantor crystallized on 10.01.2025, and since the petition was filed on 15.01.2025, it was well within the three‑year limitation period under Article 137 of the Limitation Act. It also contended that the pendency of recovery proceedings before the Debt Recovery Tribunal did not bar the initiation of CIRP under the IBC, as both remedies are independent.
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On the other hand, corporate guarantor, Jay Ambey Rice Mills Ltd., opposed PNB’s Section 7 petition on several grounds. It contended that the guarantee had not been validly invoked and therefore liability could not arise, and it argued that the petition was defective because the bank had inconsistently mentioned different dates of default—08.06.2023, 09.06.2023, and 30.11.2023—making the cause of action unclear.
Also asserted that since PNB had already filed recovery proceedings before the Debt Recovery Tribuna(lDRT), the insolvency plea amounted to impermissible parallel proceedings and On limitation, the debtor relied on NCLAT and Supreme Court rulings to argue that default for a guarantor arises only upon valid invocation of the guarantee, not on the borrower’s NPA date, and therefore the petition was time‑barred.
After analysing all the submissions, the tribunal observed that the guarantee invocation notice, though dated 04 January 2024, was dispatched on 03 January 2024, and the typographical error did not invalidate the invocation.
The bench comprising Praveen Gupta (Judicial Member) and Ashish Verma (Technical Member) held that the default by the guarantor crystallized on 10 January 2025, upon expiry of the seven days granted in the notice, making the petition well within the three-year limitation under Article 137 of the Limitation Act.
It was also noted that the pendency of DRT proceedings does not bar the initiation of CIRP, as recovery actions and insolvency proceedings are distinct.
Accordingly Tribunal admitted the petition and appointed Babita Jain as Interim Resolution Professional (IRP), and directed the initiation of CIRP against Jay Ambey Rice Mills Ltd. under Section 7 of the IBC.
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