NCLT Rejects Unity Small Finance Bank's Insolvency Plea Against Awas Developers As Time-Barred

Mumbai, July 4, 2026: The National Company Law Tribunal (NCLT) has rejected an insolvency application filed by Unity Small Finance Bank Ltd. against Awas Developers and Constructions Pvt. Ltd., holding that the proceedings were initiated beyond the statutory limitation period prescribed under the Insolvency and Bankruptcy Code (IBC), 2016.

The tribunal ruled that a financial creditor cannot invoke the corporate insolvency resolution process through a Section 7 application once the limitation period has expired. It concluded that the bank’s petition, having been filed after the permissible period, could not be entertained.

Loan Dispute Background

The dispute arose from a mortgage overdraft facility originally sanctioned by the erstwhile Punjab and Maharashtra Cooperative (PMC) Bank to Awas Developers on March 31, 2007. Initially sanctioned at Rs 15 crore, the facility was enhanced over the years, eventually reaching Rs 135 crore in 2019.

To secure the borrowing, mortgages were created over properties situated in Kerala, Palghar and Thane. The credit facilities were also backed by personal guarantees executed by Rakesh Kumar Wadhawan and Sarang Wadhawan, along with a corporate guarantee furnished by Privilege Power & Infrastructure Pvt. Ltd.

According to the bank, Awas Developers defaulted in repayment, following which PMC Bank issued a demand notice on October 7, 2019, claiming outstanding dues of Rs 140.12 crore. A fresh demand notice issued on January 15, 2021, stated that the outstanding liability had increased to Rs 170.29 crore.

After PMC Bank was amalgamated with Unity Small Finance Bank under the 2022 reconstruction scheme, the successor bank initiated insolvency proceedings before the NCLT, contending that the corporate debtor had failed to discharge its repayment obligations.

Tribunal Finds Petition Time-Barred

Awas Developers resisted the petition, arguing that the insolvency proceedings were hopelessly delayed. It pointed out that its loan account had been classified as a non-performing asset (NPA) on August 31, 2012, and therefore the limitation period had commenced much earlier than the date relied upon by the bank. It also argued that the 2019 demand notice could not be treated as the date of default merely to keep the insolvency proceedings within limitation.

After examining the record, the tribunal observed that although the loan limits had been renewed and enhanced over time, those transactions did not amount to a fresh contract replacing the original loan arrangement. It noted that the loan applications and sanction letters relied upon by the bank only reflected requests for additional credit facilities and the terms governing those facilities. They neither acknowledged an existing default nor evidenced any restructuring of the debt capable of extending limitation.

The Bench further found that the last valid acknowledgment of liability by the corporate debtor was made on August 16, 2018. Even after giving the benefit of the period excluded by the Supreme Court during the Covid-19 pandemic, the limitation period expired on August 1, 2023. Since the insolvency petition was instituted only on December 4, 2023, it was held to be barred by limitation.

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NCLT Rejects Bank's Arguments

Rejecting Unity Small Finance Bank's submission that limitation should be computed from the date of PMC Bank's amalgamation or from the discovery of the PMC Bank fraud, the tribunal held that such subsequent developments could not alter the legal position regarding limitation.

It emphasised that the period for initiating proceedings must be determined with reference to the date of default and any valid acknowledgment of debt by the borrower. The NCLT accordingly dismissed the insolvency petition.

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