Finsamudra Desk
A fresh loan recall notice in 2019 could not restart the three-year limitation clock on a default dated August 2012, the Mumbai NCLT bench ruled.
The Mumbai bench of the National Company Law Tribunal has dismissed Unity Small Finance Bank's insolvency petition against Awas Developers, not on the merits of the default but on timing.
Awas Developers' account was classified as a Non-Performing Asset on August 31, 2012. Under the Insolvency and Bankruptcy Code, lenders have a three-year limitation window from the date of first default to file for insolvency.
Unity Small Finance Bank issued a fresh loan recall notice in 2019, arguing this reset the limitation clock. The tribunal rejected that argument outright.
The NCLT held that a borrower's default date is fixed at the moment of the original default, and a later demand or recall notice does not legally revive an expired claim. It also noted the bank's own filings cited multiple conflicting default dates, which weakened its position.
This ruling closes a loophole that some lenders have used while clearing legacy bad loans: issuing fresh recall notices years after an NPA classification to try to reopen the IBC route. DSAs and connectors sourcing recovery-linked referrals or advising stressed borrowers should note that the limitation clock starts at first default, not at the latest notice.
For lenders, the message is procedural discipline over paperwork shortcuts — insolvency filings must happen within three years of default, with consistent, well-documented default dates. Banks and NBFCs sitting on old NPAs now have less room to use IBC as a late-stage recovery tool and may need to lean on other legal channels, such as SARFAESI or civil suits, for time-barred accounts.
Sources
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