I just realized her passport doesn't expire in March but end of May. That gives us few more months.
I contacted few lawyers and immigration consultants here in Canada and they told me you can not mail you passport to a personal address in India. It is legal to send it through a secured mail to an embassy.
Further, in the letter received from delhi office specifically said to send the passport in secured mail and provide an address in India where it will be returned. I have provided them an address in India. I don't have an issue with getting the passport back to Canada, I will just tell a family member to bring it with them when they are flying from India to Canada. My biggest concern is should I call NDVO and tell them to return the passsport to get it renewed? We applied in May 2013 and at that time procedure was supposed to take 10 months, we thought we will have her passport with PR by end of March 2014.