The Supreme Court has held that a corporate guarantee furnished by a company to secure another company's borrowing, backed by arrangements such as hypothecation, constitutes a “financial debt” under the Insolvency and Bankruptcy Code, 2016. A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe considered a dispute in which an SBI-led consortium sought recognition of...
The Supreme Court has held that a corporate guarantee furnished by a company to secure another company's borrowing, backed by arrangements such as hypothecation, constitutes a “financial debt” under the Insolvency and Bankruptcy Code, 2016.
A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe considered a dispute in which an SBI-led consortium sought recognition of its claims in the CIRP initiated against Reliance Infratel Ltd. (RITL)-Corporate Debtor. The consortium contended that since RITL had executed corporate guarantees in its favour for loan facilities extended to group entities such as Reliance Communications (RCOM) and Reliance Telecom, the declaration of RITL's account as an NPA entitled the banks to invoke those guarantees and submit their claims in the insolvency proceedings against RITL.
The NCLT and NCLAT refused to allow the SBI-led Consortium claims against the RITL, leading to an appeal before the Supreme Court.
The issue before the Court was whether the corporate guarantees furnished by RITL in favour of the appellant banks, to secure loans extended to its group companies against the consideration for the time value of money, could be treated as “financial debt” and thereby eligible to be included in the claims under the insolvency proceedings initiated against RITL.
Setting aside the impugned decision, the judgment authored by Justice Aradhe answered in the positive, holding that “a liability arising from the corporate guarantee squarely falls within the ambit of financial debt as defined under Section 5(8) of the Code.”
“It is well settled legal proposition that a guarantor incurs a coextensive liability with that of a principal borrower and such liability is enforceable in law.…the corporate guarantees executed by the corporate debtor constitute “financial debt” within the meaning of Section 5(8) of the Code. The appellants are entitled to be recognized as financial creditors.”, the court held.
The Court clarified that guarantees issued for loans disbursed against consideration for time value of money satisfy the requirements of Section 5(8) of the IBC. (See China Development Bank v. Doha Bank Q.P.S.C. & Ors., 2024 LiveLaw (SC) 1029)
Accordingly, the appeal was allowed, recognizing the Appellant-bank as the financial creditor for inclusion of their claims against the RITL in CIRP.
Headnote
Insolvency and Bankruptcy Code, 2016 – Section 5(8) – Financial Debt – Corporate Guarantee - A liability arising from a corporate guarantee squarely falls within the ambit of "financial debt" under Section 5(8) of the Code - The amount of any liability in respect of a guarantee for money borrowed against the payment of interest constitutes a financial debt, making the beneficiary lenders eligible to be recognized as "financial creditors" - A guarantor incurs a coextensive liability with that of the principal borrower, which is fully enforceable in law. [Paras 22 – 31]
Insolvency and Bankruptcy Code, 2016 – Non-Disclosure of Guarantee in Financial Statements - Mere non-disclosure of a corporate guarantee in the financial statements or annual reports of the Corporate Debtor cannot deprive the beneficiary lenders from asserting their claim on the basis of such a guarantee - At the very highest, such an omission can only be treated as a default committed by the Corporate Debtor under company law, but it cannot legitimately defeat the recognition of a financial debt or status of a financial creditor under the Code. [Para 25]
Insolvency and Bankruptcy Code, 2016 – Production of Documents at Appellate Stage - An appeal is a continuation of the original proceeding - Documents relevant to deciding the lis (dispute)—such as corporate guarantees can be produced at the appellate stage before the NCLAT - Merely because such documents were not produced before the NCLT does not allow for any adverse inference to be drawn regarding their genuineness, provided their execution is otherwise established. [Para 27]
Indian Stamp Act, 1899 / Maharashtra Stamp Act, 1958 – Insufficient Stamping – Effect on Insolvency Claims - The defect of insufficient stamping of a document is curable in nature and does not go to the root of the validity of the instrument or render it void or unenforceable - The Stamp Act is a fiscal measure enacted to secure revenue for the State and is not intended to be used as a weapon by a litigant to defeat the cause of opponents - an insolvency claim cannot be rejected or negated merely because the underlying corporate guarantee is alleged to be insufficiently stamped or lacks payment under a specific state stamp legislation when executed in another jurisdiction. [Paras 28 - 32]
Insolvency and Bankruptcy Code, 2016 – Section 62 – Interference with Concurrent Findings - While the Supreme Court does not routinely re-appreciate facts when the NCLT and NCLAT have recorded concurrent findings, an exception is carved out where the findings of fact are shown to be glaringly and manifestly perverse - Where the tribunals reject valid claims of a consortium of lenders by misinterpreting asset classification norms or ignoring established statutory verifications, the findings warrant interference under Section 62. [Relied on Interplay Between Arbitration Agreements under Arbitration & Conciliation Act, 1996 and Stamp Act, 1899, IN RE, (2024) 6 SCC 1; Hindustan Steel Ltd. v. Dilip Construction Company, (1969) 1 SCC 597; China Development Bank v. Doha Bank Q.P.S.C. & Ors., (2025) 7 SCC 729; Para 15 - 26, 30]
Cause Title: STATE BANK OF INDIA & ORS. VERSUS DOHA BANK Q.P.S.C. & ANR.
Citation : 2026 LiveLaw (SC) 434
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Appearance:
For Appellant(s) : Mr. N. Venkataraman, A.S.G. Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Santha Smruthi, Adv. Mr. Anuraj Mishra, Adv.
For Respondent(s) :Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Prashanto Chandra Sen, Sr. Adv. M/S. Juris Corp., AOR Mr. Jayesh H, Adv. Ms. Jinal Shah, Adv. Mr. Dhruv Malik, Adv. Ms. Palak Nenwani, Adv. Mr. Ronit Chopra, Adv. Mr. Sayantan Chandra, Adv. Ms. Rajlakshmi Singh, Adv. Ms. Vanisha Mehta, Adv. Mr. Gopal Jain, Sr. Adv. Mr. S. S. Shroff, AOR Mr. Vaijayant Paliwal, Adv. Ms. Charu Bansal, Adv. Ms. Shruti Poddar, Adv. Mr. Neeraj Kishan Kaul, Sr. Adv. Mr. Rajendra Barot, Adv. Mr. Nilang Desai, Adv. Mr. Abhijnan Jha, AOR Ms. Saloni Thakker, Adv. Ms. Nafisa Khandeparkar, Adv. Mr. Bharat Makkar, Adv. Mr. Pranav Tomar, Adv. Mr. Harshil Goda, Adv. Mr. Narender Hooda, Sr. Adv. Mr. Naman Saraswat, Adv. Mr. Tavinder Sidhu, Adv. Mr. Vikas Soni, Adv. Mr. Kanav Singhal, Adv. Ms. Kamini Sharma, Adv. M/S. M. V. Kini & Associates, AOR