In a significant verdict, the Supreme Court of India on Tuesday ruled that liabilities arising from corporate guarantees squarely constitute “financial debt” under the Insolvency and Bankruptcy Code (IBC).
A bench comprising justices P S Narasimha and Alok Aradhe upheld the validity and enforceability of corporate guarantees and recognised a consortium of banks led by State Bank of India (SBI) as financial creditors in the insolvency proceedings of Reliance Infratel Limited (RITL).
Key legal issues before the court
The bench dealt with three key legal issues including whether the corporate guarantees executed by the corporate Debtor constitute “financial debt” within the meaning of Section 5(8) of the IBC.
The second issue was whether the claims of the SBI and banks were liable to be rejected for non-submission or improper verification of documents and if the findings recorded by the tribunals warrant interference.
“The corporate guarantees executed by the corporate debtor (RITL) constitute “financial debt” within the meaning of Section 5(8) of the Code. The appellants (SBI-led banks) are entitled to be recognized as financial creditors... The rejection of claims of the appellants, by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are legally unsustainable. The impugned orders suffer from perversity and warrant interference by this court,” the bench said while allowing the appeal of SBI-led banks.
SC sets aside NCLT and NCLAT rulings
The top court set aside the orders of the National Company Law Appellate Tribunal (NCLAT) and the National Company Law Tribunal (NCLT), which had previously stripped a consortium of Indian banks led by SBI of their status as financial creditors.
The case arose during the Corporate Insolvency Resolution Process (CIRP) of Reliance Infratel Limited (RITL).
Details of SBI-led consortium claims
An SBI-led consortium, including Bank of India, UCO Bank, Syndicate Bank, Oriental Bank of Commerce, and Indian Overseas Bank, had claimed over Rs 3,628 crore based on corporate guarantees executed by RITL to secure loans for its group entities, RCOM and RTL.
The claim was challenged by Doha Bank, an External Commercial Borrowings (ECB) lender, which argued that the guarantees were suspicious, insufficiently stamped, and not properly disclosed in financial statements.
Court rejects objections on guarantees
Both the NCLT and NCLAT had upheld these objections, directing the removal of the SBI consortium from the Committee of Creditors (CoC). The top court reaffirmed that under Section 5(8) of the IBC, any liability in respect of a guarantee for money borrowed against interest is a “financial debt”.
It said that a guarantor’s liability is co-extensive with that of the principal borrower.
Addressing the NCLAT’s finding that the guarantees were inadmissible due to insufficient stamping under the Maharashtra Stamp Act, the verdict held that improper stamping does not render an instrument void.
The bench rejected the allegations that the guarantees were “suspicious” because they were executed while the corporate debtor was in financial stress.
It said that the guarantees were executed following a restructuring of debt and before the account was officially declared a Non-Performing Asset (NPA).
The bench further ruled that a mere failure to disclose a guarantee in a company’s financial statements cannot deprive a lender of their legal right to claim that debt.
Directions for reconstitution of creditors’ panel
The bench directed the Resolution Professional to “reconstitute the committee of creditors by including the appellants and to proceed with the corporate insolvency resolution process in accordance with law”.
Published on April 28, 2026