The Supreme Court of India has held that liabilities arising from corporate guarantees squarely fall within the ambit of “financial debt” under the Insolvency and Bankruptcy Code (IBC), 2016. A Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe set aside the concurrent findings of the NCLT and NCLAT, which had previously derecognized the SBI Consortium as financial creditors of Reliance Infratel Limited (RITL).
The Court emphasized that a guarantor incurs a coextensive liability with the principal borrower and that technical objections regarding stamping, timing, or non-disclosure in financial statements cannot legitimately defeat the status of a “financial creditor” if the debt involves disbursal against the consideration for the time value of money.
Background of the Case
The dispute originated from corporate guarantees executed on March 3, 2017, by Reliance Infratel Limited (Corporate Debtor/CD) in favor of a Security Trustee to secure loans extended by the SBI Consortium (the Appellants) to group entities, namely Reliance Communications Ltd. (RCOM) and Reliance Telecom Ltd. (RTL). The SBI Consortium had extended rupee loan facilities amounting to ₹6,015 crores to RCOM and ₹735 crores to RTL.
Separately, Doha Bank (Respondent No. 1) had extended a foreign currency loan of USD 250 million to RITL in 2010. When Corporate Insolvency Resolution Process (CIRP) was initiated against RITL on May 15, 2018, the Security Trustee invoked the corporate guarantees. Doha Bank challenged the validity of these guarantees, alleging they were preferential, fraudulent, and undervalued under Sections 43, 45, and 66 of the Code.
Tribunal Findings
The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) both ruled against the SBI Consortium. The Tribunals held that the guarantees were questionable because:
- They were executed when the CD was already in default (NPA status).
- They were not reflected in the financial statements of the CD for 2016-17 and 2017-18.
- There was insufficient proof of claims and improper verification by the Resolution Professional.
- The documents were allegedly not stamped in accordance with the Maharashtra Stamp Act, 1958.
Arguments of the Parties
Appellants (SBI Consortium): The Appellants contended that liabilities from guarantees constitute “financial debt” under Section 5(8) of the IBC. They argued that the CD’s counsel had admitted the execution of the guarantees and that the timing was valid as the accounts were restructured before the final NPA declaration. They further argued that the guarantees were kept in safe custody in New Delhi and were properly stamped as per Delhi’s rates.
Respondents (Doha Bank): Doha Bank argued that the guarantees were “highly suspicious” due to their timing, as the CD and its group companies were already NPAs by August 2016. They contended that the documents were non-existent, invalid, and deliberately withheld during the NCLT proceedings. They also raised objections regarding the breach of Section 186 of the Companies Act, 2013, citing the absence of a special resolution.
Court’s Analysis and Observations
The Supreme Court rejected the findings of the lower tribunals on multiple counts:
1. Definition of Financial Debt: The Court clarified that under Section 5(8), any liability in respect of guarantees for money borrowed against payment of interest is a financial debt.
“A liability arising from the corporate guarantee squarely falls within the ambit of financial debt as defined under Section 5(8) of the Code… a guarantor incurs a coextensive liability with that of a principal borrower and such liability is enforceable in law.”
2. Timing and Asset Classification: The Court noted that although the CD’s account was classified as NPA with effect from August 26, 2016, this was a retrospective classification following a failed restructuring. Referring to the RBI Master Circular of July 1, 2015, the Court observed that the guarantees were executed during a restructuring phase.
“It is evident that the corporate guarantees were executed before declaration of account of the CD as NPA and, therefore, the timing and manner of the corporate guarantees could not be questioned.”
3. Disclosure and Stamping: The Court held that mere non-disclosure in financial statements is a default by the CD but does not invalidate the creditor’s claim. Regarding the “insufficient stamping” argument, the Bench relied on the Constitution Bench decision in NN Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., stating:
“Non stamping or improper stamping does not result in the instrument becoming invalid… The non-payment of stamp duty is accurately characterized as a curable defect.”
4. Verification of Claims: The Court found the NCLAT’s observation—that there was no proof of verification—to be “perverse,” noting that the Resolution Professional had inspected the documents at the Security Trustee’s office in New Delhi.
The Decision
Allowing the appeal, the Supreme Court quashed the orders of the NCLT and NCLAT. The Court declared:
- The corporate guarantees constitute “financial debt” under Section 5(8) of the Code.
- The SBI Consortium members are recognized as “financial creditors” of the Corporate Debtor.
- The Resolution Professional is directed to reconstitute the Committee of Creditors (CoC) to include the Appellants and proceed with the CIRP in accordance with the law.
The Court concluded that the perversity in the lower tribunals’ findings was “glaring and manifest,” necessitating interference in the second appellate jurisdiction.
Case Details:
- Case Title: State Bank of India & Ors. v. Doha Bank Q.P.S.C. & Anr.
- Case No.: Civil Appeal No. 8527 of 2022
- Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
- Date: April 28, 2026
