Supreme Court upholds validity of corporate guarantees under IBC; clarifies impact of stamping and restructuring timelines

The Hon’ble Supreme Court, in its judgment dated April 28, 2026, in State Bank of India and Ors. v. Doha Bank Q.P.S.C and Anr., addressed the critical issue of whether corporate guarantees executed by a corporate debtor in favour of consortium lenders constitute ‘financial debt’ under the IBC, and whether such guarantees can be invalidated on grounds of timing, non-disclosure, improper verification, or insufficient stamping.

The appeal before the Hon’ble Supreme Court arose from the order dated October 14, 2022 passed by the Hon’ble NCLAT, which affirmed the order dated March 2, 2021 passed by the Ld. NCLT. By these orders, the claim of the State Bank of India Consortium — comprising State Bank of India, Bank of India, UCO Bank, Syndicate Bank, Oriental Bank of Commerce, and Indian Overseas Bank — was rejected and the Consortium was excluded from the CoC of the Corporate Debtor, M/s Reliance Infratel Limited (RITL). The Consortium had extended rupee loan facilities of Rs. 6,015 Crores to Reliance Communications Ltd. (RCOM) and Rs. 735 Crores to Reliance Telecom Ltd. (RTL), which loans were secured by corporate guarantees executed by RITL on March 3, 2017.

Upon the initiation of CIRP against RITL on May 15, 2018, the security trustee invoked the corporate guarantees and the Consortium submitted a claim of Rs. 3,628.67 Crores, which was duly verified and accepted by the Interim Resolution Professional (IRP). However, Respondent No. 1, Doha Bank, challenged the Consortium’s inclusion in the CoC, contending that the guarantees were preferential, undervalued, and fraudulent under Sections 43, 45, and 66 of the IBC.

The NCLT held that the claims were admitted without proper documentation and that the Consortium were not financial creditors. The NCLAT upheld these findings, noting that the guarantees were executed when the Corporate Debtor was already in financial distress, were not disclosed in its financial statements for F.Y. 2016-17 and 2017-18, and were insufficiently stamped under the Maharashtra Stamp Act, 1958.

The Hon’ble Supreme Court, while allowing the appeal, quashing the impugned orders, and directing the reconstitution of the CoC with the inclusion of the Appellants, held as follows:

1. Financial Debt: A liability arising from a corporate guarantee issued to secure borrowings made against the payment of interest squarely falls within the ambit of ‘financial debt’ as defined under Section 5(8) of the IBC. A guarantor incurs a co-extensive liability with that of the principal borrower, and such liability is enforceable in law.

2. Timing of Execution: In cases of restructured assets, the Reserve Bank of India Master Circular dated July 1, 2015 mandates that asset classification be reckoned from the date the account first became a non-performing asset. Since the Corporate Debtor’s account was retrospectively classified as NPA with effect from August 26, 2016 (after the restructuring failed), the corporate guarantees executed on March 3, 2017 were in fact executed prior to the date of NPA classification. Accordingly, the timing and manner of execution could not be questioned.

3. Non-Disclosure in Financial Statements: Mere non-disclosure of corporate guarantees in the financial statements of the Corporate Debtor for F.Y. 2016-17 and 2017-18 cannot deprive the creditors from making a claim on the basis of the said guarantees. At best, it amounts to a default committed by the Corporate Debtor in its reporting obligations.

4. Verification and Production of Documents: The corporate guarantees were verified by the Resolution Professional at the office of the security trustee in New Delhi. Since an appeal is a continuation of the original proceeding, the production of guarantees before the NCLAT was permissible and no adverse inference could be drawn from their non-production before the NCLT.

5. Stamp Duty: The corporate guarantees were executed in New Delhi and stamp duty at applicable rates in New Delhi was duly paid. The defect of insufficient stamping is curable in nature, does not go to the root of the validity of the instrument, and the Stamp Act — being a fiscal measure to secure State revenue — is not intended to be used as a weapon to defeat the substantive cause of a litigant.

6. Perversity of Findings: It is a well-settled legal proposition that this Court would not re-appreciate concurrent findings of fact. However, the exception to this rule is where findings are shown to be perverse. The Tribunals grossly erred in rejecting the claim of the consortium lenders, and the perversity of their findings was glaring and manifest, warranting interference.

Conclusion:

This judgment has provided essential clarity to banking consortiums holding corporate guarantees, affirming that the contractual structure of securities cannot be disturbed by technicalities relating to stamping, non-disclosure in financial statements, or timing of execution relative to restructuring. The Hon’ble Supreme Court directed the Resolution Professional to reconstitute the CoC by including the Appellants and to proceed with the CIRP in accordance with law.