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…