The Supreme Court has held that liabilities arising from corporate guarantees squarely constitute “financial debt” within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).
In a significant win for the State Bank of India (SBI) consortium, the Court held that the mere non-disclosure of such guarantees in a debtor’s financial statements or technical defects in stamping cannot be used to strip lenders of their status as financial creditors. By reversing the concurrent findings of the lower tribunals, the Court reinforced the principle that a guarantor’s liability is coextensive with the principal borrower and remains enforceable throughout the Corporate Insolvency Resolution Process (CIRP).
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