Corporate guarantee as financial debt: SC recognises guarantors as financial creditors and rejects stamping and verification objections.

Corporate guarantees securing borrowing against payment of interest can constitute financial debt under the Insolvency and Bankruptcy Code, and the guarantor's liability is coextensive with the principal borrower. As the corporate debtor admitted execution of the guarantees and the record showed they were available to lenders before the account was treated as NPA, the applicants were entitled to be recognised as financial creditors. Rejection of the claims for non-submission, verification defects, or stamping was unsustainable because the resolution process allowed substantiation and non-stamping is a curable defect. The SC also held that perverse concurrent findings could be interfered with in second appeal, and set aside the impugned orders.

---

---

Issues: (i) Whether corporate guarantees executed by the corporate debtor constituted financial debt under the Insolvency and Bankruptcy Code, 2016. (ii) Whether the appellants' claims were liable to be rejected for non-submission or improper verification of documents. (iii) Whether the concurrent findings of the tribunals warranted interference in second appeal.

Issue (i): Whether corporate guarantees executed by the corporate debtor constituted financial debt under the Insolvency and Bankruptcy Code, 2016.

Analysis: A liability arising from a guarantee for money borrowed against payment of interest falls within the concept of financial debt, and a guarantor incurs coextensive liability with the principal borrower. The execution of the corporate guarantees was admitted by the corporate debtor, and the record showed that the guarantees were publicly disclosed and remained available to the lenders. The guarantees were executed before the account was treated as NPA on the relevant reckoning under the RBI prudential norms, so their timing did not invalidate the claim.

Conclusion: The corporate guarantees constituted financial debt, and the appellants were entitled to be recognised as financial creditors.

Issue (ii): Whether the appellants' claims were liable to be rejected for non-submission or improper verification of documents.

Analysis: The resolution process regulations permitted the insolvency professional to seek substantiating material and verify claims. The corporate debtor had admitted execution of the guarantees, the security trustee had confirmed custody of the executed and stamped guarantees, and the resolution professional had inspected them at New Delhi. The later production of the guarantees before the appellate tribunal could be taken into account in continuation of the original proceedings. The objection based on stamping also failed because non-stamping or improper stamping is a curable defect and does not by itself render the instrument void or unenforceable.

Conclusion: The rejection of the appellants' claims on the grounds of non-submission, verification, or stamping was unsustainable.

Issue (iii): Whether the concurrent findings of the tribunals warranted interference in second appeal.

Analysis: Interference in second appeal is justified where the findings are perverse. The tribunals had rejected the claims notwithstanding the admitted execution of the guarantees, the supporting material, and the applicable legal position on financial debt and stamping. Those findings were held to be manifestly perverse and legally unsustainable.

Conclusion: The impugned findings warranted interference.

Final Conclusion: The impugned orders were set aside, the appellants were recognised as financial creditors, and the matter was directed to proceed with reconstitution of the committee of creditors in accordance with law.

Ratio Decidendi: A corporate guarantee securing a borrowing can constitute financial debt, and objections based on non-disclosure, verification, or insufficient stamping do not defeat enforcement where execution is admitted and the defect is curable; perverse concurrent findings may be interfered with in second appeal.

---