Insufficient Stamping Of Corporate Guarantee Is A Curable Defect, Won't Invalidate 'Financial Debt' Status Under IBC: Supreme Court

"Non stamping or improper stamping does not result in the instrument becoming invalid. The Stamp Act does not render such an instrument void. The non-payment of stamp duty is accurately characterized as a curable defect," Supreme Court, in a significant ruling dated April 28, 2026, held that corporate guarantees executed to secure loans constitute a "financial debt" under the Insolvency and Bankruptcy Code (IBC), even if such documents are allegedly insufficiently stamped.

A bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe observed that the defect of insufficient stamping is curable in nature and does not go to the root of the validity of the instrument, nor can it be used as a weapon to defeat a creditor’s claim.

The case reached the Apex Court after the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) rejected the claims of an SBI-led consortium. The lower tribunals had held that the consortium lenders were not "financial creditors" of the Corporate Debtor, Reliance Infratel Limited (RITL), citing issues such as the timing of the guarantees, non-disclosure in financial statements, and improper stamping under the Maharashtra Stamp Act, 1958.

The primary questions before the court were whether corporate guarantees constitute "financial debt" within the meaning of Section 5(8) of the IBC and whether a claim can be rejected due to insufficient stamping or non-disclosure in financial records. The court was also called upon to determine if the findings of the NCLT and NCLAT warranted interference under Section 62 of the Code.

Corporate Guarantees Fall Squarely Within The Ambit Of Financial Debt

The Court emphasized that for a debt to qualify as a "financial debt" under Section 5(8) of the IBC, the essential elements of disbursal against the consideration for the time value of money must be present. Referring to its earlier precedents, the bench noted that the amount of any liability in respect of a guarantee for money borrowed is explicitly covered under the statutory definition.

"A liability arising from the corporate guarantee squarely falls within the ambit of financial debt as defined under Section 5(8) of the Code," the bench observed. The Court reiterated the well-settled legal proposition that a guarantor incurs a coextensive liability with that of a principal borrower, making such liability fully enforceable in law once invoked.

"The amount of any liability in respect of any of the guarantees for money borrowed against the payment of interest is a 'financial debt' within Section 5(8) of the Code."

Insufficient Stamping Is A Fiscal Defect And Not A Substantive Bar

Addressing the objection regarding the Maharashtra Stamp Act, the Supreme Court clarified that the Stamp Act is a fiscal measure intended to secure revenue for the State and is not meant to be used by litigants to defeat the cause of an opponent. The bench noted that the guarantees in question were executed in New Delhi and stamped according to applicable rates there, which did not attract the provisions of the Maharashtra Stamp Act.

Even if a document is found to be insufficiently stamped, the Court held that this does not render the instrument void or unenforceable. Relying on a Constitution Bench decision, the Court stated that such a defect is accurately characterized as a curable one. The bench remarked that "the contention that the corporate guarantees were not duly stamped... is sans substance."

"Non-payment of stamp duty is accurately characterized as a curable defect. Therefore, the contention that the corporate guarantees were not duly stamped... is sans substance."

Timing Of Execution During Debt Restructuring Is Legally Valid

The respondents had argued that the guarantees were suspicious because they were executed when the Corporate Debtor was already in financial distress and classified as a Non-Performing Asset (NPA). However, the Court perused the RBI Master Circular on asset classification and noted that the accounts had been restructured.

The bench found that the corporate guarantees were executed on March 3, 2017, following a restructuring agreement, and before the final declaration of the account as an NPA in December 2017. "The timing and manner of the corporate guarantees could not be questioned on the ground that the CD and the holding company were already in default," the Court held, noting that the execution was "beyond any pale of doubt."

Non-Disclosure In Financial Statements Does Not Strip Creditor Of Rights

The NCLAT had previously drawn an adverse inference because the guarantees were not reflected in the financial statements of the Corporate Debtor for certain years. The Supreme Court rejected this reasoning, stating that mere non-disclosure in financial statements cannot deprive a creditor of their right to make a claim based on validly executed guarantees.

The Court noted that such non-disclosure might, at best, be treated as a regulatory default by the Corporate Debtor but does not invalidate the underlying debt. It further observed that the Resolution Professional (RP) had actually verified the original documents by visiting the Security Trustee’s office in New Delhi, making the NCLAT’s finding of "improper verification" perverse.

"Mere non-disclosure of corporate guarantee in the financial statements of CD... cannot deprive the appellants from making a claim on the basis of the said guarantees."

Appellate Court Can Consider Documents Not Produced Before The Original Tribunal

The Court dealt with the procedural objection that the guarantees were introduced only at the appellate stage. It held that an appeal is a continuation of the original proceeding and relevant documents can be produced during the appeal. Since the guarantees were produced before the NCLAT, no adverse inference regarding their genuineness could be drawn simply because they weren't before the NCLT.

In its final order, the Supreme Court quashed the judgments of the NCLT and NCLAT, declaring them "legally unsustainable" and "suffering from perversity." The Court officially recognized the SBI consortium as financial creditors and directed the Resolution Professional to reconstitute the Committee of Creditors (CoC) to include them.

The ruling reinforces the principle that technical or fiscal defects like stamping should not be allowed to override the substantive provisions of the IBC, ensuring that the rights of financial creditors remain protected during the insolvency process.

Date of Decision: April 28, 2026