#Corporate Guarantee

The Supreme Court ruled that contractual rights over nominee directors, budget approvals, and project revenues constitute 'participation in policy-making' under IBC Section 5(24)(m)(i), a lower threshold than Section 29A control, rendering debenture holders and trustees related parties ineligible for the CoC. A post-CIRP assignment to bypass this bar was held mala fide.

The Gujarat High Court held corporate guarantees are not a supply under the CGST Act, striking down Rule 28(2) and related CBIC circulars. Consequently, issuers of such guarantees are exempt from GST, removing the tax burden nationwide.

The NCLAT has ruled that ongoing settlement discussions and partial debt repayments cannot override clear evidence of financial default under Section 7 of the IBC. This clarifies that corporate insolvency proceedings remain valid if the debt is undisputed and due, reinforcing creditor rights against tactical delays and undermining the integrity of the insolvency process.

The Supreme Court has ruled that corporate guarantees qualify as financial debt under Section 5(8) of the IBC irrespective of non-disclosure in financial statements or stamping irregularities, affirming that procedural defects cannot override substantive creditor rights. This strengthens the position of financial creditors in CIRP and curbs reliance on technicalities to defeat claims.

Calcutta High Court sets aside RBI's wilful defaulter notice against BSCPL, ruling that invocation of a corporate guarantee alone-without proof of fund siphoning, asset disposal, or repayment capacity-does not meet the statutory threshold under RBI's 2025 Directions. The judgment reinforces natural justice safeguards for guarantors facing regulatory action.

CESTAT Chandigarh rules that a corporate guarantee issued by an overseas parent company without monetary consideration does not constitute a 'taxable service' under service tax law. The tribunal quashed a ₹11.6 crore demand, holding that the reverse charge mechanism cannot apply where no service fee or benefit is exchanged, setting a precedent for cross-border financial arrangements.

The Supreme Court ruled that a corporate guarantee constitutes a valid contract under Section 126 of the Indian Contract Act, binding banks to honor payment obligations even for erroneous remittances. The judgment reinforces that guarantees are independent undertakings, shielding beneficiaries from regulatory or procedural lapses by financial institutions.

Punjab & Haryana High Court holds that excluded rights under an approved IBC resolution plan remain enforceable against guarantors and mortgagors despite debt assignment.

Supreme Court holds that financial creditors may initiate parallel CIRPs against principal debtors and corporate guarantors under IBC, affirming co-extensive liability and rejecting doctrine of election.