Legal Updates ( April 27 – May 02, 2026 )
CASE UPDATES
Corporate guarantees executed by a corporate debtor in respect of loans advanced to group entities constitute “financial debt” within the meaning of Section 5(8) of IBC, and the beneficiaries thereof are entitled to be treated as financial creditors
The Supreme Court in the case of State Bank of India vs Doha Bank [Civil Appeal No. 8527 of 2022] dated April 28, 2026, has held that corporate guarantees executed by a corporate debtor in respect of loans advanced to group entities constitute “financial debt” within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016, and the beneficiaries thereof are entitled to be treated as financial creditors. Such claims cannot be rejected merely on the grounds of alleged non-disclosure in financial statements, non-filing of the guarantee documents along with Form C, or objections regarding improper stamping, since non-stamping or insufficient stamping is only a curable defect and does not invalidate the instrument.
The Court further held that where the corporate debtor itself admits execution of the guarantee, and the Resolution Professional has verified the instrument, the NCLT/ NCLAT cannot disregard the claim on speculative grounds relating to timing, disclosure, or procedural production of documents. If the findings of the NCLT and NCLAT ignore such material and reject the claim of a financial creditor, those findings are perverse and liable to be interfered with under Section 62 of the Code.
The Court observed that a liability arising from a corporate guarantee squarely falls within the ambit of “financial debt” under Section 5(8) of the IBC, and that the amount of any liability in respect of guarantees for money borrowed against payment of interest is a financial debt. It reiterated that a guarantor incurs a coextensive liability with that of the principal borrower and such liability is enforceable in law.
The Court found that the execution of the corporate guarantees was beyond doubt because the corporate debtor itself, through its counsel’s communication dated March 19, 2019, admitted the execution of the guarantees and stated that information regarding the guarantees had always been publicly available and adequately disclosed in financial statements and annual reports of the borrower group.
On the question of timing, the Court held that the guarantees were executed before declaration of the account of the corporate debtor as NPA. Referring to Clause 17.2.6 of the RBI Master Circular dated July 01, 2015, the Court noted that where a restructured asset is subjected to restructuring again, its asset classification is reckoned from the date when it first became NPA. Therefore, the retrospective NPA classification from August 26, 2016 could not be used to question the timing and manner of the guarantees executed on March 03, 2017.
The Court further observed that mere non-disclosure of the corporate guarantees in the financial statements for financial years 2016–17 and 2017–18 could not deprive the appellants of their claim based on those guarantees; and at best, such non-disclosure could be treated as a default committed by the corporate debtor. It also held that the guarantees had been verified by the Resolution Professional after inspecting them in the office of the Security Trustee in New Delhi, and therefore the NCLAT’s finding that there was no material regarding verification was perverse.
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Admission of a claim by the IRP/RP is only an administrative or clerical act and is akin to a mere recital or reference to debt, which does not amount to acknowledgment under Section 18 of the Limitation Act, 1963
The Supreme Court in the case of Shankar Khandelwal vs Omkara Asset Reconstruction [Civil Appeal No (S). 13158-13159 of 2025] dated April 29, 2026, has held that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is governed by Article 137 of the Limitation Act, 1963, and limitation commences from the date of default, i.e., the date of NPA classification. Exclusion of time under Section 60(6) of the Code and under the Covid-19 extension orders must be strictly computed, and if the petition is filed after the expiry of the remaining limitation period, it is barred.
The Court further held that admission of a claim by an IRP/RP during CIRP does not amount to an acknowledgment of liability under Section 18 of the Limitation Act, 1963, because such admission is only an administrative act of collation of claims and does not reflect a conscious and unequivocal admission of subsisting liability by the corporate debtor or its duly authorized representative. Such admission cannot extend limitation for filing a Section 7 petition.
The Court observed that limitation for filing an application under Section 7 of the Code is governed by Article 137 of the Limitation Act, 1963, and begins to run from the date of default, namely the date on which the account is classified as NPA, and not from any subsequent recovery proceeding. Since the accounts were declared NPA on December 06, 2016, the right to file the Section 7 petition accrued on that date itself.
On the issue of acknowledgment, the Court held that for Section 18 of the Limitation Act, 1963 to apply, the acknowledgment must be made by the party against whom the right is claimed, or by a person duly authorized on its behalf, before expiry of limitation, and it must indicate a conscious and unequivocal intention to admit a subsisting jural relationship and existing liability. It must evince a conscious and unequivocal intention to admit a subsisting jural relationship and an existing liability. A mere reference to a past transaction or a bald recital of a debt, without an intention to admit liability, would not suffice.
The Court observed that the RP/IRP has no adjudicatory power and merely performs an administrative function of collation and admission of claims under Section 18 of the Code. Therefore, admission of a claim by the IRP/RP is only an administrative or clerical act. Therefore, admission of claim by RP only means induction/entry of a claim and is akin to a mere recital or reference to debt, which does not amount to acknowledgment under Section 18 of the Limitation Act, 1963.
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Auditor’s remark stating that the company has an internal audit system which “needs to be strengthened” does not amount to a “qualification” within the meaning of Section 217(3) of the Companies Act, 1956, and failure to furnish explanation on such remark does not attract penal liability under Section 217(5) of the Companies Act
The Bombay High Court in the case of Radha Satish Timblo vs Union of India [Criminal Writ Petition No. 6 of 2024] dated April 27, 2026, has held that an auditor’s remark stating that the company has an internal audit system which “needs to be strengthened” is merely generic and advisory in nature and does not amount to a “reservation”, “qualification” or “adverse remark” within the meaning of Section 217(3) of the Companies Act, 1956. Hence, the failure to furnish explanation on such remark does not attract penal liability under Section 217(5) of the Companies Act.
The Court further held that Section 217(3) contemplates explanations in the Board’s report for the benefit of shareholders and not a separate satisfaction of the Registrar of Companies, and prosecution cannot be sustained merely because the Registrar found the reply to the show cause notice unsatisfactory.
The Court observed on a plain reading of Section 217 of the Companies Act, that the obligation under Section 217(3) is to give the fullest information and explanations in the Board’s report, or addendum thereto, on every reservation, qualification or adverse remark contained in the auditor’s report, and that this requirement is directed toward the shareholders of the company and is to be complied with through the Board’s report placed before the annual general meeting. The provision does not envisage furnishing such explanations to the Registrar of Companies.
The Court further observed that the entire complaint was founded only on paragraph 7 of the annexure to the auditor’s report, namely that “The Company has an internal audit system which needs to be strengthened.” The Court found that the first part of the remark was a positive statement, and the second part was at best a general observation or recommendation for improvement of internal processes. Such a generic and advisory remark could not, by any stretch of interpretation, be construed as a “reservation”, “qualification” or “adverse remark” for the purposes of Section 217(3).
On limitation issue, the Court rejected the respondents’ case that prior sanction was a mandatory pre-condition for launching prosecution under Section 217 and that limitation should run from the date of receipt of such sanction. The Court held that there is no statutory requirement for obtaining sanction to launch prosecution under Section 217 of the Companies Act, 1956, and the circulars/notifications relied upon by the respondents could not be treated as sanction in law.
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Procedural decisions of the arbitral tribunal fall within its power under Section 19 of the Arbitration and Conciliation Act to regulate its own procedure, and such decisions do not amount to violation of party autonomy, natural justice, or public policy unless grave prejudice or patent illegality is shown
The Delhi High Court in the case of OSA Vendita vs Bausch and Lomb India [O.M.P. (COMM) 336/2022] dated April 23, 2026, has held that it will not interfere with a reasoned arbitral award merely because a party was denied permission to lead belated evidence, where the tribunal had granted sufficient opportunities earlier and the rejection was based on delay and lack of due justification. Procedural decisions of the arbitral tribunal fall within its power under Section 19 to regulate its own procedure, and such decisions do not amount to violation of party autonomy, natural justice, or public policy unless grave prejudice or patent illegality is shown.
The Court explained that findings of fact by the arbitral tribunal on absence of contractual assurance, absence of breach, and failure to prove loss through reliable evidence are not amenable to re-appreciation in Section 34 proceedings, and where the tribunal’s view is plausible and consistent with the contract, including clauses excluding any obligation to take back goods, the award must be sustained.
The Court observed that the arbitral tribunal had granted sufficient opportunities to the petitioner to file affidavits and supporting documents, and that the application to introduce CA certificates was filed only after closure of the petitioner’s evidence and after the respondent had filed its evidence. The arbitrator’s rejection of that application on the ground of inordinate delay and absence of cogent justification was held to be a plausible and reasonable view based on the procedural history of the case.
The Court further observed that an arbitral tribunal is empowered to regulate its own procedure and that procedural orders do not warrant interference under Section 34 unless they contravene public policy or result in grave injustice. It rejected the petitioner’s argument that no prejudice would have been caused to the respondent, holding that appreciation of evidence, including the absence of corroborative books of account and relevant witnesses, lies within the exclusive domain of the tribunal and cannot be recast as a violation of natural justice.
On the issue of party autonomy and procedure, the Court held that Section 19 of the Act clearly permits the arbitral tribunal, in the absence of an agreed procedure, to determine its own procedure and that ad hoc arbitration is not treated differently from institutional arbitration under the Act. The Court also noted that the procedural framework and timelines had been settled at the inception of the proceedings with the consent of both parties, and the petitioner had not objected to the procedure during the arbitral proceedings.
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A dispute resolution clause stating that disputes “can be settled by arbitration” does not constitute a binding arbitration agreement under the Arbitration and Conciliation Act, 1996, because it indicates only the possibility of arbitration and not a mandatory or enforceable obligation to refer disputes to arbitration
The Supreme Court in the case of Nagreeeka Indcon Products vs Cargocare Logistics (India) [2026 INSC 384] dated April 17, 2026, has held that a dispute resolution clause stating that disputes “can be settled by arbitration” does not constitute a binding arbitration agreement under the Arbitration and Conciliation Act, 1996, because it indicates only the possibility of arbitration and not a mandatory or enforceable obligation to refer disputes to arbitration. Where the clause contemplates or necessitates further consent of the parties before reference, it is merely an agreement to enter into an arbitration agreement in future, and not an arbitration agreement in law.
The Court observed that arbitration is founded on party autonomy and mutual intention, and that parties must agree to arbitration as the chosen dispute resolution mechanism for an arbitral tribunal to derive jurisdiction. At the Section 11 stage, the court’s scrutiny is confined to a prima facie examination of the existence of an arbitration agreement, and not to a detailed adjudication on merits.
The Court examined the word “can” in its ordinary meaning and held that it denotes capacity, capability, or possibility, and not a mandate. It contrasted “can” with “shall”, observing that while “shall” ordinarily signals obligation, “can” indicates only a choice available to the parties. Applying settled principles of contractual interpretation, the Bench held that the words chosen by the parties are the most reliable manifestation of their intent and courts cannot impute an obligation not intended by the contracting parties.
The Court further observed that a valid arbitration agreement must disclose a determination and obligation to go to arbitration, and not merely a possibility of doing so. The clauses contemplating future consent or further agreement for arbitration do not amount to binding arbitration agreements. On the language of Clause 25, the Court found that it merely kept open the future possibility of arbitration and therefore required fresh consensus between the parties after disputes arose.
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If a Non-Banking Financial Company repossesses a financed vehicle through coercive means, in violation of RBI recovery guidelines, such action is not merely a contractual dispute but assumes a public law character and such coercive repossession is illegal and violative of Articles 14, 19(1)(g), and 21 of the Constitution
The Uttarakhand High Court in the case of Mohan Lal vs RBI [Writ Petition Misc. Single No.2032 of 2023] dated April 02, 2026, has asserted that where a Non-Banking Financial Company (NBFC) repossesses or attempts to repossess a financed vehicle through coercive means, without adherence to due process of law and in violation of RBI recovery guidelines, the action is not merely a contractual dispute but assumes a public law character and is amenable to writ jurisdiction under Article 226. Such coercive repossession is arbitrary, illegal, and violative of Articles 14, 19(1)(g), and 21 of the Constitution, and the creditor, even if entitled to recover dues under the contract, must do so only through lawful procedures before competent forums and not by self-help methods.
The Court observed that the central issue was not merely the contractual relationship or the quantum of dues, but the legality, fairness, and procedural propriety of the manner in which the respondent financial institution proceeded to repossess or attempt to repossess the vehicles. It held that although contractual disputes ordinarily do not invite interference under Article 226, that rule is not absolute, and an exception applies where the impugned action is arbitrary, unfair, violative of statutory or regulatory norms, or infringes fundamental rights.
The Court further observed that the petitioners had made specific allegations of forcible repossession through recovery agents in violation of RBI guidelines, and that if such allegations were established, the matter could not be treated as a mere breach of contract but as arbitrary and high-handed action offending Article 14. Since the vehicles were the petitioners’ primary means of livelihood, the Court held that the action also directly affected their rights under Article 21 and Article 19(1)(g).
Reference was made to ICICI Bank Ltd. v. Prakash Kaur [(2007) 2 SCC 711] and Citicorp Maruti Finance Ltd. v. S. Vijayalaxmi [(2012) 1 SCC 1], to reiterate that employing recovery agents or musclemen for forcible repossession is wholly impermissible, and that even in cases of admitted default, repossession must be carried out strictly in accordance with law through legally sanctioned procedures.
The Court found that the respondents had not effectively rebutted the serious allegations of forcible repossession and had produced no material showing prior notice, opportunity of hearing, or lawful recovery proceedings before a competent forum. The Court also emphasized that a repossession clause in a loan agreement does not authorize the creditor to take law into its own hands, and that contractual terms cannot override constitutional guarantees or statutory protections.
The Court also observed that disputes regarding the outstanding dues were contested and required adjudication by a competent forum on evidence, and could not be resolved through unilateral and coercive action by the creditor. It noted the socio-economic reality that the petitioners were transporters and the vehicles were their primary source of sustenance, and held that arbitrary deprivation of such assets without due process results in serious civil consequences and infringes the right to livelihood under Article 21.
Allotment of flats in lieu of legal fees, without any disbursement by the claimant to the corporate debtor, does not amount to a financial debt under Section 5(8) of the IBC
The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) in the case of L & L Partners Litigation vs Jalesh Kumar Grover [Company Appeal (AT) (Insolvency) No. 1944 of 2025] dated April 23, 2026, has held that allotment of flats in lieu of legal fees, without any disbursement by the claimant to the corporate debtor, does not amount to a financial debt under Section 5(8) of the IBC. The essential requirement of disbursal against consideration for time value of money remains mandatory, and in its absence the claimant cannot be treated as a financial creditor
The tribunal further held that a belated claim filed by a commercial entity after approval of the resolution plan by the CoC need not be condoned, particularly where admitting such claim would reopen the CIRP contrary to the time-bound scheme of the IBC.
The Tribunal pointed out that the present appellant was not a homebuyer whose payments were reflected in the record of the corporate debtor. It observed that the appellant’s claim was not reflected in the corporate debtor’s records, and therefore the appellant could not rely upon the principle that the RP must collate claims of homebuyers even if such claims are not formally filed.
Agreement of hypothecation executed after sanction of a credit facility, which merely evidences the creation of security and under which possession of the movable asset remains with the borrower, is neither chargeable as a “pledge” under Article 6 nor as a “mortgage deed” under Article 37 of the Kerala Stamp Act, 1959
The Kerala High Court in the case of Kerala Gramin Bank vs Saifudheen M [OP(C) No. 2628 of 2023] dated April 08, 2026, has held that an agreement of hypothecation executed after sanction of a credit facility, which merely evidences the creation of security and under which possession of the movable asset remains with the borrower, is neither chargeable as a “pledge” under Article 6 nor as a “mortgage deed” under Article 37 of the Kerala Stamp Act, 1959. Such an instrument is properly chargeable under Article 5(g) as an “Agreement not otherwise provided for”.
The Court observed that deed of hypothecation was not the instrument on the basis of which the loan was granted; rather, it merely evidenced that a credit facility had already been sanctioned and that security was created in respect of the vehicle for repayment of the loan. The Court noted that the borrower had agreed under the deed of hypothecation that the vehicle stood hypothecated as security, but the deed itself was only evidentiary of sanction and security creation.
The Court further observed that the trial court failed to appreciate the basic difference between “pledge” and “hypothecation.” Though hypothecation is a species of pledge, the essential distinction is that in hypothecation possession remains with the loanee, whereas in the case of pledge possession is retained by the pledgee. Since the agreement in question clearly showed that possession of the vehicle remained with the borrower, the Court held that it could not qualify as an instrument of pledge for the purposes of Article 6 of the Kerala Stamp Act, 1959.
The Court also held that stamp duty under Article 37, being the charging provision for a mortgage deed, is attracted only where the loan is advanced and the terms and conditions of such advancement are found in the mortgage deed itself, meaning that the sanction of the loan should be by the mortgage deed. Where a credit facility is already sanctioned and an agreement of hypothecation is later executed merely to evidence creation of security, such instrument does not fall within Article 37.
Accordingly, the Court held that since the hypothecation deed bore an adhesive stamp of Rs. 100/-, it was properly stamped under Article 5(g) as it stood at the relevant time. Accordingly, the order impounding the document was set aside, and the Munsiff’s Court was directed to receive the agreement of hypothecation in evidence and proceed with trial in accordance with law.
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The venue of hearings or the place where the award is rendered does not alter the seat and does not confer jurisdiction on courts of that place, unless the seat is expressly changed by agreement of the parties
The Supreme Court in the case of J&K Economic Reconstruction Agency vs Rash Builders India [2026 INSC 368] dated April 15, 2026, has held that once the seat of arbitration is expressly designated by agreement of the parties, that seat becomes the juridical home of arbitration and operates akin to an exclusive jurisdiction clause. Consequently, only the courts of the seat have supervisory jurisdiction over arbitral proceedings and challenges to the award. The venue of hearings or the place where the award is rendered does not alter the seat and does not confer jurisdiction on courts of that place, unless the seat is expressly changed by agreement of the parties.
The Court observed that the distinction between the seat and venue of arbitration is firmly embedded in arbitral jurisprudence, and that the core issue was whether conduct of proceedings and rendering of the award at New Delhi could confer jurisdiction on Delhi courts despite the express designation of Srinagar as the seat.
The Court reiterated that the seat of arbitration is the juridical home or legal place of arbitration; it determines the curial law governing the arbitral process and identifies the court exercising supervisory jurisdiction. Once the seat is designated by agreement of the parties, courts of that place alone have exclusive jurisdiction over all proceedings arising out of the arbitration, including challenge to the award.
The Court also observed that the venue is only a geographical location chosen for convenience for hearings, examination of witnesses, or meetings of the tribunal. It does not confer jurisdiction and does not by itself alter or determine the seat. Mere conduct of arbitral proceedings or rendering of the award at a place different from the designated seat does not confer jurisdiction on courts of that place.
Accordingly, the Court noted that the order dated March 26, 2016 expressly recorded, on agreement of the parties, that the seat of arbitration shall be Srinagar and the venue shall be New Delhi. The surrounding circumstances also reinforced Srinagar as the seat, since the contracts were executed in Jammu & Kashmir, the works were to be carried out there, the arbitration was initiated there, and the High Court at Srinagar had appointed the arbitrator.
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If the corporate debtor is a solvent and functioning company and the quantum of debt is seriously disputed, then insolvency process invoked only to secure payment of individual dues, and the initiation and continuation of CIRP amounts to misuse of IBC as a recovery mechanism
The Supreme Court in the case of Anjani Technoplast vs Shubh Gautam [Civil Appeal No. 8247 of 2022] dated April 23, 2026, has held that a money decree in favour of a financial creditor may furnish a fresh cause of action for initiation of proceedings under Section 7 of the IBC, but that principle does not entitle a decree holder, as a matter of right, to invoke the insolvency process in substitution of execution proceedings. Where the corporate debtor is a solvent and functioning company, the creditor has an efficacious execution remedy, and the quantum of debt is seriously disputed, the insolvency process invoked only to secure payment of individual dues, and the initiation and continuation of CIRP amounts to misuse of the IBC as a recovery mechanism and abuse of process.
The Court observed that the central issue was not whether some money was due from the appellant, but whether the insolvency process under the IBC could be invoked as a substitute for execution of a civil court decree. The IBC is enacted for reorganisation and insolvency resolution of corporate persons in a time-bound manner and is not a debt recovery legislation.
Referring to the decision in the case of Swiss Ribbons (P) Ltd. vs. Union of India [(2019) 4 SCC 17], Pioneer Urban Land and Infrastructure Ltd. vs Union of India [(2019) 8 SCC 416], and GLAS Trust Co. LLC vs. BYJU Raveendran [(2025) 3 SCC 625], the Court observed that the IBC must not be used as a tool for coercion and debt recovery by individual creditors, and that using insolvency as a substitute for debt enforcement amounts to improper use of the Code. The Court further noted that Section 65 of the IBC itself reflects the legislative intent to prevent fraudulent or malicious initiation of insolvency proceedings for purposes other than insolvency resolution.
The Court found the respondent’s conduct significant: despite holding a final money decree, he did not initiate execution proceedings and instead invoked Section 7 of the IBC against a solvent and functioning company. The appellant had represented itself as a running company with substantial revenue and profits, had undertaken to pay the amount lawfully due, and had deposited substantial sums before the High Court and pursuant to orders of this Court. These circumstances did not indicate genuine insolvency.
The Court also considered the serious and unresolved dispute as to the quantum of debt. It noted that the computation of the decretal amount, including credit for prior payments, was already pending before the Delhi High Court, and that the respondent had taken materially inconsistent positions before different forums regarding the amount due. Such discrepancies, in the Court’s view, went to the root of the claim and made insolvency proceedings inappropriate.
The Court clarified that although Dena Bank states that a decree for money in favour of a financial creditor gives a fresh cause of action to initiate proceedings under Section 7 of the IBC, that proposition does not mean that every decree holder who is also a financial creditor can invoke the IBC as a matter of right in preference to execution. Whether resort to the IBC amounts to misuse of process must still be examined on the facts of each case.
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