Full Judgment Text
REPORTABLE
2026 INSC 14
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 9701 of 2024
UV Asset Reconstruction Company Limited ... Appellant
Versus
Electrosteel Castings Limited … Respondent
J U D G M E N T
ALOK ARADHE, J.
INTRODUCTION
1. This appeal under Section 62 of Insolvency and Bankruptcy
Code, 2016 (hereinafter, referred to as the ‘Code’) calls in
question the legality and correctness of the judgment dated
24.01.2024 by the National Company Law Appellate Tribunal
(NCLAT), whereby, the NCLAT affirmed the order dated
24.06.2022 passed by the Adjudicating Authority (NCLT)
rejecting the application filed by the appellant under Section 7
of the Code.
(ii) ISSUE
2. The central issue arising for consideration in the present appeal
Signature Not Verified
Digitally signed by
Jayant Kumar Arora
Date: 2026.01.06
15:55:30 IST
Reason:
pertains to the interpretation of Clause 2.2 of Deed of
Undertaking dated 27.07.2011 executed between SREI
1
Infrastructure Finance Limited (SREI), the original creditor,
which subsequently assigned all its rights and interests in
favour of UV Asset Reconstruction Company Limited, the
appellant; Electrosteel Steels Limited (ESL), the borrower; and
Electrosteel Castings Limited (ECL), the erstwhile promoter of
ESL and obligor in the Deed of Undertaking. The Controversy
lies in determining whether said Clause constitutes a contract of
guarantee within the meaning of Section 126 of the Indian
Contract Act, 1872 (Act) thereby rendering ECL as a guarantor
to SREI in respect of financial facilities availed by ESL from SREI.
(iii) FACTUAL BACKGROUND
3. Briefly stated, the facts leading to filing of present appeal, are as
follows. ESL availed financial assistance of INR 500 crores from
SREI pursuant to sanction letter dated 26.07.2011. Under the
sanction letter, the only security for the facility comprised a
demand promissory note and post-dated cheques. The sanction
letter did not stipulate any requirement for a personal or
corporate guarantee from the ECL. However, ECL being the
promoter of ESL was required to furnish an undertaking to
arrange for the infusion of funds.
2
4. On the same day, SREI issued an addendum to the sanction
letter, providing for an additional security for the facility in the
form of subservient charge over movable and project assets of
ESL. On 26.07.2011 itself, SREI and ESL executed a Rupee Loan
Agreement. Clause (d)(3) of schedule 4 to the loan agreement,
required the ECL to furnish an undertaking to arrange for
infusion of funds to enable ESL, to comply with financial
covenants.
5. In pursuance thereof, ECL, one of the promotors of ESL,
executed a Deed of Undertaking, warranty, and indemnity dated
27.07.2011 (undertaking) whereby it undertook a limited
obligation to arrange for infusion of funds into ESL. Clause 2.2
of the aforesaid guarantee provides that ECL shall arrange for
infusion of such amount of funds into the ESL, as may be
necessary to enable ESL to comply with stipulated financial
covenants.
6. Subsequently on 21.11.2011, ESL, ECL and SREI entered into a
supplementary agreement amending inter alia the facility
agreement and the security package for the facility.
3
(iv) CORPORATE INSOLVENCY RESOLUTION PROCESS OF ESL
7. On 27.06.2017, State Bank of India, one of the lenders of ESL,
filed an application on 27.06.2017 under Section 7 of the Code,
before NCLT Kolkata, which was admitted on 20.07.2017.
Thereafter, by an order dated 17.04.2018, passed under Section
31 (1) of the Code, the NCLT Kolkata, approved the resolution
plan submitted by Vedanta for acquisition of ESL. Under the
approved resolution plan, ESL was acquired for a total
consideration of INR 12,719.14 crores, comprising upfront cash
payment of INR 5,320.00 crores and conversion of balance
amount into equity shares. The resolution plan duly was
implemented.
8. Upon implementation of the resolution plan, SREI issued an
unconditional ‘no due certificate’ to ESL certifying that dues
owned by ESL to SREI stood fully discharged. However, SREI
subsequently claimed that it has been allotted reduced amount
of shares upon conversion of balance debt. On 30.06.2018, SREI
executed a Deed of Assignment (Assignment Deed) in favour of
the appellant, purporting to assign the alleged residual debt.
4
(v) PROCEEDING BEFORE NCLT
9. The appellant thereafter filed an application under Section 7 of
the Code before the NCLT, Cuttack, asserting that; (i) a residual
financial debt, remained payable by ESL despite implementation
of the resolution plan, and (ii) ECL has furnished a corporate
guarantee for the debt of ESL.
10. The NCLT, by order dated 24.06.2022, dismissed the petition
filed by the appellant under Section 7 of the Code on two
principal grounds; (i) ECL was not a guarantor in respect of
financial facilities availed by ESL and, therefore no financial debt
was owed by ECL, and (ii) the conversion of ESL’s debt into
equity under resolution plan resulted in extinguishment of any
liability of ECL.
(vi) PROCEEDING BEFORE NCLAT
11. Aggrieved thereby, the appellant preferred an appeal before the
NCLAT. The NCLAT in its judgment dated 24.01.2024 framed
two specific issues for adjudication namely, (i) whether ECL was
a guarantor to SREI for the financial facilities availed by ESL and
(ii) whether approval of the resolution plan of ESL resulted in
extinguishment, of entire debt, so as to bar any claim against
the ECL as a guarantor or third party surety.
5
12. The NCLAT answered the first issue in the negative, holding that
ECL cannot be construed as a guarantor under Clause 2.2 of
Deed of Undertaking in respect of the financial facility extended
by SREI to ESL. While answering the second issue, it held that
approval of resolution plan extinguished the debt, qua ESL i.e.,
corporate debtor alone. It was further held that such
extinguishment did not by itself, extend to third parties unless
expressly provided in the plan. Nonetheless, the appeal was
dismissed on the primary finding that ECL was not a guarantor.
Hence, the present appeal.
(vii) RIVAL SUBMISSIONS
13. Learned senior counsel for the appellant contended that Clause
2.2 of the Deed of Undertaking, satisfies the requirements of a
contract of guarantee as defined under Section 126 of the Act. It
is submitted that Clause 2.2 envisages the ECL to discharge the
obligation to infuse funds upon default of ESL in compliance of
financial covenants. It is argued that Clause 2.2 involves two
step process of discharging liability as a guarantor namely, (i)
the first step is to fund ESL for such amounts, and (ii) second
step is to eliminate the breach of default on the part of the
borrower. It is submitted that the guarantee in question is “See
6
to it” type guarantee. In support of aforesaid submission,
1
reliance has been placed on the decisions of House of Lords and
2
Court of Appeal .
14.
It is argued that ECL had admitted its status as a guarantor in
3 4
the pleadings before the Madras High Court and this Court and
5
is therefore, estopped from taking a contrary stand. Our
attention has also been invited to the letters dated 30.06.2017
and 20.07.2017 sent by ESL to SREI, evidencing payment of INR
38 Crores by ECL to SREI which according to the appellant,
reinforces the existence of guarantee obligation. It is urged that
NCLAT erred in relying upon the sanction letter dated
26.07.2011 and information memorandum dated 27.10.2017 to
negate the existence of the guarantee and the impugned order
warrants interference in this appeal.
15. On the other hand, learned senior counsel for the respondent
submitted that Clause 2.2 of the Deed of Undertaking, imposed
only an obligation to arrange for infusion of funds and did not
amount to a guarantee under Section 126 of the Act. In support
1
Moschi vs. Lep Air Services Ltd.: 2 WLR 1175 (per Lord Diplock).
2
Associated British Courts vs. Ferryways [2009] EWCA Civ. 189 and Shanghai Shipyard Co. Ltd. vs.
Reignwood International Investment (Group) Co. Ltd.: [2021] EWCA Civ. 1147 .
3
CSD No. 18692 of 2019 and Order dated 05.11.2019 passed by Division Bench of Madras High Court.
4
Judgment dated 26.11.2021 in Civil Appeal No. 6669 of 2021.
5
Mumbai International Airport Pvt. Ltd. vs. Golden Chariot Airport and Ors. (2010) 10 SCC 422 (Para
43-50) and Nagindas Ramdas vs. Dalpatram Ichharam and Ors. (1974) 1 SCC 242 (para 27).
7
of the aforesaid submissions, reliance has been placed on the
6
decisions of Bombay, Karnataka and Delhi High Courts . It is
pointed out that even the appellant in its pleading before NCLAT
has admitted that undertaking is not a contract of guarantee. It
is also pointed out that the sanction letter by SREI does not
envisage facility being secured by any personal or corporate
guarantee. It is contended that ‘see to it’ guarantee is not the
type of guarantee contemplated under Section 126 of the Act and
has not been adopted in Indian Common Law. It is submitted
that ECL made a payment of INR 38 crores to SREI on
20.07.2017 on its own volition, in its capacity as promotor of
ESL. It is further submitted that aforesaid payment was not
made on account of any contractual obligation.
16. It is also urged that, it is well settled, that pleadings must be
read as a whole and cannot be read selectively, out of context or
in isolation. It is pointed out that the pleading was filed by the
ECL in the proceeding initiated by the appellant to enforce
mortgage security created by ECL in favour of SREI. In the said
pleading, it was stated that ECL has given a guarantee which is
6
Yes Bank Limited v. Zee Entertainment Enterprises Limited and Ors, 2020 SCC OnLine Bom 11763
(Paras 50,53,59,62,67), United Breweries (Holding) Ltd. v. Karnataka State Industrial Investment and
Development Corporation Ltd. and Others, 2011 SCC OnLine Kar 4012 (para 6,9) and Aditya Birla
Finance Ltd. vs. Siti Networks, 2023 SCC OnLine Del 1290 (Para 26,237,238).
8
limited only to the mortgage property and the same is not
personal. It is urged that reliance on the decisions in Nagindas
Ramdas and Mumbai International Airport Pvt. Ltd. is
misplaced. It is finally urged that detailed and reasoned orders
passed by the NCLT and NCLAT do not call for any interference
in this appeal.
(viii) ANALYSIS
17. We have given our thoughtful consideration to the rival
submissions and have carefully perused the records. Section
126 of the Act defines a ‘Contract of Guarantee’, as a contract to
perform promise, or discharge the liability, of a third person in
case of his default. The essential ingredients of a guarantee,
therefore, are (a) existence of principal debt, (b) default by the
principal debtor and (c) a promise by the surety to discharge the
liability of the principal debtor upon such default. Thus, a
guarantee is a promise to answer for the payment of some debt,
or the performance of some duty, in case of failure of another
party, who is in the first instance, liable to such payment or
7
performance . A guarantee is a security in the form of right of
action against a third party. In order to constitute a guarantee,
7
Conley (Re), ex p Trustee v Barclays Bank Ltd. (1938) 2 All ER 127, at 130-131 (CA)
9
there has to be a specific undertaking or unambiguous
affirmation to discharge the liability of a third person in case of
their default.
18.
A guarantee is governed by principles of construction generally
8
governing other documents . A guarantee being a mercantile
contract, the Court does not apply to it merely technical rules
but construes it so as to reflect what may fairly be inferred to
have been the parties’ real intention and understanding as
expressed by them in writing and to give effect to it rather than
9
not .
19. Now, we advert to Clause 2.2 of Deed of Undertaking dated
27.07.2011, which reads as under: -
“2.2. Financial Covenants
In the event the Borrower is not in a
position to comply with the
Financial Covenants in the
Financing Documents, or has
breached such Financial Covenants,
the Obligors will arrange for the
infusion of such amount of fund
into the Borrower such that the
Borrower is in a position to comply
with the abovementioned Financial
Covenants.”
8
Raghunandan v. Kirtyanand, AIR 1932 PC 131, Eshelby v Federated European Bank Ltd. (1932) 1 KB
254 and Kamla Devi v. Thakhratmal Land, AIR 1964 SC 859
9 th
Halsbury’s Laws of England, Vol 49, 5 Edition and Perrylease Ltd v Imecar AG, (1987) 2 All ER 378
10
Thus, the aforesaid Clause obligates ECL to arrange for infusion
of funds into ESL, so as to enable the borrower to comply with
the stipulated Financial Covenants.
20.
For an obligation to be construed as a guarantee under Section
126 of the Act, there must be a direct and unambiguous
obligation of the surety to discharge the obligation of the
principal debtor to the creditor. The clause neither records an
undertaking to discharge the debt owed to the creditor nor does
it contemplate payment to the lender in the event of the default.
The clause contains a promise, not to the creditor to pay the debt
upon default, but to the borrower to facilitate compliance with
Financial Covenants. An undertaking to infuse funds into a
borrower, so that it may meet its obligations cannot, by itself be
equated with the promise to discharge the borrower’s liability to
the creditor. A mere Covenant to ensure financial discipline or
infusion of funds does not satisfy the statutory requirements of
Section 126 of the Act.
21. The sanction letter dated 26.07.2011 does not contemplate any
personal or corporate guarantee. On the contrary, it specifically
identifies the securities for the facilities and does not require
ECL to stand as surety. The fact that no guarantee was furnished
11
by ECL is also borne out from the following documents: (i)
information memorandum in the CIRP of ESL does not reflect
any guarantee from the Respondent in connection with SREI’s
Facility under the category of Guarantee or Security Interest; (ii)
In Schedule 1 to the Assignment Agreement, against the column
titled “details of the guarantor/co-borrower”, the parties to
Assignment Agreement stated ‘Nil’ and (iii) Audited Financial
Statement of ESL does not reflect any guarantee obligation
towards SREI. Thus, contemporaneous documents reinforce the
conclusion that parties never intended to create a contract of
guarantee.
22. Section 126 of the Act mandates a guarantor to ‘perform a
promise’ or ‘discharge the liability’ of a third person which
necessarily implies a direct performance or discharge. A ‘See to
it’ guarantee in English Common Law refers to an obligation
upon the guarantor to ensure that principal debtor itself,
performs its own obligation and the guarantor, therefore, is in
breach as soon as principal debtor fails to perform. However, a
‘See to it’ guarantee does not include an obligation to enable the
principal debtor to perform its own obligation. Such an
12
arrangement would not be a guarantee under Section 126 of the
Act.
23. It is pertinent to note that payment of an amount of INR 38
crores by ECL to the appellant was not made on account of any
contractual obligation. The said payment was made on
20.07.2017 in its capacity as a promotor of ESL. Such payment
by itself does not give rise to any contract of guarantee,
particularly when there is no contractual obligation of guarantee
in the Deed of Undertaking.
24. It is well settled in law, that, pleadings must be read as a whole
and cannot be read selectively out of context or in isolation. The
appellant had initiated an action to enforce the mortgage
security created by ECL in favour of SREI. In the aforesaid
proceeding, ECL in its pleadings stated that it has given a
guarantee which is limited to the mortgaged property with no
personal recourse to ECL. The reliance of the appellant on the
decisions of Nagindas Ramdas and Mumbai International
Airport Pvt. Ltd., is misconceived, as the aforesaid decisions
are an authority for the proposition that if admissions are true
and clear, they are the best proof of facts, admitted in the context
of Section 58 of the Indian Evidence Act, 1872. Therefore, the
13
aforesaid decisions have no application to the fact situation of
the case.
(ix) CONCLUSION
25.
For the aforementioned reasons, we concur with the concurrent
findings of NCLT and NCLAT that Clause 2.2 of the Deed of
Undertaking does not constitute a contract of guarantee and
that ECL cannot be treated as guarantor for the financial
facilities availed by ESL. We, therefore, do not find any infirmity
in the impugned judgment warranting interference in this
appeal.
26. In the result, the appeal is dismissed. There shall be no order as
to costs.
……………………J.
[SANJAY KUMAR]
..………………….J.
[ALOK ARADHE]
NEW DELHI;
JANUARY 06, 2026.
14
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 12367 of 2025
Electrosteel Castings Limited … Appellant
Versus
UV Asset Reconstruction
Company Limited ... Respondent
J U D G M E N T
ALOK ARADHE, J.
INTRODUCTION
1. The present appeal, instituted under Section 62 of the
Insolvency and Bankruptcy Code, 2016 (hereinafter, referred
to as the ‘Code’) calls in question the judgment dated
24.01.2024 rendered by the National Company Law
Appellate Tribunal (NCLAT), whereby, the NCLAT affirmed
the order passed by the adjudicating authority (NCLT). The
challenge in this appeal is confined to the findings recorded
by NCLAT on Question No. (II), which are contained in
paragraphs 48 to 59 of the impugned judgment.
1
2. For proper appreciation of the controversy involved, the
material facts giving rise to the present appeal are set out
hereinafter.
(ii) FACTUAL BACKGROUND
3. One Electrosteel Limited (ESL) had availed of financial
assistance amounting to INR 500 crores from SREI
Infrastructure Finance Limited (SREI), vide sanction letter
dated 26.07.2011. SREI was the original creditor, which
subsequently assigned all its rights and interest in favour of
UV Asset Reconstruction Company Limited (ARC).
4. Under the sanction letter, the only security for the facility
comprised a demand promissory note and post-dated
cheques. The sanction letter did not stipulate any
requirement for a personal or corporate guarantee from
Electrosteel Castings Limited (ECL), the erstwhile promotor
of ESL. However, ECL, being the promoter of ESL, was
required to furnish an undertaking to arrange for the
infusion of funds.
5. On the same day, an addendum to the sanction letter was
issued by SERI, providing for an additional security for the
facility in the form of subservient charge over movable and
2
project assets of ESL. On 26.07.2011 itself, SREI and ESL
executed a Rupee Loan Agreement. Clause (d)(3) of schedule
4 to the loan agreement, required the ECL to furnish an
undertaking to arrange for infusion of funds to enable ESL
to comply with financial covenants.
6. In pursuance thereof, ECL executed a Deed of Undertaking,
warranty, and indemnity dated 27.07.2011 (undertaking)
whereby it undertook a limited obligation to arrange for
infusion of funds into ESL. Clause 2.2 of the aforesaid
guarantee provides that ECL shall arrange for infusion of
such amount of funds into the ESL, as may be necessary to
enable ESL to comply with stipulated financial covenants.
7. Subsequently on 21.11.2011, ESL, ECL and SREI entered
into a Supplementary Agreement amending the facility
agreement and the security package for the facility. As per
Revised Term 3.1.6 in Schedule III to the aforestated
Supplementary Agreement dated 21.11.2011, ECL offered
the first mortgage on its land admeasuring Acres 102.3
Cents, with a factory building, together with all benefits and
advantages accruing thereon, situated at Elavur Village,
Ponneri Taluk, Chinglepet District, Tamil Nadu, to SREI.
3
Pursuant thereto, Declaration dated 23.11.2011 was
executed by ECL in favour of SREI, creating an equitable
mortgage by deposit of the title deeds of the aforestated
property at Elavur Village. ECL recorded therein that the
mortgage was to secure the due repayment, discharge and
redemption by ESL to SREI of the financial assistance
advanced or to be advanced by SREI to ESL.
(iii) CORPORATE INSOLVENCY RESOLUTION PROCESS OF
ESL
8. On 27.06.2017, State Bank of India, one of the lenders of
ESL, filed an application under Section 7 of the Code, before
NCLT Kolkata, which was admitted on 20.07.2017.
Thereafter, by an order dated 17.04.2018, passed under
Section 31 (1) of the Code, the NCLT Kolkata, approved the
Resolution Plan submitted by Vedanta for acquisition of
ESL. Under the approved Resolution Plan, Vedanta was
required to make a deposit of INR 5320 crores as upfront
cash payment under the Resolution Plan in an escrow
account to be distributed to the creditors of ESL towards
‘Sustainable Debt’. The entire remaining financial debt
amounting to INR 7399.13 crores was categorised as
‘unsustainable debt’ and was converted into 739,91,32,055
4
fully paid-up equity shares of ESL with face value of INR 10
each, as part of the Resolution Plan. SREI received INR
241.71 crores in cash and equity shares worth INR 336.19,
crores in lieu of its total admitted claim of INR 577.90 crores.
9. Upon implementation of the Resolution Plan, SREI issued an
unconditional ‘no dues certificate’ to ESL certifying full
discharge of ESL’s liability. However, SREI subsequently
claimed that it was allotted reduced number of shares upon
conversion of balance debt. On 30.06.2018, SREI executed
a Deed of Assignment in favour of the ARC, purporting to
assign the alleged residual debt.
(iv) PROCEEDING BEFORE THE ADJUDICATING AUTHORITY
10. The ARC thereafter filed an application under Section 7 of
the Code before the NCLT, Cuttack, asserting that; (i) a
residual debt, subsisted despite the implementation of the
Resolution Plan, and (ii) ECL had furnished a corporate
guarantee for the debt of ESL.
11. The NCLT, by an order dated 24.06.2022, inter alia held that
the entire admitted debt of ESL stood repaid and discharged
in full, pursuant to approval of the Resolution Plan, and that
there was no surviving debt to be enforced against ECL. It
5
was further held that ECL was not a guarantor and that
conversion of debt into equity resulted in extinguishment of
liability. Accordingly, the application filed by ARC under
Section 7 of the Code was dismissed.
(v) PROCEEDING BEFORE NCLAT
12. Aggrieved thereby, ARC preferred an appeal before the
NCLAT. The NCLAT framed two issues for adjudication
namely, (i) whether ECL was a guarantor to SREI for the
financial facilities availed by ESL, and (ii) whether approval
of Resolution Plan of ESL resulted in extinguishment of
entire debt, barring any claim against ECL. The NCLAT
answered the first issue in the negative, holding that ECL
could not be construed as a guarantor under the Deed of
Undertaking. While answering the second issue, NCLAT
referred to Clause 3.2 (ix) of the Resolution Plan and
minutes of the meeting of Committee of Creditors of ECL
dated 29.03.2018, and held that it cannot be said that, after
approval of the Resolution Plan, the entire debt stood
extinguished and no recourse can be taken by the ARC
against ECL. It was further held that finding recorded by the
NCLT that ‘approval of Resolution Plan has led to
6
extinguishment and effacement of entire debt of ESL’ has to
be read as a finding qua ESL only and the said finding
cannot be read to mean that approval of Resolution Plan has
led to extinguishment and effacement of entire debt against
third parties as clearly contemplated in Clause 3.2 of the
Resolution Plan. Nevertheless, the appeal was dismissed as
ECL was not a guarantor. Hence, the present appeal.
(vi) SUBMISSIONS ON BEHALF OF THE APPELLANT
13. Learned senior counsel for the appellant confined the
challenge in this appeal to the findings on issue No. (ii). It
was contended that entire debt was recovered without any
haircut through cash payment and conversion of debt into
equity, and that conversion of debt into equity results in
irrevocable discharge of the debt. It was submitted that the
audited financial statement of ESL reflected no haircut, and
subsequent reduction of share capital could not revive the
debt.
14. It was argued that there is no concept of debt subsisting
only against a guarantor, once it is discharged against the
principal borrower and that Clause 3.2 (ix) of the Resolution
Plan would have no application where the debt stood fully
7
extinguished. It is urged that, it is a well settled position in
law that once a debt is converted into equity, the debt is
discharged and pursuant to conversion, the creditor ceases
to be a creditor and transforms, into a shareholder of the
issuing company. In support of aforesaid submissions,
1
reliance has been placed on a decision of Delhi High Court .
15. It is pointed out that there was no haircut to the financial
creditors of ESL, as any haircut accepted by the lenders is a
profit to the borrower which would have been recorded in the
profit and loss account of ESL. It is submitted that capital
reduction does not have the effect of reinstating the debt. It
is pointed out that reduction of entire share capital of ESL
and simultaneous consolidation of 50 equity shares of 20
paise into one equity share of Rs.10 occurred on 14.06.2018
i.e. eight days post conversion of debt to equity as a
subsequent and independent step, and cannot be treated as
a haircut or a diminution of receipts by the creditors through
unpaid debt.
1
Commissioner of Income Tax v. Rathi Graphics Technologies Ltd. – 2015 SCC Online Delhi 14470
8
2
16. It is also argued that NCLAT’s reliance on its judgment is
misplaced. It is also contended that NCLAT’s judgment in
Ushdev International Ltd. is per incuriam and is contrary
3
Lalit Kumar Jain .
to the decision of this Court in In
support of aforesaid submissions, reliance has been placed
on Indian Accounting Standard 109, and decisions of Privy
4
Council and this Court . Lastly, it is urged that appeal be
allowed.
(vii) SUBMISSIONS ON BEHALF OF THE RESPONDENT
17. Per contra, learned Senior Counsel for the respondent
submitted that approval of a Resolution Plan does not ipso
facto discharge the liability of the guarantor/third party. It
was contended that the financial creditor took a substantial
haircut on unsustainable debt and that Clause 3.2 (ix)
expressly preserves the rights against the third parties and
security providers. It is submitted that the Resolution Plan
2
Committee of Creditors of Ushdev International Ltd. through State Bank of India v. Mr. Subodh
Kumar Agarwal, Resolution Professional of Ushdev International Ltd. & Ors., Company Appeal (AT)
(Ins) No. 172-173 of 2022
3
Lalit Kumar Jain v. Union of India (2021) 9 SCC 321
4
Indian Accounting Standards 109, Relevant @ Clause 3.3., Forbes v. Git & Ors.-1921 SCC OnLine
PC 102 (Relevant Paragraphs- 8 to 11), Radha Sundar Dutta v. Mohd. Jahadur Rahim, 1958 SCC
OnLine SC 38 (Relevant Paragraphs- 11 to 13), Ramkishorelal and Another v. Kamal Narayan, 1962
SCC OnLine SC 113 (Relevant Paragraph-12,13), Delhi Development Authority v. Karamdeep
Finance and Investment India Pvt. Ltd & Ors., (2020) 4 SCC 136 (Para 36), IFCI Limited v. Sutanu
Sinha & Ors.- 2023 SCC OnLine SC 1529 : (2024) 248 Comp Cas 217, Disortho S.A.S. v. Meril Life
Sciences Private Ltd., 2025 SCC OnLIne SC 570 (Paras 26 to 28)
9
did not provide the financial creditors, including SREI, with
full value of unsustainable debt of ESL and the same
provided that the rights of financial creditors will not be
extinguished. Lastly, it is contended that no interference in
this appeal is called for.
(viii) ISSUE FOR CONSIDERATION
18. The sole issue which arises for consideration in this appeal
is, whether approval of the Resolution Plan of ESL resulted
in extinguishment of entire debt, so as to bar any claim
against the ECL as a security provider/promoter.
(ix) ANALYSIS AND FINDINGS
19. We have given our thoughtful consideration to the rival
submissions and have perused the records. In order to
answer the issue, it is apposite to take note of the admitted
facts which are evident from mandatory contents of the
Resolution Plan. The total admitted debt of financial
creditors was INR 13,395.25 crores. Out of the said amount,
an amount of INR 5320 crores was classified as sustainable
debt which was to be paid upfront to the financial creditors.
After upfront payment of sustainable debt to all financial
creditors, an amount of INR 7619.24 crores was treated as
10
unsustainable debt. The said amount of unsustainable debt
was to be converted to new equity shares of ESL amounting
to INR 7619.24 crores. As per the Resolution Plan, the share
capital of INR 2409.24 crores was to be added to the new
equity shares of INR 7619.24 crores. Thus, total issued,
subscribed paid up equity share capital of ESL was to
become INR 10,028.44 crores comprising 1002.84 crores
shares of Rs.10 each fully paid up.
20. The Resolution Plan contemplated steps to be taken which
constituted an integral part of the Resolution Plan. Step 2
which was an integral part of the Resolution Plan
contemplated that face value of entire ESL share capital,
including the newly allotted 761.92 crores shares, was to be
reduced from INR 10 each fully paid up to INR .20 fully paid
up. As a result of reduction in the face value of the shares,
the paid-up share capital of ESL was to be reduced from
10,028.44 crores.
21. Thus, the number of shares reduced from 1002.84 crores of
INR .20 each to 20.06 crores shares of INR 10 each. Clause
3.2 (vii)(B) of the Resolution Plan envisages that financial
creditors were to hold shares worth INR 152.38 crores
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comprising 7.60% of the equity share capital of ESL.
Ultimately, in view of unsustainable debt of INR 7619.24
crores under the Resolution Plan, the financial creditors
were to receive shares worth only INR 152.38 crores.
Therefore, it is evident that difference between INR 7619.24
crores and INR 152.38 crores visited upon the financial
creditors vide the approved Resolution Plan. This fact is also
indicated in the communication dated 02.06.2018
addressed by Vedanta to the Committee of Creditors of ESL.
Annexure-A to the said documents shows that while initially
in lieu of conversion of Unsustainable Debt of ESL, the total
number of shares initially allotted to financial creditors was
739,91,32,055, upon reduction in face value and
consolidation, these became 14,79,82,641 shares. SREI
which was initially allotted 33,61,85,524 shares of INR 10
each on or around 06.06.2018, was on reduction of face
value of shares received 67,23,710 shares of INR 10 each on
or around 14.08.2018. Thus, it is evident that the Resolution
Plan did not provide the financial creditors, including SREI,
with the full value of unsustainable debt of ESL.
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22. At this stage, it is apposite to take note of relevant extract
of Clause 3.2 (ix) of the Resolution Plan, which read as
under: -
“…Furthermore, the company shall stand
discharged of any default or event of default
under any loan documents or other financing
agreements or arrangements (including any
aide letter, letter of comfort, letter of
undertaking etc.) and all rights/remedies of
the creditors shall stand permanently
extinguished except any rights against any
third party (including the Existing promoter)
in relation to any portion of Unsustainable
Debt secured or guaranteed by third parties.
Furthermore, it is hereby clarified that upon
approval of the Resolution Plan by the NCLT,
no further consent of any creditor (Financial
Creditor, Operational Creditor or otherwise)
shall be required to implement the
Resolution Plan. Notwithstanding anything
contained in this Resolution Plan, if any third
party guarantor or security provider
(including the Existing Promoters) (who has
guaranteed or secured any portion of that
availed by the Company prior to Insolvency
Commencement Date, including the Existing
Promoters who have created pledge over
shares of Electrosteel Castings Limited or
the Company), makes any claim against the
Company or Vedanta or the SPV on account
of any invocation/enforcement of such
guarantee or security provided, as the case
may be (including the invocation of pledge
over shares of Electrosteel Castings Limited
or the Company) by the Financial Creditors
of the Company in any circumstance
(including on account of subrogation or
equity), its Claim shall be settled at NIL value
at par with the Claims of Operational
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Creditors as set out in Section 3.4 ii of this
Resolution Plan.”
23. Thus, from perusal of the aforesaid Clause, it is evident that
the Resolution Plan unequivocally provides that rights against
any third party, including a security provider/existing
promotor in relation to any portion of unsustainable debt,
secured or guaranteed by such third parties, will not be
extinguished. It further provides that, if any third-party
security provider (including the Existing Promoter) who has
guaranteed or secured any portion of debt availed by ESL
prior to insolvency commencement date, including the
Existing Promoter who have created pledge of shares of ECL
or ESL, makes any claims against ESL or Vedanta or SPV on
account of any invocation/enforcement of such guarantee or
security provided, such claim should be settled at NIL value.
24. It is well settled that approval of the Resolution Plan does not
ipso facto discharge a security provider of her or his liabilities
under the contract of security. Clause 3.2 (x) of the Resolution
Plan explicitly reserves the rights of financial creditors against
such third parties, including security providers/existing
promoters, in relation to the unsustainable debt.
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(x) CONCLUSION
25. For the aforementioned reasons, the issue involved in the
appeal is answered in the negative. The approval of the
Resolution Plan of ESL does not result in extinguishment of
entire debt, so as to bar any claim against the ECL as a
security provider/third-party surety.
26. In view of preceding analysis, we do not find any infirmity in
the impugned judgment of the NCLAT. The appeal is
accordingly dismissed. There shall be no order as to costs.
….…………………J.
[SANJAY KUMAR]
..………………….J.
[ALOK ARADHE]
NEW DELHI;
JANUARY 06, 2026.
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