Corporate veil may be lifted in real estate insolvencies to include subsidiary-held land in holding company’s resolution process.

The Corporate Insolvency Resolution Process (CIRP) was initiated against Earth Infrastructures Limited (EIL/Corporate Debtor).

EIL was developing four projects: three on land leased by GNIDA to EIL’s subsidiaries (Neo Multimedia, Nishtha Software, and ETIPL) and one on freehold land in Gurugram (Earth Copia).

The NCLT approved resolution plans by Roma Unicon for the 'Earth Towne' project and Alpha Corp for the remaining three projects.

GNIDA challenged these orders before the NCLAT, arguing that the leased lands belonged to the subsidiaries (separate legal entities), not the Corporate Debtor, and could not be dealt with without GNIDA’s prior permission.

The NCLAT set aside the resolution plans, holding that assets of subsidiaries cannot be included in the holding company’s CIRP.

1. Whether the assets of a subsidiary company can be treated as assets of the holding company in CIRP by piercing the corporate veil.

2. Whether the NCLAT erred in setting aside the resolution plan for a project (Earth Copia) situated on freehold land unrelated to GNIDA.

3. Whether GNIDA, as a secured creditor/lessor, was entitled to penal interest despite its own inaction and failure to monitor projects.

The Court applied the "Explanation" to Section 18 of the IBC, which generally excludes subsidiary assets from the Corporate Debtor’s estate.

The Court relied on the "Public Trust Doctrine" and the principle of "Lifting the Corporate Veil" as established in LIC v. Escorts Ltd. and ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, allowing Courts to look at the economic entity of a group as a whole where companies are inextricably connected.

The Court considered Section 25A(3A) regarding the binding nature of the majority vote of a class of creditors (homebuyers).

The Court considered the State’s recent policy on stalled real estate projects.

The Court found that EIL was the "main driving force" and the subsidiaries were merely a front; the lessees shared common directors and EIL held up to 98% shareholding.

GNIDA was fully aware that EIL was the actual developer, evidenced by GNIDA’s own correspondence with the police.

The Court held this to be a fit case to pierce the corporate veil because the subsidiaries' only assets were the project lands inextricably linked to EIL’s development rights.

GNIDA exhibited "persistent inaction and ineptitude" by failing to monitor construction for years and failing to file timely claims despite being informed of the CIRP in 2018.

Regarding Earth Copia, the Court found the NCLAT's total reversal logically flawed, as that project was on freehold land with no GNIDA involvement.

The Court held that while GNIDA is entitled to its principal dues, it is disentitled from claiming penal interest, penal charges, or time-extension penalties due to its own contributory negligence and delay.

The Court directed GNIDA to recalculate dues without penalties within two weeks and allowed the resolution applicants 24 months to pay the principal in instalments. The Resolution Applicants were ordered not to pass these land dues onto the homebuyers. The status quo order was vacated, and the NCLT was directed to facilitate the plan implementation.