Resolution Plan of Holding Company Does Not Extinguish Secured Debt of Subsidiary or Corporate Guarantor.

The Appellant (EIEL), a holding company, was undergoing Corporate Insolvency Resolution Process (CIRP) since 2018; its resolution plan was approved on 11.06.2024.

During EIEL’s CIRP, various lenders filed claims based on "sponsor shortfall undertakings" related to loans given to EIEL’s subsidiaries, Haridwar Highways Project Ltd. (HHPL—Principal Borrower) and Era Infrastructure (India) Ltd. (EIIL—Corporate Guarantor).

Subsequently, the lenders assigned the debt to NARCL (Respondent No. 2), who filed Section 7 IBC applications against HHPL and EIIL.

The Adjudicating Authority (NCLT) admitted these applications on 04.11.2025 and rejected EIEL’s intervention petitions.

EIEL appealed, arguing that since the lenders’ claims were settled and "extinguished" under its own approved resolution plan, no debt remained against the subsidiaries.

The court applied Section 7 of the IBC regarding the initiation of CIRP by financial creditors.

It relied on the Supreme Court precedent in M. Suresh Kumar Reddy v. Canara Bank, which mandates that once a "default" (defined under Section 3(12) IBC) is established, the NCLT must admit the Section 7 application.

Furthermore, the court interpreted Section 31 of the IBC regarding the binding nature of resolution plans, alongside the principle that the liability of a principal borrower and guarantor is independent of the sponsor's unsecured shortfall undertaking.

The court reasoned that the debt settled in EIEL’s (Appellant) resolution plan was based on an "unsecured shortfall undertaking," which is distinct from the "secured debt" arising out of the Term Loan Agreements executed by HHPL and EIIL.

A "clarification affidavit" filed by the Successful Resolution Applicant (SRA) in EIEL’s CIRP explicitly stated that creditors retained their rights to realize debts from principal debtors or other guarantors.

The court found that the Sharing of Arbitral Proceeds Agreement was a private inter se arrangement that did not operate as a waiver or novation of the underlying secured debt.

Consequently, the satisfaction of the Appellant’s liability as a sponsor did not extinguish the primary liability of the subsidiaries.

Regarding locus standi, the court held that while a shareholder’s rights are limited, the Appellant qualified as a "person aggrieved" under Section 61 because it alleged that the new CIRP would hinder the implementation of its own approved resolution plan.

The court affirmed the NCLT's orders admitting the Section 7 applications, ruling that the existence of debt and default was clearly established and the NCLT had no discretion to refuse admission.

The dismissal of the intervention petitions was also upheld as the Corporate Debtors had been heard.