Resolution plan of holding company does not extinguish separate secured debts of its subsidiary companies.

The Appellant (EIEL) is the holding company of Haridwar Highways Project Ltd. (HHPL—Principal Borrower) and Era Infrastructure (India) Ltd. (EIIL—Corporate Guarantor)

HHPL obtained loans from a consortium of lenders, for which EIEL provided a "Sponsor’s Shortfall Undertaking"

In 2018, CIRP commenced against the Appellant (EIEL), where lenders filed unsecured claims based on the shortfall undertaking

A resolution plan for EIEL was approved on 11.06.2024

Subsequently, Respondent No. 2 (NARCL), as assignee of the lenders, filed Section 7 IBC applications against HHPL and EIIL

The Appellant sought to intervene, arguing that since the lenders' claims were dealt with in its own approved resolution plan, the debt against the subsidiary and guarantor stood extinguished

The Adjudicating Authority rejected the intervention and admitted the Section 7 applications

The court applied Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, regarding the initiation of CIRP by financial creditors.

It relied on the principle that a "default" occurs upon non-payment of debt when due [Section 3(12) IBC], as affirmed in M. Suresh Kumar Reddy v. Canara Bank, which held that the Adjudicating Authority has no discretion to refuse admission if debt and default are proved.

The court further applied Section 31 of the IBC regarding the binding nature of resolution plans

and the doctrine of independent legal entities, distinguishing between a sponsor’s unsecured shortfall undertaking and a borrower’s secured term loan

The court reasoned that the debt owed by the Appellant (EIEL) arose from a "Sponsor’s Shortfall Undertaking," which was treated as an unsecured claim in its resolution plan.

In contrast, the debt of HHPL (Principal Borrower) arose from separate "Term Loan Agreements" and was secured.

The court emphasized that a clarification affidavit filed by the Successful Resolution Applicant (SRA) specifically stated that the plan would not affect the rights of creditors to realize debts from principal debtors or other guarantors.

Consequently, the satisfaction of the Appellant's unsecured liability did not eclipse or extinguish the independent secured debt of the subsidiary.

The court also found that the "Sharing of Arbitral Proceeds Agreement" was a private arrangement that did not operate as a legal waiver or novation of the secured financial debt.

Regarding locus standi, while shareholders generally lack standing, the court allowed the appeal because the Appellant alleged the plan’s implementation was being frustrated.

The court affirmed that once the Adjudicating Authority is satisfied regarding the existence of debt and default, admission under Section 7 is mandatory.

The rejection of the intervention applications was upheld as the Corporate Debtors were already represented and heard.

Final orders: Appeals dismissed; no error found in the orders dated 04.11.2025.