UV Asset Reconstruction Company Limited vs Electrosteel Castings Limited

2026 INSC 14 REPORTABLE

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

JUDGMENT

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,

reliance has been placed on the decisions of House of Lords1 and

Court of Appeal2.

14. It is argued that ECL had admitted its status as a guarantor in

the pleadings before the Madras High Court3 and this Court4 and

is therefore, estopped5 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

decisions of Bombay, Karnataka and Delhi High Courts6. 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

performance7. 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

governing other documents8. 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

not9.

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 Halsbury’s Laws of England, Vol 49, 5th 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

JUDGMENT

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,

reliance has been placed on a decision of Delhi High Court1.

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

16. It is also argued that NCLAT’s reliance on its judgment2 is

misplaced. It is also contended that NCLAT’s judgment in

Ushdev International Ltd. is per incuriam and is contrary

to the decision of this Court in Lalit Kumar Jain3. In

support of aforesaid submissions, reliance has been placed

on Indian Accounting Standard 109, and decisions of Privy

Council and this Court4. 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

11 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

13 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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