The Supreme Court has clarified that while subsidiary companies are separate legal entities, the corporate veil may be lifted where associated companies are inextricably connected so as to form one concern. Since in the present case, Earth Infrastructures Limited (EIL) EIL was the main driving force behind the development of all three Greater Noida Industrial Development Authority (GNIDA)-linked projects, GNIDA was aware of that position, and the subsidiary/SPC entities were only a front, the Court held this to be an eminently fit case for lifting the corporate veil.
The Court explained that although GNIDA remained entitled to recover its principal dues, its failure to monitor the projects, delay in taking steps against defaults, and lack of diligence during the CIRP disentitled it from claiming penal interest, penal charges and time-extension penalties at this stage.
The Apex Court therefore held that the NCLAT erred in setting aside the approved plans, and hence, restored the resolution plans of Alpha and Roma, directed GNIDA to recalculate dues excluding penal components, and allowed payment of those recalculated dues over twenty-four months. The plans were to proceed from June 01, 2026, and registrations in favour of allottees were to be undertaken only after GNIDA’s dues were fully paid, with GNIDA’s participation, so as to confer sub-lease status on buyers.
The Court also emphasised that since Earth Copia was on freehold land in Gurugram and had nothing to do with GNIDA, the NCLAT was wrong in allowing the approval of Alpha’s plan for that project to be affected by GNIDA’s challenge. Accordingly, the Supreme Court allowed the appeals filed by Alpha, Roma and supporting buyer associations, restored the resolution plans, dismissed GNIDA’s appeals, and held that GNIDA’s recalculated non-penal dues were to be paid by Alpha and Roma in 24 equated monthly instalments, with the first payment due on or before July 07, 2026.
A Two-Judge Bench of Justice Sanjay Kumar and Justice Alok Aradhe found that GNIDA was informed of the CIRP and of the inclusion of development rights over the project lands in that process, but failed to act with diligence or within the timelines contemplated by the Code. It held that GNIDA had contributed greatly to the situation by persistent inaction and ineptitude, and had failed to monitor development, failed to take timely coercive steps despite defaults and complaints from buyers, and later sought to portray itself as an uninformed victim.
The Bench also observed that GNIDA could not credibly claim ignorance of EIL’s role in the projects. GNIDA knew that EIL was undertaking development on all three leased lands, including through approvals, communications and the structure of the Earth Towne arrangement itself. The Bench accepted the position that, ordinarily, holding and subsidiary companies are distinct legal entities, but held that this was a fit case for lifting the corporate veil because the associated entities were inextricably connected and EIL was the real driving force in development and in payment of GNIDA dues, while the subsidiary companies were only a front.
The Bench further held that GNIDA’s own lapses disentitled it from levying penal interest, penal charges and time-extension penalties, though it remained entitled to recover the principal amounts due after excluding those penal components. It recorded that both successful resolution applicants, Alpha and Roma, were willing to clear GNIDA’s dues without burdening the homebuyers, and treated that commitment as significant while restoring the plans.
Briefly, the appeals arose from the NCLAT judgment which had set aside the NCLT’s orders approving the resolution plans submitted by Roma Unicon Designex Consortium for the Earth Towne project and Alpha Corp Development Private Limited for Earth TechOne, Earth Sapphire Court and Earth Copia. The underlying CIRP had been initiated against Earth Infrastructures Limited (EIL) under Section 7 of the Insolvency and Bankruptcy Code, 2016. EIL was the corporate debtor. The Committee of Creditors comprised HDFC Bank and 4,229 allottees/home or office space buyers.
GNIDA had allotted/leased three project lands connected with EIL group entities: Earth Towne through ETIPL, Earth TechOne through Neo Multimedia Limited, and Earth Sapphire Court through Nishtha Software Private Limited. Though the leasehold lands stood in the names of those entities, EIL was the developer of all three projects. In the case of Earth Towne, GNIDA’s own scheme required a consortium to form a special purpose company, and ETIPL was accordingly incorporated. The lease deed recorded that EIL was the lead member and majority shareholder and was required to retain that status till completion of at least one phase of the project.
After the CIRP commenced, the IRP and RP informed GNIDA and sought details of its dues in relation to the projects, but GNIDA did not timely file claims. Roma’s plan was approved by the CoC on Aug 26, 2019 and Alpha’s plan on Nov 11, 2019. GNIDA raised its Earth Towne claim only on Sep 18, 2019, filed a claim for Earth TechOne only on Nov 11, 2021, and did not file a claim for Earth Sapphire Court.
The NCLAT held that the assets of EIL’s subsidiaries could not be treated as assets of EIL; that the resolution plans could not deal with GNIDA’s leased lands without GNIDA’s permission; that GNIDA ought to have been made a party to the CIRP proceedings before approval of such plans; and that GNIDA should waive penal interest and recalculate its dues. It accordingly set aside the NCLT approval orders and directed a fresh process.
Appearances:
Dr. Abhishek Manu Singhvi, Sr. Adv., Dhruv Mehta, Sr. Adv., Sameer Abhyankar, AOR, Sandeep Bhuraria, Adv., Aakash Thakur, Adv., Rahul Kumar, Adv., Vatsala Pandey, Adv., Dr. Menaka Guruswamy, Sr. Adv., V.M. Kannan, AOR, Mayank Singh, Adv., Rumela Biswas, Adv., Nakul Dewan, Sr. Adv., Ekansh Mishra, AOR, Meenakshi Arora, Sr. Adv., Mahesh Agarwal, Adv., Sumesh Dhawan, Adv., Ankur Saigal, Adv., Vastala Kak, Adv., Nishant Rao, Adv., Naman Gupta, Adv., Kavya Tekriwal, Adv., Shaurya Shyam, Adv., Sagar Thakkar, Adv., E.C. Agrawala, AOR, Sumit Srivaastava, AOR, Satyam Sinha, Adv., Shivam, Adv., Anshuman Sharma, Adv., Sarvesh Singh Baghel, AOR, Rahul Kumar, Adv., Vishesh Kumar, Adv., Prity Kumari, Adv., Jay Kishor Singh, AOR, Devendra Kumar Shukla, AOR, Shashank Raghav, Adv., Shubhangini Yadav, Adv., Rakesh Kumar Tewari, Adv., Ankur Saraswat, Adv., Rahul Kumar, Adv., Shubhranshu Padhi, AOR, Ekansh Sisodia, Adv., Jay Nirupam, Adv., D. Girish Kumar, Adv., Pranav Giri, Adv., Ritik Sharma, Adv., and Binay Kumar Das, AOR, for the Appellants
Birendra Kumar Mishra, AOR, Anshuman Sharma, Adv., Sarvesh Singh Baghel, AOR, Devendra Kumar Shukla, AOR, Nakul Dewan, Sr. Adv., Ekansh Mishra, AOR, Ravindra Kumar, Sr. Adv., Shivam Saksena, Adv Mr. Binay Kumar Das, AOR, Priyanka Das, Adv., Neha Das, Adv., Shivam Saksena, Adv., Gunjan Kumar, AOR, Somesh Dhawan, Adv., Sumit Srivaastava, AOR, Meenakshi Arora, Sr. Adv., Mahesh Agarwal, Adv., Sumesh Dhawan, Adv., Ankur Saigal, Adv., Vastala Kak, Adv., Nishant Rao, Adv., Naman Gupta, Adv., Kavya Tekriwal, Adv., Shaurya Shyam, Adv., Sagar Thakkar, Adv., E.C. Agrawala, AOR, Dhruv Mehta, Sr. Adv., Sameer Abhyankar, AOR, Sandeep Bhuraria,, Adv., Aakash Thakur, Adv., Nalin Talwar, Adv., Mr. Chakradhari Sharan Singh, Sr. Adv., Durga Dutt, AOR, Rohit Priyadarshi, Adv., Susant Kumar Mallik, Adv., Priyanshu Upadhyay, Adv., Pradeep Yadav, Adv., Z. Orenvungo Ezung, Adv., K. Parmeshwar, Sr. Adv., Snigdha Singh, Adv., Kumar Shashwat, Adv., Yashika Chadha, Adv., Satya Kam Sharma, AOR, Anupam Lal Das, Sr. Adv., Kumar Mihir, AOR, Gunjan Sharma, Adv., Devendra Kumar Shukla, AOR, Pushpinder Singh, AOR, Kumar Kartikay, Adv., Neelu Sharma, Adv, r. Harsh Wadhwani, Adv., Siddhartha Makhija, Adv., Vedant Sharma, Adv., Ranjit Balasaheb Raut, AOR, Sonit Sinhmar, Adv., Sunayana Pawar, Adv., Sumit Vats, Adv., Anand Padmanabhan, Sr. Adv., Ameet Singh, Adv., Saurabh Trivedi, AOR, Prashant Jain, Adv., Varun Garg, Adv., Shubham Paliwal, Adv., Bharat Sood, Adv., P.S. Sudheer, AOR, Rishi Maheshwari, Adv., Anne Mathew, Adv., Sunaina Phul, Adv., Komal Bihani, Adv., Kinjal Sharma, Adv., Rupam Sharma, Adv., Shiv Mangal Sharma, Adv., Abhishek Sharma, Adv., M/s. Aura & Co., AOR, Ms. Anuja Pethia, AOR, Bharat Sood, Adv., P.S. Sudheer, AOR, Rishi Maheshwari, Adv., Anne Mathew, Adv., Sunaina Phul, Adv., Komal Bihani, Adv., Kinjal Sharma, Adv., Rupam Sharma, Adv., Supriya Juneja, AOR, Noor Shergill, Adv., Rishabh Nigam, Adv., Kshirja Agarwal, Adv., Rishabh Govila, Adv., Amisha Aggarwal, Adv., Prashant Jain, Adv., Varun Garg, Adv., and Shubham Paliwal, Adv., for the Respondents
