Supreme Court lifts corporate veil in real estate insolvency; restores resolution plans and directs completion of stalled projects

The Hon’ble Supreme Court, in its judgment dated May 5, 2026, delivered by Justice Sanjay Kumar and Justice Alok Aradhe, addressed whether the assets of subsidiary companies—particularly leasehold lands—could be dealt with in the CIRP of the holding company, and whether GNIDA could challenge the NCLT-approved plans because its prior permission had not been obtained for transfer of leasehold rights.

The appeals arose from the NCLAT’s judgment dated January 30, 2023, which set aside the NCLT orders approving Alpha’s and Roma’s plans for EIL’s stalled projects. EIL was the developer, while GNIDA had leased the relevant lands to its subsidiaries—Earth Towne Infrastructures Private Limited (ETIPL), Neo Multimedia Limited, and Nishtha Software Private Limited. EIL was the driving force behind development; the entities shared directors and/or relationships, and EIL ultimately held 98% of ETIPL. The CoC comprised HDFC Bank and 4,229 home/office space buyers. Roma’s plan for Earth Towne and Alpha’s plan for Earth TechOne, Earth Sapphire Court, and Earth Copia were approved by the CoC with requisite majorities, Alpha’s plan receiving 91.39%.

GNIDA contended that the subsidiaries were separate legal entities and their leasehold assets could not form part of EIL’s CIRP. It also argued that the plans could not provide for transfer of leasehold rights without prior approval. The Court noted that GNIDA knew EIL was undertaking the development, yet failed to monitor the stalled projects, take timely coercive action, or submit its claims within the CIRP timelines.

The Hon’ble Supreme Court, while allowing the appeals, held as follows:

1. Lifting the Corporate Veil: Although holding and subsidiary companies are generally separate legal entities, the veil must be lifted where associated companies are inextricably connected and function as one concern. EIL was the main driving force behind the projects; the subsidiaries were only a front and its alter ego.

2. GNIDA’s Inaction and Accountability: GNIDA contributed greatly to the imbroglio through persistent inaction and ineptitude. Despite knowing that EIL was developing the leased projects, it failed to monitor progress, take timely coercive measures, or participate meaningfully in the CIRP; intermittent notices were insufficient.

3. Waiver of Penal Interest: GNIDA’s failure to protect home/office space buyers and its own interests disentitled it from levying penal interest, penal charges, and time-extension penalties. It remained entitled to recover the principal amounts after deducting those charges.

4. Resolution Plan for Earth Copia: The NCLAT erroneously set aside Alpha’s entire plan even though Earth Copia was on freehold land in Gurugram and had no connection with GNIDA. The plan’s severability clause allowed that project to be independently preserved. 

Conclusion

The ruling reinforces the primacy of homebuyer protection within the IBC framework and demonstrates the Court’s willingness to invoke the corporate veil doctrine to secure completion of stalled real estate projects. Ultimately, the Court held that development authorities cannot present themselves as uninformed victims when their own inaction contributed to the crisis. It restored the resolution plans, directed completion of the stalled projects within the plan timelines, and required Alpha and Roma to absorb GNIDA’s dues, ensuring that buyers who had already suffered from delay are not burdened further.