Debt-to-equity conversion and capital reduction do not constitute full satisfaction of unsustainable debt

The conversion of unsustainable debt into equity shares under a resolution plan, when combined with mandatory structural steps such as the immediate reduction of share face value and consolidation of share capital, does not constitute full discharge or satisfaction of the creditor's admitted claim. Where the restructuring steps form an integral, interconnected part of the resolution plan and inflict a substantial haircut on financial creditors by drastically reducing the value of their shareholding relative to their admitted unsustainable claims, the debt cannot be treated as fully recovered at par. Financial creditors who suffer such haircut deductions under the approved resolution plan retain the right to proceed against independent third-party security providers for the unrecovered portion of their debt. (UV Asset Reconstruction Company Limited Vs Electrosteel Castings Limited | 2026 INSC 14)