PhD application update plus worry

I submitted an application at my home uni in February. Got a condition on application decision by 27th March saying I need to revise my proposal and resubmit as the selectors (my supervisors) are happy to re-consider if I'm able to revise. They provided some recommendations. The co-supervisor also said that they would probably accept the 2nd version of the proposal and there is probably a place for me at the uni, if I want it.

The co-supervisor knows me as I have worked for him and he also recommended me for a job at the uni, which I eventually got.

I revised my proposal and sent it to the lead supervisor and co-supervisor. However the co-supervisor was on sick leave until 10th . So I followed up with my lead supervisor, she provided feedback and I revised the areas she wanted me to improve. She has approved my proposal however the co-supervisor is now on sick leave until the 22nd april.

Its unclear if he will be back by 22nd .

I'm a bit anxious now. Will this delay my application indefinitely or something?

Not indefinitely, no. But probably until the co-supervisor is back from sick leave.
If the co-supervisor was originally on sick leave until 10th April, and now until 22nd April, then you're right to be concerned about what might happen if their sick leave is extended once again.
It might be with mentioning this possibility to your lead supervisor, and asking what the implications could be. Of particular relevance would be the question of whether you could proceed with just a lead supervisor and not a co-supervisor, at least initially.

But the timing of this extended sick leave feels suspicious to me, especially considering the positive feedback I had received before. It's hard not to feel like I'm being unfairly treated or that there may be ulterior motives behind the delay in processing my application since i don't meet the entry requirements (1st or 2.1 class in BA and Merit in Masters- I have a 2.2 and Pass and these were due to severe health issues ) .

I have a feeling that this whole revise your proposal was simply a ploy to make the process look fair because I'm an alumni and former employee of the university but the intention was to reject me.

I'm quite worried because of this.

Can universities do this? Can this really happen or am I just paranoid?

You're just paranoid!
Is your theory that the co-supervisor isn't really ill at all, and they're faking it (and will continue faking it for several more weeks) just to avoid having to reject your PhD application / proposal?

have we chatted before?

My friend suggested this not me and so I got anxious

You're just paranoid!
Is your theory that the co-supervisor isn't really ill at all, and they're faking it (and will continue faking it for several more weeks) just to avoid having to reject your PhD application / proposal?