Greater Noida Industrial Development Authority Is A Secured Creditor Under Sec. 3(30) Of IBC: NCLT Delhi

The definition of Security Interest in Section 3(31) of IBC includes a ‘charge’ and as per the Supreme Court judgment in State Tax Officer (1) v Rainbow Papers Limited, the definition of secured creditor in the IBC does not exclude any Government or Governmental Authority. Therefore, the charge created in favour of GNIDA is a security interest and thus GNIDA is a secured creditor.

Background Facts

In 2011, the Greater Noida Industrial Development Authority (“GNIDA”) leased land to M/s Promise Infratech Pvt. Ltd. (“Corporate Debtor”), for developing a group housing project in Greater NOIDA. However, the Corporate Debtor defaulted in paying dues of GNIDA.

On 21.12.2018, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT and moratorium was imposed. GNIDA submitted its claim of Rs. 55 Crores to the Resolution Professional of the Corporate Debtor, which was categorized as an Operational Debt.

Thereafter, a Resolution Plan was approved by the Committee of Creditors for the Corporate Debtor. Nonetheless, the Resolution Plan did not make any provision for payment of complete dues of GNIDA. When the resolution plan was pending before the NCLT for approval, GNIDA filed its objections and sought rejection of the plan.

It was argued that the land of GNIDA being a public property should not be permitted to be monetized by the resolution applicant, without making a provision to pay the entire dues of GNIDA. The dues payable to GNIDA constitute a charge over the land, which under the resolution plan will be transferred to the resolution applicant without paying dues. GNIDA should be treated as a secured operational creditor.

The Resolution Professional submitted that by virtue of Section 238 of IBC, IBC has an overriding effect over the UP Industrial Area Development Act, 1976.

Issue

Whether Greater Noida Industrial Development Authority (GNIDA) is a Secured Creditor in terms of Section 3(30) of IBC?

NCLT Verdict

The Bench placed reliance on the NCLAT verdict in Greater Noida Industrial Development Authority Vs. Promod Agrawal & Ors., CA (AT) (Ins.) No. 55/2021 and in Greater Noida Industrial Development Authority v. CA Anil Matta, CA (AT) (Ins.) No. 1014/2021, wherein GNIDA has been confirmed as an Operational Creditor by the NCLAT.

Section 3(30) of IBC defines a Secured Creditor as the one in favour of whom a security interest is created. The term “Security interest” is defined under Section 3(31) of IBC and it includes a ‘charge’. Therefore, it can be said that a creditor in favour of whom a charge is created is a Secured Creditor. Reliance was placed on the Supreme Court judgment in State Tax Officer (1) v Rainbow Papers Limited, Civil Appeal No. 1661 of 2020, wherein it was held that the definition of secured creditor in IBC does not exclude any Government or Governmental Authority. It was thus concluded that GNIDA is a Secured Creditor in terms of Section 3(30) of IBC.

“In view of the judgment of the Hon’ble Supreme Court (supra), a security interest can be created by operation of law, and undisputedly, the Greater Noida Industrial Development Authority (GNIDA) is a Government Authority and the aforesaid observation would be squarely applicable to the facts of the case. Accordingly, in our considered view the Greater Noida Industrial Development Authority (GNIDA) is “a secured creditor” in terms of Section 3(30) of IBC 2016.”

The Bench held that charge was created in GNIDA’s favour prior to moratorium imposition, and therefore, Section 13 and Section 13A of Uttar Pradesh Industrial Area Development Act, 1976 are not inconsistent with IBC. Accordingly, the overriding effect under Section 238 of IBC would not get attracted.

“Since, in the instant case, the security interest of GNIDA was created by virtue of the operation of law prior to the commencement of CIRP/Moratorium, we see no inconsistency between the provision of Sections 13 and 13A of the Uttar Pradesh Industrial Area Development Act, 1976 and IBC 2016, hence the provisions of Section 238 of IBC, 2016 do not get attracted to.”

Case Title: VMS Equipment v Primrose Infratech Private Limited

Case No.: Company Petition No. (IB)-995(ND)/2018

Counsel For the Applicant: Adv. Adhish Sharma, Adv. Nitin Pandey for SRA

Counsel For the GNIDA: Adv. U. N Singh

Counsel For the RP: Adv. Arvind Kr. Jadon & Adv. Taru Saxena, Mr. Anil Matta

Click Here To Read/ Download Order