Delhi NCLT: Under IBC, Greater Noida Industrial Development Authority is a secured creditor
Explains that the definition did not exclude any government or governmental authority
The New Delhi Bench of the National Company Law Tribunal (NCLT) has held that the Greater Noida Industrial Development Authority (GNIDA) is a secured Operational Creditor under Section 3(30) of the Insolvency and Bankruptcy Code (IBC).
While adjudicating a petition filed in the VMS Equipment vs Primrose Infratech Private Limited case, the Bench comprising Ashok Kumar Bhardwaj (judicial member) and LN Gupta (technical member) explained the definition of Security Interest in Section 3(31) of IBC.
They maintained that it included a ‘charge’ and as per the judgment of the Supreme Court in the State Tax Officer (1) vs Rainbow Papers Limited case. The Bench added that the definition of the secured creditor did not exclude any government or governmental authority. Therefore, the charge created in favor of GNIDA was a security interest and GNIDA was a secured creditor.
In 2011, GNIDA leased land to Primrose Infratech (corporate debtor), for developing a group housing project in Greater Noida, However, the corporate debtor defaulted in paying the dues of GNIDA.
In December 2018, the corporate debtor was admitted into CIRP by the NCLT, and a moratorium was imposed. GNIDA submitted its claim of Rs.55 crores to the Resolution Professional (RP) of the corporate debtor. This was categorized as an operational debt.
Subsequently, a Resolution Plan was approved by the Committee of Creditors for the corporate debtor. However, it did not make any provision for the payment of the complete dues of GNIDA. When the resolution plan was pending before the NCLT for approval, GNIDA filed its objections and sought its rejection.
It argued that the land being GNIDA’s public property, should not be permitted to be monetized by the resolution applicant without making a provision to pay the entire dues. It constituted a charge over the land, which under the resolution plan would be transferred to the resolution applicant without paying the dues. Thus, GNIDA should be treated as a secured operational creditor.
The RP submitted that by virtue of Section 238 of IBC, it had an overriding effect over the UP Industrial Act.
The question arose whether GNIDA was a secured creditor under Section 3(30) of IBC.
The Tribunal relied on its verdict in the Greater Noida Industrial Development Authority vs Promod Agrawal & Ors case, and the Greater Noida Industrial Development Authority vs CA Anil Matta case, wherein GNIDA was confirmed as an operational creditor.
It stated that Section 3(30) of IBC defined a secured creditor as one in favor of whom a security interest was created. ‘Security interest, as defined under Section 3(31) of IBC, included a ‘charge’. Thus, it could be said that a creditor in favor of whom a charge was created was a secured creditor.
The Bench ruled, “In view of the judgment of the Supreme Court (supra), a security interest can be created by operation of law, and undisputedly, GNIDA is a government authority, and the observation would be squarely applicable to the facts of the case. Accordingly, GNIDA is a secured creditor under IBC.”
The Bench held that the charge was created in GNIDA’s favor prior to the moratorium imposition. Therefore, Section 13 and Section 13A of UP Industrial Act were not inconsistent with IBC. Thus, the overriding effect under Section 238 of IBC would not be attracted.