New Delhi NCLT finds no inconsistency between IBC and UP Industrial Area Development Act
States that proceedings could not be initiated against the corporate debtor in any Court of law, Tribunal, or arbitration panel
The New Delhi Bench of the National Company Law Tribunal (NCLT) has held that there is no inconsistency between the Insolvency and Bankruptcy Code (IBC) and Sections 13 and 13A of the UP Industrial Area Development Act, 1976.
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) stated that if security interest was created in favor of Greater Noida Authority prior to commencement of Corporate Insolvency Resolution Process (CIRP), then IBC would not override the UP Act in terms of Section 238 of IBC.
The Tribunal stated, “Since the security interest of Greater Noida 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 do not get attracted.”
In 2011, the Greater Noida Industrial Development Authority (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 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 the provisions of the UP Industrial Area Act were inconsistent with the provisions of Section 238 of IBC.
NCLT observed that GNIDA is a secured operational creditor in terms of Section 3(30) of IBC. As per the RP, Section 13, and Section 13A of the UP Industrial Act were inconsistent with IBC. The ‘charge’ was not registered in terms of Section 77 of the Companies Act, 2013.
The Bench observed that Section 14(1)(a) of IBC stated that proceedings could not be initiated against the corporate debtor “in any Court of law, Tribunal, arbitration panel or other authority.”
It further ruled that the moratorium would apply to GNIDA since it was an authority. The Tribunal stated, “It emerges that due to the moratorium under Section 14(1) commenced on 21.12.2018, all the recovery proceedings initiated post that date, including security interest, if any, created by virtue of those proceedings, are void.”
The Tribunal added that the corporate debtor committed default in paying GNIDA’s dues prior to the commencement of the moratorium. Therefore, the provisions of Sections 13 and 13A of the UP Industrial Act were triggered prior to the initiation.