NOIDA is not a financial creditor but an operational creditor, rules SC

The Supreme Court on Tuesday ruled that the New Okhla Industrial Development Authority (NOIDA) is not a financial lender but an operational creditor under the Bankruptcy and Insolvency Code (IBC).

The apex court delivered its judgment on an appeal filed by NOIDA where a general question arose as to whether the authority was entitled to be considered a financial creditor within the funds of the IBC.

“We feel that both the NCLT and the NCLAT have proceeded on the grounds that the appellant (NOIDA) is an operational creditor. We do not need to further expand our investigation and raise questions which may arise otherwise,” said a bench of Justices KM Joseph and Hrishikesh Roy. Says his 186-page judgment.

“We will proceed on the grounds that, even if the appellant is not a financial creditor, it will constitute an operational creditor,” it said in dismissing the appeal.

NOIDA filed an appeal, one of which was against an order of the National Company Law Appeal Tribunal (NCLAT) which confirmed the opinion taken by NCLT that there was no financial lease and no financial debt in terms of Indian Accounting Standards.

The Bench noted that the lease was granted in July 2010 and the appellant was the lessee as defined as an authority under Section 3 of the Uttar Pradesh Industrial Area Development Act, 1976 (UPIAD Act).

It further states that the lease deed states that the leased property constitutes part of the land acquired under the Land Acquisition Act and is developed by the lessee for the purpose of establishing an ‘urban and industrial estate’.

In its judgment, the bench dealt with a number of relevant provisions of the IBC, including section 5 (8) which defines ‘financial debt’.

It mentions that while section 5 (7) defines ‘financial creditor’ as a person who has a financial debt arrears and in addition to an assignee or transferor from that person, section 5 (20) defines the term ‘operational creditor’ as Finance means a person who owes a working loan and includes a person to whom such a loan has been legally allocated or transferred.

“We are of the opinion that in the lease in question, no loan (loan) or any money has been disbursed by the appellant to the lessee. The appellant, therefore, shall not be a financial creditor within its scope. Article 5 (8)”

It said IBC, which was founded in 2016, continues to be a “fertile ground for litigation”.

The bench said the question raised earlier was whether the appellant would be a financial creditor and would be entitled to do so in the Corporate Insolvency Resolution Process (CIRP) initiated against corporate debtors under the IBC.

It mentions that there are undoubtedly some advantages that a functional lender enjoys over other creditors.

“The result of the above discussion is that appeals must fail. Appeals, accordingly, are dismissed,” it says.