Case Note & Summary
The dispute arose from two leasehold plots in Noida Sector 100 and Sector 110, where a developer, Granite Gate Properties Private Limited, was to construct residential projects Lotus Boulevard and Lotus Panache. The developer was later admitted into corporate insolvency resolution process and declared a Corporate Debtor. The Committee of Creditors comprised homebuyers as a class of financial creditors. A Resolution Plan submitted by M/s SMV Agencies Private Limited was approved by the CoC and the entity became the Successful Resolution Applicant. During CIRP, homebuyers pooled resources under a 'Pool and Build' mechanism to continue construction, but NOIDA sealed three towers of Lotus Panache on 16.10.2024 over time extension charges. The NCLT disposed of various interim applications including the Resolution Professional's application for approval of the Resolution Plan. On appeal, the NCLAT directed that time extension charges under both lease deeds be treated as CIRP costs for maximum three years provided in the lease deed. The Authorised Representative of homebuyers challenged this direction, while NOIDA appealed seeking inclusion of time extension charges beyond three years up to the tenth year under office order dated 18.10.2019. The Supreme Court considered whether time extension charges are CIRP costs under Section 5(13)(c) of the CIRP Regulations and whether NOIDA could claim extended charges. The AR argued that such charges were penal, not incurred by Resolution Professional, and not for continuation of project; only period after insolvency commencement date 10.01.2019 could be considered. NOIDA argued that without payment the project could not continue and that office order dated 18.10.2019 read with 18.06.2015 permitted charges up to tenth year. The SRA adopted AR's arguments and highlighted that the resolution plan capped contingent protection above Rs.3 crores, recoverable from allottees of towers 17/18/19 as super area charge. The Court examined the lease deed and noted that the land was acquired under Land Acquisition Act, 1894 for urban and industrial township development by NOIDA, whose purpose is welfare and revenue generation, not mere profit. It found that the original lease provided time extension charges at 4%, 5%, and 6% for first, second and third years of delay with cancellation thereafter, and that the new policy introduced by office order 18.10.2019 escalated charges up to tenth year. The Court held that the default was of the corporate debtor, not homebuyers or SRA, and imposing penalty would defeat the essential purpose of development. It therefore ordered NOIDA to waive the penalty charges, set aside the direction to treat time extension charges as CIRP costs, rejected NOIDA's appeal for charges beyond three years, allowed Civil Appeal No.3132 of 2026, and dismissed Civil Appeal No.4207 of 2026.
Headnote
A) Insolvency and Bankruptcy - CIRP Costs - Exclusion of Penalty/Time Extension Charges - Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Section 5(13)(c) - The issue was whether time extension charges claimed by NOIDA for delay in completing leasehold projects should be treated as CIRP costs. The Court held that such charges are penal in nature, arise from the default of the corporate debtor, and do not fall under Section 5(13)(c) as they were not incurred by the Resolution Professional and did not concern continuation of the project. The Court directed waiver of penalty charges and set aside the NCLAT direction to treat them as CIRP costs. Held that penalty charges cannot be imposed on homebuyers and SRA for past sins of the corporate debtor (Paras 7-16). B) Development Authority Law - Lease and Development Charges - Welfare Objective and Penalty Waiver - UP Industrial Area Development Act, 1976; Land Acquisition Act, 1894 - The Court examined NOIDA's role as a local authority acquiring land for urban and industrial township development with a welfare purpose and revenue generation, not mere profit. It held that imposing default charges on homebuyers and SRA would defeat the essential purpose of development and that NOIDA should waive penalty charges in the peculiar facts of the case. The Court rejected NOIDA's appeal for time extension charges beyond three years up to the tenth year under office order dated 18.10.2019 (Paras 11-16).
Issue of Consideration
Whether time extension charges under lease deeds are to be treated as CIRP costs, and whether NOIDA is entitled to such charges beyond three years up to the tenth year under office order dated 18.10.2019.
Final Decision
Civil Appeal No.3132 of 2026 allowed; Civil Appeal No.4207 of 2026 dismissed. Directions to consider time extension charges as CIRP costs set aside; NOIDA's appeal for charges beyond three years up to tenth year rejected. Pending applications disposed of.
Law Points
- Time extension charges under lease deed are penal in nature and not CIRP costs under Section 5(13)(c) of CIRP Regulations
- penalty for delay caused by corporate debtor cannot be imposed on homebuyers or SRA
- development authority's welfare purpose overrides penal recovery
- lease governed by UP Industrial Area Development Act
- 1976
- office order dated 18.10.2019 cannot extend charges beyond lease term in peculiar facts
