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Case Number
Disposition

dismissed

Advocates
  • UN Singh
Judges
  • Hon'ble Justice A.I.S. Cheema (Officiating Chairperson) Hon'ble Dr. Alok Srivastava (Member (Technical))
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Cites
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Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition

dismissed

Advocates
  • UN Singh
Judges
  • Hon'ble Justice A.I.S. Cheema (Officiating Chairperson) Hon'ble Dr. Alok Srivastava (Member (Technical))
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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This appeal was filed by the Greater Noida Industrial Development Authority (GNIDA) against an impugned order concerning the classification of its claim in the corporate insolvency resolution process (CIRP) of Primrose Infratech Pvt. Ltd. GNIDA had executed a Registered Lease Deed dated 29.09.2011 in favour of the Corporate Debtor. The CIRP was initiated at the instance of an Operational Creditor, VMS Equipment Pvt. Ltd. GNIDA submitted a claim in Form C to the Insolvency Resolution Professional (IRP/RP) and was at one stage treated as a Financial Creditor (minutes of the 4th CoC meeting indicate this).

Respondent No. 1 (an ex-director / suspended director of the Corporate Debtor) filed CA-1511/2019 seeking exclusion of GNIDA from the Committee of Creditors (CoC) on the ground that GNIDA was not a Financial Creditor. The Adjudicating Authority (NCLT), by order dated 25.11.2019, directed the Resolution Professional to consider whether GNIDA's claim was a financial debt and to place the matter before the CoC. GNIDA was subsequently excluded from participation in the CoC at the 6th CoC meeting, after which GNIDA filed CA-812/2020 seeking to quash the proceedings and decisions of the CoC meeting held on 17.12.2019; that application remained pending.

The Adjudicating Authority ultimately held that GNIDA's claim could be categorised as an "operational debt" rather than a "financial debt." GNIDA challenged that determination before the National Company Law Appellate Tribunal (NCLAT) in this appeal. The Resolution Plan in the CIRP was stated to have been approved and was before the Adjudicating Authority.

Legal Issues Presented

  1. Whether the claim of Greater Noida Industrial Development Authority under the 29.09.2011 Lease Deed is a "financial debt" (i.e., constitutes a financial lease under Indian Accounting Standards) or an "operational debt".
  2. Whether the exclusion of GNIDA from the Committee of Creditors (CoC) and the process followed in the CoC meeting(s) that amended the GNIDA claim's classification involved such procedural infirmity as to vitiate the decisions taken (including any claim that the Adjudicating Authority passed orders without hearing GNIDA).

Arguments of the Parties

Appellant's Arguments (Greater Noida Industrial Development Authority)

  • The Registered Lease Deed dated 29.09.2011 leased land for 99 years and, on its recitals, granted rights incidental to ownership to the Corporate Debtor; therefore, under Indian Accounting Standards the lease should be classified as a financial lease.
  • GNIDA had filed its claim in Form C and had been treated as a Financial Creditor (minutes of the 4th CoC meeting), but was later treated as an Operational Creditor without proper process.
  • CA-1511/2019 (filed by Respondent No. 1) was decided by the Adjudicating Authority without hearing GNIDA; GNIDA was not allowed to participate in the 6th CoC meeting and suffered serious prejudice as a result.
  • GNIDA filed CA-812/2020 seeking quashing of the decisions/declarations in the 17.12.2019 CoC meeting, but that application remained pending and was not heard.

Respondent No. 1's Arguments (Ex-Director / Suspended Director)

  • Supported the contention that the impugned order (CA-1511/2019) was passed without hearing the parties and noted that the Adjudicating Authority did not direct deletion of UCO Bank as Financial Creditor (one of the prayers in CA-1511/2019).
  • However, the opinion notes that Respondent No. 1 did not file an appeal against the impugned order in respect of the UCO Bank issue.

Respondent No. 2's Arguments (Resolution Professional / RP and counsel)

  • Contended that the Adjudicating Authority did in fact hear the parties in CA-1511/2019 and that appearances and arguments were recorded in the impugned order.
  • The RP maintained that, applying Indian Accounting Standards and relevant judicial orders, GNIDA's claim could not be treated as a Financial Creditor's claim and therefore should be reclassified as operational.
  • Noted that a Resolution Plan had been approved and was before the Adjudicating Authority.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
New Okhla Industrial Development Authority vs. Mr. Anand Sonbhadra (RP), Company Appeal (AT) (Ins.) No. 1183/2019 dated 16.04.2021 Consideration of lease deed similar in nature and conclusion that such lease deed does not constitute a financial lease under the applicable accounting and legal tests. The Bench relied on that earlier decision, treating the discussion in that matter as controlling on the classification issue; for similar reasons the Bench held the present Lease Deed does not constitute a financial lease, because rewards incidental to ownership were not transferred.

Court's Reasoning and Analysis

The Court's analysis proceeded in the following steps, as reflected in the opinion:

  1. Documentary and normative materials were considered: the Lease Deed (at page 141 of the Appeal) and the relevant Indian Accounting Standards (copies placed at pages 87 and 98 of the Appeal) dealing with classification of leases were examined.
  2. The Adjudicating Authority's earlier direction (order dated 25.11.2019) had instructed the Resolution Professional to consider whether GNIDA's claim was a financial debt and to place that question before the CoC. The RP addressed this in the 6th CoC meeting and indicated that GNIDA's claim could not be treated as a Financial Creditor's claim, having regard to Indian Accounting Standards and judicial orders.
  3. The Tribunal compared the present Lease Deed with the facts and reasoning in an earlier NCLAT decision (New Okhla Industrial Development Authority vs. Mr. Anand Sonbhadra (RP)). That earlier decision had considered a similar lease and concluded that such a lease did not constitute a financial lease.
  4. Applying the same reasoning, the Bench concluded that the present Lease Deed did not transfer rewards incidental to ownership of the underlying asset (land) and therefore, on the face of the Lease Deed and the accounting standard criteria, it did not qualify as a financial lease.
  5. Given that the Resolution Plan had been approved and that GNIDA's claim was not a Financial Creditor's claim on this assessment, the Bench declined to delve into the procedural technicalities of how GNIDA was excluded from the CoC. The Bench observed that complaints about CA-1511/2019 not being heard and the request to delete UCO Bank were not sufficient to merit intervention, particularly as Respondent No. 1 had not appealed aspects of the impugned order concerning UCO Bank.
  6. On the basis of the foregoing, the Bench found no substance in the appeal and dismissed it.

Holding and Implications

Core Ruling: APPEAL DISMISSED. The NCLAT dismissed the appeal and directed "No orders as to cost."

Direct consequences for the parties (as set out in the opinion):

  • The GNIDA claim was treated as an operational debt rather than a financial debt because, on examination of the Lease Deed together with Indian Accounting Standards and in light of the Tribunal's earlier reasoning in New Okhla, the Lease Deed did not transfer rewards incidental to ownership and therefore did not qualify as a financial lease.
  • Because the RP and CoC had amended the classification of GNIDA's claim and the Resolution Plan was stated to be approved and before the Adjudicating Authority, the Tribunal did not reopen or disturb the CoC's reconstitution or decisions on that basis in this appeal.
  • The appeal was dismissed and no costs were imposed.

Broader implications / precedent: The Bench expressly relied on and applied its prior reasoning in New Okhla Industrial Development Authority vs. Mr. Anand Sonbhadra (RP). The opinion does not purport to create any novel legal principle beyond applying that earlier decision to the present factual matrix; the direct effect is the classification of GNIDA's claim as operational for the purposes of this CIRP and the dismissal of this appeal.

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    Greater Noida Industrial Development Authority v. Pramod Agrawal

    Cont'd…./

    NATIONAL COMPANY LAW APPELLATE TRIBUNAL

    PRINCIPAL BENCH, NEW DELHI

    Company Appeal (AT) (Insolvency) No. 55 of 2021

    IN THE MATTER OF:

    Greater Noida Industrial Development Authority

    Plot No. 01, Knowledge Park - 04 Greater Noida, Gautam Budh Nagar Uttar Pradesh - 201308.

    …Appellant Versus

    Shri Pramod Agrawal

    S/o Late Shri K. L. Agrawal, R/o 1102, Orange County, Indrapuram, Ghaziabad, Uttar Pradesh.

    Mr. Anil Matta

    Resolution Professional Primrose Infratech Pvt. Ltd. R/o B-98, Chetak Society, Sector - 09, Rohini, New Delhi - 110085.

    Ex Director of Corporate Debtor …Respondent No. 1 Respondent No. 2

    For Appellant: Mr. U. N. Singh, Advocate. For Respondents: Mr. Mrinal Harshvardhan, Advocate for R-1. Mr. CA Navneet Arora, Mr. Tushar Bhardwaj and Mr. Abhinav Goyal, Advocates with Mr. Anil Matta, RP for R-2.

    Mr. Anand Verma, Advocate for Intervenor.

    O R D E R

    (Virtual Mode) 21.06.2021: This appeal has been filed by Greater Noida Industrial Development Authority being aggrieved by impugned order dated 28thFebruary, 2020 filed by one of the Suspended Directors (Respondent No. 1) of the Corporate Debtor - 'M/s

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    Primrose Infratech Pvt. Ltd.'. While passing the impugned order, the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench held that the Greater Noida Industrial Development Authority cannot be treated as having a financial claim and being aggrieved of such impugned order, the present appeal has been filed. It is claimed in the appeal and it is argued that the Appellant had leased the land by Registered Lease Deed dated 29.09.2011 in favour of the Corporate Debtor. The Lease Deed is at page 141 of the Appeal. The CIRP started against the Corporate Debtor at the behest of one Operational Creditor - 'VMS Equipment Pvt. Ltd.'. The Appellant claims that the Appellant had submitted the claim in Form 'C' before the IRP/RP, as can be seen at page 211 of the Appeal and the Appellant was treated as Financial Creditor as can be seen from Minutes of 4th Meeting of CoC (page 66 at 73). The Learned Counsel for the Appellant submitted that the Respondent No. 1 former Director of Corporate Debtor had filed CA-1511/2019 to exclude the Appellant as Member of the CoC claiming it was not a Financial Creditor. The Learned Counsel submitted that this application (Annexure A-2) has been decided by the Adjudicating Authority without hearing the Appellant. It is argued that if the Appellant was Member of the CoC, the CoC did not take any decision by voting to exclude the Appellant from CoC. Reference is made to Order dated 25thNovember, 2019 which was passed by the Adjudicating Authority. Copy of the same has been filed with the Written Submissions by Respondent No. 2 (Dy. No. 26001 at page 274). The specific order with regard to CA-1511/2019 is at page 275. The order reads as under:-

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    "CA 1511/2019 has been filed by Ex-Directors impugning the inclusion of the claim filed by the Greater Noida Authority and the same be considered as a Financial debt. The decision to this effect would be taken by the RP who shall put it forth to the COC. Despite notice to the Greater Noida Authority, no one has appeared on their behalf. Let affidavit of service be filed."

    2. The grievance of Learned Counsel for the Appellant is that as per this order the Resolution Professional was directed to place the matter before the CoC. The Learned Counsel then referred to the 6thCoC Meeting (page 295 of the Appeal) Agenda Item 7 where the order dated 25.11.2019 was noticed and Resolution Professional conveyed that Appellant's claim could not be treated as Financial Creditor considering the Indian Accounting Standards and judicial orders referred.

    3. The grievance of the Learned Counsel for the Appellant is that the Appellant had been excluded from CoC on that day and was not allowed to participate. The Learned Counsel for the Appellant submits that serious prejudice has been caused to the Appellant because the Resolution Professional do not let the Appellant to participate in the said CoC meeting as Appellant was Member of the CoC. Learned Counsel for Respondent No. 1, the Suspended Director who had filed petition (at Annexure A-2), supported Learned Counsel for the Appellant with regard to the statement that the impugned order has been passed without hearing the parties and the Learned Counsel adds that Adjudicating Authority did not pass any

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    direction to delete UCO Bank as Financial Creditor which is also one of the prayers in CA-1511/2019 which was filed by Respondent No.1.

    4. Learned counsel for the Appellant submits that when the Appellant was excluded from the CoC, the Appellant filed CA-812/2020 (at page 188) and made a prayer that appropriate orders should be passed with regard to decision by the RP for declaring the Appellant as Operational Creditor and not Financial Creditor in the 6thMeeting of the CoC held on 17.12.2019. The Appellant claimed that that it moved the application to quash and set aside the proceedings and decision taken in the said meeting dated 17.12.2019. It is argued that this application has not been heard by the Adjudicating Authority and same is pending for orders.

    5. Against this, the Learned Counsel for Respondent No. 2 is submitting that the Learned Counsel for the Appellant as well as Respondent No. 1 both are not making correct statement that the Adjudicating Authority had not heard the parties while passing orders in CA-1511/2021 and passing the impugned order. It is stated that there were arguments raised by both the parties and their appearances have been marked in the impugned order and after fully hearing the parties the impugned order has been passed.

    6. We have heard learned counsel for the Appellant even with regard to the Lease Deed which is at page 141 of the Appeal. Learned Counsel for the Appellant has submitted that the recitals for the Lease Deed show that the land has been leased for 99 years with recitals showing that rights incidental to ownership have

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    been given to the Corporate Debtor and it is argued that as per the 'Indian Accounting Standard' the Lease Deed is required to be categorized as financial lease. It is argued that the lease transferred all the risks and rewards incidental to ownership of the underlying asset.

    7. We have seen the copy of Indian Accounting Standards filed at page 87 of the Appeal and classification of Leases at page 98 as well as we have seen copy of Lease Deed at page 141.

    8. The Adjudicating Authority in the impugned order has after considering the matter before it observed in para 7 (there are two paragraphs marked as 7), which reads as under:

    "7. Keeping In view the citations referred to, this Bench is of the opinion that the claim of the Greater Noida Authority can unequivocally be categorised as being an "operational debt". We therefore do not find any infirmity in the decision of the Resolution Professional who has deemed it justified to amend and correct the claim of the Greater Noida Authority from one of "financial claim" to an "operational debt". Accordingly, the CoC which has been reconstituted upon amending the aforesaid claim, consisting of home buyers as financial creditors along with other Financial Creditors, if any, would be vested with the voting rights to the exclusion of Greater Noida Authority.

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    7. It is submitted that the Resolution Plan has already been approved by the CoC and has been submitted before this Bench for due approval. As the pending objections have been dismissed, arguments on the Resolution Plan be addressed on the next date. To come up on 11th March, 2020."

    9. The Counsel for Respondent No. 2 submits that Resolution Plan approved is indeed already before the Adjudicating Authority.

    10. Having heard Learned Counsel for both the sides and having gone through the matter, we record that we have already examined a similar Lease Deed in the matter of "New Okhla Industrial Development Authority vs. Mr. Anand Sonbhadra (RP)", Company Appeal (AT) (Ins.) No. 1183/2019 dated 16.04.2021 and such Lease Deed was threadbare discussed by us in that matter. We have already in that matter held that such Lease Deed (as in the present one) does not constitute the Financial Lease. For similar reasons we do not find that Appellant is able to show Financial Lease in its favour. Rewards incidental to ownership of the underlying asset-land were not transferred, in the Lease Deed if contents are considered reading the same with Indian Accounting Standards.

    11. In the present matter, the Appellant was earlier treated as Financial Creditor for the dues claimed by Appellant but later on the Appellant has been treated as Operational Creditor. (In this Appeal we are not dealing with issue if such lease constitutes, even operational debt). Order dated 25.11.2019 of the Adjudicating

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    Authority directed the Resolution Professional to consider if debt of Appellant is a Financial Debt and place it before CoC. He did this in 6thCoC Meeting. On the face of it the Lease Deed does not appear to be Financial Lease. As the Resolution Plan is stated to be already approved, when it appears that the Appellant is not a Financial Creditor, we do not wish to go into the technicalities of the manner in which it was excluded from the CoC. The Learned Counsel for Respondent No. 1 is claiming that CA-1511/2019 was not heard. The grievance appears to be because orders with regard to excluding UCO Bank was not passed. The Respondent No. 1 does not appear to have filed any appeal against the impugned order in that regard and thus we would not give much indulgence to Respondent No. 1.

    12. We do not find that there is any substance in this appeal. The appeal is dismissed. No orders as to cost.

    [Justice A.I.S. Cheema] The Officiating Chairperson [Dr. Alok Srivastava] Member (Technical)

    Archana/gc.

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    Comments

    Greater Noida Industrial Development Authority v. Pramod Agrawal
    (Jun 21, 2021)