The present appeal filed by New Okhla Industrial Development Authority (“NOIDA”) emanates from dismissal of the I.A. 5050 of 2020 filed by NOIDA (“NOIDA IA”) with the National Company Law Tribunal, Division Bench, Delhi, Bench III (“NCLT”) (“NCLT Proceedings”), whereby NOIDA had sought directions to be passed by NCLT to the resolution professional to exclude the Plot (as defined hereinafter) from the pool of assets of the corporate debtor, undergoing Corporate Insolvency Resolution Process (“CIRP”), mainly on the ground that the joint development agreement (“JDA”) was executed between the corporate debtor and Logix City Developers Private Limited (being the original lessee) (“Logix”), clandestinely, without the approval of NOIDA, which is against the provisions of the underlying land lease granted by NOIDA and hence, the corporate debtor has no rights over the Plot and such asset does not belong to the corporate debtor under Section 18 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

NCLT while dismissing the NOIDA IA in the NCLT Proceedings passed an order dated March 2, 2021 (“NCLT Order”) and inter alia held as follows:

• Through the instrument of JDA, Logix had granted development rights to the corporate debtor, with respect to plot of land admeasuring 1,00,080.98 sq. mtrs. (“Plot”) leased by NOIDA, for development of the residential complex, and such right of the corporate debtor under the JDA is only a right-in-personam against Logix; and
• NOIDA will be required to participate in the CIRP of the corporate debtor and lodge its due claim before the resolution professional of the corporate debtor and attend all the meetings of the committee of the creditors (“CoC”) and give consent to the resolution plan sought to be approved by the CoC.

In the present Appeal filed before the NCLAT, NOIDA for the purpose of seeking directions of NCLAT against the resolution professional to exclude the Plot from the CIRP of the corporate debtor, had placed the following arguments:

• The corporate debtor has no legal rights to the Plot, as the JDA and other agreements executed between Logix and the corporate debtor were deemed invalid;
• Logix did not lawfully transfer the interest to the corporate debtor as required under Section 18 of the IBC; and
• NOIDA was unaware of the transactions involving the corporate debtor until the initiation of the CIRP; and Logix had transferred the Plot to the corporate debtor without its approval, contrary to the terms of the lease deed.

The resolution professional of the corporate debtor argued that (i) the JDA entered between Logix and the corporate debtor recognized NOIDA as the ‘owner’ of the Plot; (ii) the corporate debtor began construction of the group housing project in accordance with the lease deed, JDA; the sanctioned plans and approvals granted by NOIDA itself; and (iii) NOIDA duly approved the project ‘Victory Ace’, and accordingly, 80%  of the building work was completed after receiving permission for and in accordance with legislative requirements. The resolution professional further argued that according to Section 4(2)(c) of the Real Estate Regulatory Authority Act, 2016, registering a project requires presenting verified permissions and a commencement certificate from the competent authority, which the resolution professional of the corporate debtor argue, could not have been obtained without the consent of NOIDA.

Further, the resolution professional placed reliance on the judgment of the Hon’ble Supreme Court in the matter of ‘Rajendra K. Bhutta’ vs. ‘Maharashtra Housing and Area Development^[1]‘ wherein it was held that the development rights constitute the property of the corporate debtor and no attempt to dispossess the developer can be made by the landowner/ authority during the CIRP in view of Section 14(1)(d) of the IBC.

The NCLAT, while analyzing each issue raised by NOIDA and the resolution professional of the corporate debtor, passed the order dated March 08, 2022 (“NCLAT Judgment”) and observed as follows:

• The material on record establishes that all details of the project constructed over the Plot were in public domain, and therefore the stand of NOIDA that they had absolutely no knowledge about the project holds no water;
• NOIDA has accepted the lease premium amounts and lease rentals under the lease deed and benefited therefrom, hence, NOIDA cannot now turn around and plead that they are completely unaware of the project or that the JDA is non-est in the eyes of the law;
• JDA indicates that NOIDA is ‘the only owner’. Further, the lease deed grants leasehold rights to Logix, and the JDA plainly states that they are the ‘sole lessee’ of the site;
• JDA merely transferred development rights over part of the Plot to the corporate debtor without transferring ownership of the Plot, which remained with NOIDA as the lessor;
• The lease deed with respect to the Plot permitted sub-leasing and did not specifically prohibit the transfer of development rights; and
• Therefore, the JDA was not in contravention of the lease deed.

In light of the above, the NCLAT dismissed the Appeal and relying on the ruling of the Hon’ble Supreme Court (“SC“) in Rajendra K. Bhutta versus Maharashtra Housing and Area Development Authority and Another [(2020) 13 SCC 208]^[2], the NCLAT inter alia held the following pursuant to the NCLAT Judgment:

“..we are of the view that ‘development rights’ construe ‘Property’ of the ‘Corporate Debtor’ and hence we hold that the Resolution Professional has duly performed his duties as per Section 18(1)(a)(iii) and has taken control and custody of the assets of the ‘Corporate Debtor’ mentioned in the Balance Sheet in compliance of the provisions of Section 18(1)(f) and resultantly we do not find any deficiency of service on behalf of the RP.

Having regard to the timelines and the observations made by the Hon’ble Supreme Court in the aforenoted ‘Ebix Singapore Pvt. Ltd.’ (Supra) read together with the fact that vide Order dated 07/04/2021, this Tribunal had closed the right of NOIDA, which closure has not been challenged and has attained finality, resultantly, this Tribunal is of the earnest view that being a time bound process and also keeping in view the interest of the homebuyers, this Appeal is dismissed with the aforenoted observations.”

Subsequently, the NCLAT Judgment has been challenged before the SC in the Civil Appeal bearing number 4665 of 2022 (“Appeal”) and the Appeal is presently pending adjudication before the SC. The SC vide order dated July 25, 2022 directed the resolution professional to find out an amicable solution between all parties within the ambit of IBC including with NOIDA. However, in the said order, the SC has not touched upon the construct of the JDAs or the contention of the NOIDA against the corporate debtor who is the joint developer of the project pursuant to the terms of the JDA.

ANALYSIS

While the NCLAT Judgment may be viewed as reinforcement of the principle that development rights granted under a joint development agreement constitute property of the corporate debtor within the insolvency proceedings. The decision of the NCLAT also highlights importance of statutory authorities, such as the NOIDA, to engage actively and constructively in CIRP proceedings to safeguard the interests of homebuyers and ensure compliance with the provisions of IBC. This does underscores need for all parties involved to adhere to procedural timelines and obligations, thereby aiming for a legal ecosystem providing practical outcomes for all stakeholders, including of recognition of construct of joint development transactions by the NOIDA.

Nonetheless, the fact remained that the underlying land was a leasehold land leased by NOIDA to a lessee, who defaulted to NOIDA on payment of lease dues, premiums and other charges; and further such lessee did not obtain approval from NOIDA for grant of development rights to a third party. Assignment of NOIDA leased land requires payment of change in constitution and other charges, including registration charges. This judgement will arguably legitimize all unauthorized development agreements on NOIDA leased land which are granted by lessees without NOIDA’s approval and without payment of land dues and other charges amounts to NOIDA. Some apathy is must for NOIDA as well, which is already struggling to recover its dues of over thousands of crores of Rupees from several developers and lessees, and it’s all tax payers money!

Be that as it may be, the matter is under appeal at Hon’ble Supreme Court and we will keep tracking it.

Please watch this space for further updates on this matter….

The authors have been involved in some of the largest and leading real estate joint development transactions and insolvency restructuring advisory.

Footnotes:

[1] (2020) 13 SCC 208

[2] Civil Appeal No. 12248 of 2018