New Delhi: In a major relief to real estate developers, the Supreme Court has barred the Greater Noida Industrial Development Authority (GNIDA) from recovering penalties for delayed payments and missed project timelines, saying the authority cannot impose charges arising from its own regulatory and supervisory lapses.
A Division Bench of justices Sanjay Kumar and Alok Aradhe, however, clarified Tuesday that while the authority cannot impose penal interest, penalty charges, and time-extension fees, it is still entitled to recover the principal dues on unpaid lease premium instalments.
The dues are to be paid in equated monthly instalments over 24 months, with the first payment due by 7 July.
The court’s ruling is also a relief for thousands of homebuyers as it ends years of legal uncertainty stemming from insolvency resolution proceedings of developer Earth Infrastructures Ltd (EIL), whose projects have been stalled since 2016.
While the judgment affirmed a 2023 National Company Law Appellate Tribunal’s (NCLAT) ruling that the GNIDA could not impose penal charges because of its own lapses, it also overturned the tribunal’s decision to set aside the resolution plans approved for EIL’s projects during the insolvency proceedings.
Restoring the resolution plans, the top court held that GNIDA cannot derail insolvency proceedings after years of regulatory inaction, which contributed to the crisis facing thousands of homebuyers.
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Background to the dispute
The dispute between the GNIDA and the EIL traces its origins to the stalling of several housing projects in Greater Noida around 2016. The projects, executed through EIL’s subsidiary entities, left thousands of homebuyers stranded.
Corporate insolvency resolution proceedings were initiated against EIL in 2018 after prolonged defaults in the completion of the residential and commercial projects in Greater Noida.
Resolution plans by Applicants Alpha Corp Development (Alpha) and Roma Unicon Designex Consortium (Roma) under the Insolvency and Bankruptcy Code were approved by the National Company Law Tribunal (NCLT) in 2021.
GNIDA, however, challenged these approvals before the NCLAT, contending that the leasehold land vested in separate subsidiary companies could not be included in EIL’s insolvency process without its consent.
Accepting this argument, the NCLAT in 2023 set aside the resolution plans, holding that the assets of subsidiaries could not be treated as those of the holding company.
While the project land had been leased by GNIDA to EIL’s subsidiaries and special purpose companies (SPCs), the development, financing, and execution were undertaken by EIL itself.
Lease premium payments to GNIDA from three EIL subsidiaries – ETIPL, Neo Multimedia and Nishtha Software ceased as early as 2010.
However, GNIDA failed to take timely enforcement measures, monitor the development of the projects or realise its dues from EIL. Instead, the authority issued only sporadic notices over the years and sought to impose heavy penalty charges only after insolvency proceedings were underway.
What the court said
The judgment contains observations against GNIDA, faulting it for persistent inaction and failure to monitor the development of the projects, despite possessing contractual and statutory powers to do so.
The court noted that GNIDA issued default notices sporadically, often years after payments had stopped, and largely after insolvency proceedings had already begun.
The Supreme Court disagreed with the NCLAT’s reasoning that subsidiaries cannot be made part of the assets of the holding company EIL, which was subjected to corporate insolvency proceedings.
The bench held that this was a fit case to lift the “corporate veil”, noting that EIL was the “controlling and driving force” behind the projects, while its subsidiaries were effectively instruments to hold leasehold land.
As a result, the resolution submitted by Alpha and Roma in the corporate insolvency resolution process initiated against EIL has been restored.
The plans, approved by the NCLT 2019-2020 order, stand restored with directions to restart the project from 1 June, and complete it within the time frame as indicated in the plans.
The court also clarified that the NCLAT had erred in setting aside Alpha’s resolution plan in its entirety. Earth Copia is an EIL project on freehold land in Gurugram and had nothing to do with GNIDA, which had no lease interest in it and no grievance against the plan for that project.
GNIDA failed to draw this distinction before the NCLAT, and the NCLAT failed to notice it. Alpha’s plan for Earth Copia is, accordingly, fully restored.
(Edited by Sugita Katyal)
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