NOIDA not financial creditor but operational creditor under IBC: SC

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

The apex court delivered its verdict on appeals filed by NOIDA in which a common question arose as to whether the authority is entitled to be treated as a financial creditor within the meaning of the IBC.

"We would think that, having regard to the fact that both the NCLT and NCLAT have proceeded on the basis that the appellant (NOIDA) is an operational creditor, we need not stretch the exploration further and pronounce on the questions, which may otherwise arise," a bench of justices K M Joseph and Hrishikesh Roy said in its 186-page verdict.

"We would proceed on the basis that, while the appellant is not a financial creditor, it would constitute an operational creditor," it said, while dismissing the appeals.

NOIDA had filed appeals, including the one against an order of the National Company Law Appellate Tribunal (NCLAT) which had affirmed the view taken by the NCLT that there was no financial lease in terms of the Indian Accounting Standards and there was no financial debt.

The bench noted that lease in the matter was entered into in July 2010 and the appellant is the lessor described as the Authority under section 3 of the Uttar Pradesh Industrial Area Development Act, 1976 (UPIAD Act).

It further noted that the lease deed recites that the leasehold property forms part of the land acquired under the Land Acquisition Act and developed by the lessor for the purposes of setting up of an 'urban and industrial township'.

In its judgement, the bench dealt with several relevant provisions of the IBC, including section 5(8) which defines 'financial debt'.

It noted that while section 5(7) defines 'financial creditor' as person to whom a financial debt is due besides an assignee or transferee from such person, section 5 (20) defines the word 'operational creditor' which means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

"We are of the view that, in the lease in question, there has been no disbursement of any debt (loan) or any sums by the appellant to the lessee. The appellant would, therefore, not be a financial creditor within the ambit of section 5(8)," the bench noted in its verdict.

It said the IBC, which came into being in 2016, continues to be a "fertile ground to spawn litigation".

The bench said the question raised before it is whether the appellant would be a financial creditor and entitled to be so treated in the Corporate Insolvency Resolution Process (CIRP) commenced against the corporate debtor under the IBC.

It noted that there are undoubtedly certain advantages, which an operational creditor enjoys over the other creditors.

"The upshot of the above discussion is that the appeals must fail. The appeals are, accordingly, dismissed," it said.