# NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. ANAND SONBHADRA

- **Citation:** [2022] 5 S.C.R. 319
- **Court:** Supreme Court of India
- **Decided:** 2022-05-17
- **Case number:** Civil Appeal No. 2222 of 2021
- **Bench:** K. M. Joseph, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/new-okhla-industrial-development-authority-v-anand-sonbhadra-36426
- **Pages:** 107

## Headnote

Insolvency and Bankruptcy Code, 2016: ss. 21, 27, 28, 30 -
Proceedings involving Corporate Debtor - Committee of Creditors
- Importance and Procedure - In the idea of resurrecting an ailing
corporate debtor, the Code contemplates the formation of Committee
of Creditors as per s.21 - The Committee consists of financial
creditors as per s. 27 - The Committee is conferred with the duty to
appoint Resolution Professionals - The Resolution Plan scrutinized
by such professionals then awaits the decision of the Committee as
per s. 30 - It is a fundamental aspect of the committee that it consists
of Financial Creditors and not operational Creditors - Therefore.
the one seeking to exercise the powers of such Committee, must, at
the very first instance, establish the fact of being a Financial
Creditors.
Insolvency and Bankruptcy Code, 2016: Financial Creditors
and Operational Creditors - Distinction with respect to Privileges
- s.5(7) defines 'financial creditor' as person to whom a financial
debt is due besides an assignee or transferee from such person -
Financial Creditors constitutes the Committee of Creditors as per
the policy of IBC - Such policy does not includes Operational
Creditors in the aforesaid constitution of committee - Hence
Operational creditors, unlike Financial Creditors, do not enjoy the
powers of the Committee - Apart from this aspect, the peculiar benefit
of being Operational Creditor is that they enjoy priority over
Operational Creditors in matters of payment of amount.
Insolvency and Bankruptcy Code, 2016 - s. 2(20) -
Operational Creditor - A person is operational creditor to whom
the operational debt (a debt in respect of dues arising under any
law for the time being in force and payable to any local authority)
is owed and includes any person to whom such debt has been legally
assigned or transferred.
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SUPREME COURT REPORTS
[2022] 5 S.C.R.
Insolvency and Bankruptcy Code, 2016: s. 5 (8) - Financial
Debt - When an amount could be termed as such - The policy of
law under IBC requires "Disbursement" leading to a debt along
with interest - Interest, as such, is not a necessary requirement of s.
5(8), but the fact of disbursement from the creditor to the debtor is
a necessity for looking a debt as financial debt, as contemplated by
the said section - Such Disbursement has to be understood in terms
of money which has been paid by the creditor and debtor.
Insolvency and Bankruptcy Code, 2016: ss 5(8), 3(33) -
Words 'Transaction' and 'Disbursed' - Distinguished - The word
"transaction" includes transfer of assets, funds or goods and
services from or to the corporate debtors - But imposing such a
meaning of the word "Transaction" as inclusive in the word
"Disbursed" will lead to unnecessary straining of the provision -
Interpretation of the term Disbursed, as occurring u/s.5(8), should
mean the payment of money, which flows to the debtor.
Insolvency and Bankruptcy Code, 2016: ss 3(6), 5(8) - Words
'Claim' and 'Debt' - Claim, as defined u/s.3(6), may or may not be
fixed, disputed or undisputed, secured or unsecured but it bears an
indispensable element of "right to payment" - Claim cannot exists
independent of the element of "right to payment" - The source of
such "right to payment" can be either under a judgment or under
any other circumstance - When claim is accompanied by liability it
gives rise to debt - Debt, as defined under the Code includes
financial as well as operational debt and the same appears to be
intertwined with the definition of "claim" - Debt denotes a liability
or obligation which relates to a claim.
Insolvency and Bankruptcy Code, 2016: s.5(8)(d) - Indian
Accounting Standards - rr.61 to 67 - Financial Lease - Financial
lease as such is not defined under IBC - s.5(8)(d) refers lease as
inclusive of Financial lease as given under Indian Accounting
Standards - r.62 declares that a lease is classified as a financial
lease if it transfers, substantially, all the risks and rewards incide

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[2022] 5 S.C.R. 319
319
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY
v.
ANAND SONBHADRA
(Civil Appeal No. 2222 of 2021)
MAY 17, 2022
[K. M. JOSEPH AND HRISHIKESH ROY, JJ.]
Insolvency and Bankruptcy Code, 2016: ss. 21, 27, 28, 30 -
Proceedings involving Corporate Debtor - Committee of Creditors
- Importance and Procedure - In the idea of resurrecting an ailing
corporate debtor, the Code contemplates the formation of Committee
of Creditors as per s.21 - The Committee consists of financial
creditors as per s. 27 - The Committee is conferred with the duty to
appoint Resolution Professionals - The Resolution Plan scrutinized
by such professionals then awaits the decision of the Committee as
per s. 30 - It is a fundamental aspect of the committee that it consists
of Financial Creditors and not operational Creditors - Therefore.
the one seeking to exercise the powers of such Committee, must, at
the very first instance, establish the fact of being a Financial
Creditors.
Insolvency and Bankruptcy Code, 2016: Financial Creditors
and Operational Creditors - Distinction with respect to Privileges
- s.5(7) defines 'financial creditor' as person to whom a financial
debt is due besides an assignee or transferee from such person -
Financial Creditors constitutes the Committee of Creditors as per
the policy of IBC - Such policy does not includes Operational
Creditors in the aforesaid constitution of committee - Hence
Operational creditors, unlike Financial Creditors, do not enjoy the
powers of the Committee - Apart from this aspect, the peculiar benefit
of being Operational Creditor is that they enjoy priority over
Operational Creditors in matters of payment of amount.
Insolvency and Bankruptcy Code, 2016 - s. 2(20) -
Operational Creditor - A person is operational creditor to whom
the operational debt (a debt in respect of dues arising under any
law for the time being in force and payable to any local authority)
is owed and includes any person to whom such debt has been legally
assigned or transferred.
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SUPREME COURT REPORTS
[2022] 5 S.C.R.
Insolvency and Bankruptcy Code, 2016: s. 5 (8) - Financial
Debt - When an amount could be termed as such - The policy of
law under IBC requires "Disbursement" leading to a debt along
with interest - Interest, as such, is not a necessary requirement of s.
5(8), but the fact of disbursement from the creditor to the debtor is
a necessity for looking a debt as financial debt, as contemplated by
the said section - Such Disbursement has to be understood in terms
of money which has been paid by the creditor and debtor.
Insolvency and Bankruptcy Code, 2016: ss 5(8), 3(33) -
Words 'Transaction' and 'Disbursed' - Distinguished - The word
"transaction" includes transfer of assets, funds or goods and
services from or to the corporate debtors - But imposing such a
meaning of the word "Transaction" as inclusive in the word
"Disbursed" will lead to unnecessary straining of the provision -
Interpretation of the term Disbursed, as occurring u/s.5(8), should
mean the payment of money, which flows to the debtor.
Insolvency and Bankruptcy Code, 2016: ss 3(6), 5(8) - Words
'Claim' and 'Debt' - Claim, as defined u/s.3(6), may or may not be
fixed, disputed or undisputed, secured or unsecured but it bears an
indispensable element of "right to payment" - Claim cannot exists
independent of the element of "right to payment" - The source of
such "right to payment" can be either under a judgment or under
any other circumstance - When claim is accompanied by liability it
gives rise to debt - Debt, as defined under the Code includes
financial as well as operational debt and the same appears to be
intertwined with the definition of "claim" - Debt denotes a liability
or obligation which relates to a claim.
Insolvency and Bankruptcy Code, 2016: s.5(8)(d) - Indian
Accounting Standards - rr.61 to 67 - Financial Lease - Financial
lease as such is not defined under IBC - s.5(8)(d) refers lease as
inclusive of Financial lease as given under Indian Accounting
Standards - r.62 declares that a lease is classified as a financial
lease if it transfers, substantially, all the risks and rewards incidental
to ownership of an underlying asset - As per r.63, what matters for
a lease to be financial lease is its substance and not the form - In
the instant case, the rights are transferred in favour of the allotees
only by way of a sub-lease, and therefore there is no transfer of
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ownership of the underlying asset (plot) by the end of the lease
terms - Further the criteria u/r.63 that the lease will be a financial
lease even if the title is not transferred provided the lease term is
for the major part of economic life - In the instant case the "principle
of economic life of underlying asset" is inapposite as here the
underlying asset is land and the economic life of the land is not
limited as the land does not depreciate with the passage of time - In
the instant case, there is no substantial transfer of risks and rewards
incidental to ownership since the appellant (lessor) has reserved
the right of cancellation of lease in larger public interest and
therefore such appellant is not a financial lessor u/s.5(8)(d) of IBC.
Lessee and sub-lease - Rights and Limitations - Lessee can
assign his rights as a lessee which amounts to assignment of his
rights and, therefore, can create a sub-lease - But the creation of
such sub-lease has limitation and it must conform to the terms of
contract between the lessor and lessee.
Lessee and his right to Mortgage - Extent and Limitation - A
lease may enable the lessee to mortgaged the leased property - But
in cases where the mortgage by the lessee can be only with the
prior permission of lessor, his rights are not absolute and is
conditional upon the approval or denial by the lessor of the
permission to make such mortgage.
Insolvency and Bankruptcy Code, 2016: s.5(8)(f) -
Interpretation - "Financial Debt includes any amount raised under
any other transaction, including any forward sale or purchase
agreement, having the commercial effect of a borrowing" - Scope
of - The phrase has a relevance as the same is residuary in nature
- For this phrase to apply so as to enable a person for being termed
as Financial Creditor, there has to be a raising of funds in a
transaction which has a commercial effect - The first and foremost
rule for making such phrase to apply there has to be "raising of
funds" - The raising of funds can be by issuing bonds, notes,
debentures or loan stock etc - In the instant case, the raising of
funds was done by the lessee from the allottees and not by the
appellants and hence the appellant is not entitled to the application
of the said residuary provision and therefore he cannot avail the
benefit of being called a "Financial Creditor"
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
ANAND SONBHADRA
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Dismissing the appeals, the Court
HELD: 1. It is undoubtedly true that in the scheme of the
IBC, Section 21 of the IBC contemplates the constitution of the
Committee of Creditors. The Committee of Creditors is to consist
of all financial creditors of the corporate debtor. It is the
Committee of Creditors, which has power to appoint and replace
the Interim Resolution Professional as the Resolution
Professional. Under Section 27 of the IBC, the Committee of
Creditors, which would consist of only the financial creditors,
would have the right to replace a Resolution Professional. Under
Section 28, the approval of the Committee of Creditors is
mandatory in respect of various powers which need to be
exercised by the Resolution Professional. Central to the IBC,
and what would, in fact, constitute its very soul, is the idea of
resurrecting an ailing corporate debtor. The means,
contemplated, is the submission, consideration and approval of
Resolution Plans to be given by Resolution Applicants. Here
again, Section 30 contemplates that the Resolution Plan is to be
initially scrutinised by the Resolution Professional, who is to
present the Resolution Plan, which conforms to Section 30(2), to
the Committee of Creditors. The Committee of Creditors may
approve the Resolution Plan in the manner provided in Section
30(4). Regulation 38 of the Insolvency Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016, no doubt, provides for the mandatory contents
of the Resolution Plan, which may be approved. The Plan must
include the submission as to how the interests of stakeholders,
including financial creditors and operational creditors, are to be
dealt with. Regulation 38(1), inter alia in fact, contemplates that
the Resolution Plan must provide that the amount payable to the
operational creditors shall be paid in priority over the financial
creditors. [Para 49][364-A-F]
2. The essential requirements to attract Section 5(8) are
that there must be a debt along with interest, if any, which is
disbursed against consideration for the time value of money.
There can be no dispute that there is a debt in this case. Even
the respondents would contend that it is actually a debt but an
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operational debt under Section 5(21). That interest is payable in
connection with the debt, cannot be disputed, having regard to
the terms of the lease deed. It is another matter that liability to
pay interest is not an essential feature to attract Section 5(8).
The next requirement is that there be disbursement.
Disbursement is an indispensable requirement to constitute a
debt, a financial debt, within the meaning of Section 5(8) and that
disbursement must be from the creditor to debtor. [Para 53]
[366-C-E]
Orator Marketing Private Limited v. Samtex Desinz
Private Limited 2021 SCC Online SC 513 - relied on.
3. A debt is a liability or an obligation in respect of a right to
payment. Irrespective of whether there is adjudication of the
breach, if there is a breach of contract, it may give rise to a debt.
In the context of Section 5(8), in Pioneer, disbursement has been
understood as money, which has been paid. In the context of the
transaction involved in the said case, the homebuyers advanced
sums to the builder, who would then utilise the amount towards
the construction in the real estate project. That there must be a
disbursement, was clearly present in the mind of the Court, is
clear from the fact that it has expressly proceeded on the basis
that when the money was paid by the homebuyer to the builder,
the amount disbursed was no longer with the homebuyer. The
homebuyer was paying lesser sums by way of installments than
he would have to pay for the ultimate price of the flat/apartment.
The Court went on to hold that the expression 'borrow' was wide
enough to include the advance by the homebuyer to the real estate
developer for the temporary use. Both parties had commercial
interests, which was further found. But what is relevant is to
attract Section 5(8), on its plain terms, is disbursement. While, it
may be true that the word 'transaction' includes transfer of assets,
funds or goods and services from or to the corporate debtor, in
the context of the principal provisions of Section 5(8) of the IBC,
to import the definition of 'transaction' in Section 3(33), involving
the need to expand the word 'disbursement', to include a promise
to pay money by a debtor to the creditor, will be uncalled for
straining of the provisions. 'Disbursement', within the meaning
of Section 5(8), is the payment of money, which flows to the debtor.
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In the word 'claim', as defined in Section 3(6), right to payment
is one of the components. The golden thread that runs through
the word 'claim', is the right to payment. The right to payment
may arise from a Judgement. It may or may not be fixed. It may
be disputed or undisputed. It may be legal or equitable. It may
be secured or unsecured, but what is indispensable is, there must
be a right to payment. Similarly, in cases of breach of contract,
under any law in force, if it gives rise to a right to payment,
irrespective of whether it is reduced to a Judgment or fixed or
matured or unmatured, disputed or undisputed, secured or
unsecured, as long as there is a right to payment, a claim arises.
When there is a claim and, in regard to such a claim, there is a
liability or obligation, which is due from any person, it gives rise
to a debt. A debt includes a financial debt and an operational debt.
It is after defining the word 'debt' with reference to the existence
of a right to payment in the broadest terms, as defined in the
term 'claim' and including the word 'financial debt' within the
expression 'debt', the word financial debt, in turn, is elaborately
defined in Section 5(8). What is relevant for the purpose of Section
5(8), has been clearly articulated and can be understood with
reference to what is expressly provided. It is unnecessary to bring
in the concept of transaction, as defined in Section 2(33), for
appreciating its scope. A perusal of definition of the word 'debt',
no doubt, reveals that it is closely intertwined with the definition
of the word 'claim' in Section 3(6). The word 'transaction' is
conspicuous by its absence in the definition of both the word
'claim' and the word 'debt'. Therefore it is held that 'debt' means
a liability or obligation, which relates to a claim. The claim or
right to payment or remedy for breach of contract occasioning a
right to payment must be due from any person. Now, if it is due
from any person, it must be due to someone who would then be
the creditor. Section 5(7) defines 'financial creditor' as person to
whom a financial debt is due besides an assignee or transferee
from such person. While it may be true that there would be the
brooding omnipresence of a transaction, as defined, underlying a
debt and claim as defined, it would be unnecessary and
unreasonable to import in the concept of transfer of funds, from
or to a corporate debtor, to glean the meaning of disbursement
in Section 5(8), at least, in the facts of the instant case. The Court
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is 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). [Para 56][367-H;
368-A-H; 369-A-F]
Pioneer Urban Land and Infrastructure Limited and
Another v. Union of India (UOI) and Others (2019) 8
SCC 416 : [2019] 10 SCR 381 - relied on.
4. The Rules, which are relevant in regard to the
specification of a lease as a financial lease are set down as Rules
61 to 67 of Indian Accounting Standards [for short "IAS"]. They
have been made under Section 133 of the Companies Act, 2018.
Rule 62, the sheet anchor of the appellant, declares that a lease
is classified as a financial lease if it transfers, substantially, all the
risks and rewards incidental to ownership of an underlying asset.
Moving on to Rule 63, it undoubtedly, declares that what matters
is not the form but the substance. Thereafter, under the examples
of situations, either individually or in combination, which would
lead to a lease being classified as a finance lease, certain
situations have been depicted. As far as the first situation is
concerned, it would involve a lease, where, there is a transfer of
ownership of an underlying asset to the lessee by the end of the
lease term. There is no case for the appellants that the lease
contemplates transfer of ownership of the underlying asset. The
underlying asset is the land. In fact, the case of the appellant
would appear to be also that there is no transfer of ownership
because by the end of lease term third party rights would have
been created over the dwelling unit/ built up space/ plot
constructed by the Lessee. It is also the further case set up that
the Lessee alone brings third parties on to the property and gets
paid by such parties. It will be relevant to notice that the so called
third parties do not get ownership rights as such. The rights are
transferred in favour of the allotees of dwelling units /built up
space/ plot only by way of a sub-lease. Therefore, there is no
transfer of the ownership of the underlying asset by the end of
the lease term. The third criteria in Rule 63 is, where the lease
term is for the major part of the economic life of the underlying
asset, even if the title is not transferred. The definition of
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'economic life', as provided in Indian Accounting Standards The
lease in question is for a period of ninety years. In regard to land,
the underlying asset, 'the principle of economic life of underlying
asset', is inapposite. The economic life of land is not limited. The
principle in the said situation is predicated with reference to
measuring the economic life of an asset. More importantly, it
speaks of the major part of the economic life of the asset. Both
these concepts are inapposite and even inapplicable with regard
to land. Land does not depreciate with the passage of time.
Ordinarily, the price of land would only increase, unlike
other assets. [Paras 62, 64, 68][373-F-G; 375-G-H; 376-A-D;
377-C-G]
Asea Brown Boveri Ltd. v. Industrial Finance
Corporation of India and Others (2004) 12 SCC 570 :
[2004] 5 Suppl. SCR 671 - relied on.
5. Undoubtedly, in law, generally the lessee can assign his
rights as a lessee which amounts to assignment of his right. A
lessee may create a sub- lease. A lessee can also create a
mortgage. All of these rights vest with a lessee, subject to a
contract to the contrary. In the lease in question what is prohibited
in Clause 12 under other clauses is the right to assign his rights
as lessee. Any reward which the lessee could have obtained if it
wished to absolutely assign its right, is clearly denied by virtue
of the provision in the lease which acts as a contract to the
contrary. [Para 111][395-E-G]
6. As far as the right to mortgage is concerned the lessee
is indeed permitted to mortgage the land. However, the mortgage
can be effected only with prior permission of the lessor. The right
to mortgage which flows as an incident of ownership is one of the
bundle of rights which vests with an owner. It is undoubtedly a
lesser right and the owner would be possessed of the residual
right. However, it is one of the many rights which is incidental to
ownership but there is no absolute right to create a mortgage.
The requirement of prior permission to create a mortgage would
mean that the permission may be forthcoming or it can be denied.
If there is a denial of the right to create a mortgage, then it would
impliedly mean that to the said extent the right to raise funds for
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the purpose of financing the investment is impaired. Depending
on whether or not the right is permitted actually the rewards
incidental to ownership is transferred. The clause relating to
mortgage, in fact, indicates that the purpose contemplated, is
that the mortgage can only be for the purpose of raising loan or
for the purpose of financing the lessee's investment in the project.
This in turn is to be on receipt of the payment by the allottee or
on receipt of assurance of payment by the bank or under any
other suitable arrangement. In this regard, the lease contemplated
a mutual settlement amongst the lessor, the developer and the
financial institution/bank. It clearly constitutes a foray into the
right of a person 'if an owner' to deal with the property including
the right to create a mortgage. The suitable arrangement in mutual
settlement contemplates the lessor giving its consent to the terms
of the mortgage. It includes the right of the lessor to prevail
upon, in regard to the terms of the mortgage. Its object may be
lofty and in keeping with its role as a statutory authority but its
impact on the true interpretation of the lease and as to whether it
involves transfer of rewards incidental to ownership is another
matter. The terms and conditions of the NOC which is
contemplated as necessary for mortgaging the land to facilitate
housing loans of final purchaser will be as decided by the lessor.
Still further it may be noticed that under the proviso if there is a
sale or a foreclosure of the mortgaged property, the lessor is
given the right to such percentage of the unearned increase in
value as will be decided by the lessor. [Paras 113, 114][396-F-H;
397-A-E]
7. Section 5(8) defines 'financial debt' as meaning 'a debt
along with interest, if any, which is disbursed against the
consideration of time value of money'. Thereafter, Clauses (a) to
(i) deal with transactions which are included as financial debt. It
is, thereafter, that Clause (f) provides that a financial debt includes
any amount raised under any other transaction, including any
forward sale or purchase agreement, having the commercial effect
of a borrowing. To further simplify the concept, in Section 5(8)(f),
it would be appropriate to eclipse the words 'includes any forward
sale or purchase agreement', and then, the provision would read
as 'any amount raised any other transaction having commercial
effect of a borrowing'. The word 'transaction' has been defined
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in Section 2(33) to include 'an agreement or arrangement in
writing for the transfer of an asset, or funds, goods or services
from or to the corporate debtor. At this very juncture, it may
noticed that 'operational debt' has been defined in Section 5(21),
which means 'a claim in respect of provision of goods or services
including employment'. Operational debt also means a debt in
respect of payment of dues arising under any law for the time
being in force and payable to any Local Authority, inter alia.
'Operational creditor' is defined in Section 2(20) as meaning 'a
person to whom operational debt is owed and includes any person
to whom such debt has been legally assigned or transferred'.
Under Section 5(8)(f), the words used, inter alia, are 'any amount
raised under any other transaction'. In our quest for similar words,
namely, any amount raised, it may be discovered that similar words
are used namely 'any amount raised' specifically in clauses 5(8)(b)
and 5(8)(c). It may noticed that, in fact, Section 5(8)(a) specifically
deals with money borrowed against the payment of interest. It
has already been found that under the main provision an interest
free loan has been held by this Court to entitle the unpaid creditor
to describe himself as a financial creditor. The words 'any amount
raised pursuing to any note purchase facility or issue of bonds,
notes, debentures, loans stocks' are followed by the words or by
any similar instrument. Since, Part II of the IBC deals with
resolution and liquidation for corporate persons and the definition
of financial debt is found in Section 5(8) falling under Part II, it
may be born in mind that Section 3(8) defines corporate debtor
as a corporate person who owes a debt to any person. The word
corporate person has in turn been defined under Section 3(7) as
a company under the Companies Act as defined in Section 2(20)
of the Companies Act, 2013, a limited liability partnership as
defined in the Limited Liability Partnership Act, 2008 or any other
person incorporated with limited liability but under any law for
the time being in force but will not include any financial service
provider. In fact, a perusal of Part III of IBC which deals with
Insolvency Resolution for individuals and partnership firms will
show that it does not contain the concept of financial debt as
indicated in Section 5(8). Section 5(8)(c) comprehensively refers
to raising of any amount based on note purchase facility, issue of
bonds, notes, debentures, loan stock or any similar instrument.
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Thus, what is contemplated is ordinarily the corporate debtor
raises funds by issuing bonds, notes, debentures or loan stock
which are well known instruments usually used by corporate
bodies to generate funds for its needs. These instruments are
ordinarily transferable. [Paras 122, 132][406-E-H; 417-E-H;
418-A-C]
State of Orissa v. State of A.P. (2006) 9 SCC 591 -
relied on.
8. In the present case it cannot be hold that the lessee has
raised any amounts from the appellant. The question, therefore,
of considering the last limb of Section 5(8)(f), namely, whether it
has commercial effect of a borrowing could not arise. But it can
be safely said that the obligation incurred by the lessee to pay
the rental and the premium cannot be treated as an amount raised
by the lessee from the appellant. [Para 138][421-F-G]
State of Tamil Nadu v. Binny Ltd., Madras (1980) Suppl.
SCC 686; State of Orissa and Another v. M/s. Chakobhai
Ghelabhai and Company AIR 1961 SC 284 : [1961]
1 SCR 719; Jaypee Infratech Limited v. Axis Bank
Limited and Others (2020) 8 SCC 401; Swiss Ribbons
Private Limited and Another v. Union of India and
Others (2019) 4 SCC 17 : [2019] 3 SCR 535; Mohd.
Noor and Others v. Mohd. Ibrahim and Others (1994)
5 SCC 562 : [1994] 1 Suppl. SCR 790; Aneeta Hada
v. Godfather Travels and Tours Private Limited (2012)
5 SCC 661 : [2012] 5 SCR 503; M/s. Shroff and Co. v.
Municipal Corpn. of Greater Bombay and Another
(1989) 1 Suppl. SCC 347 : [1988] 2 Suppl. SCR 406;
Pioneer Urban Land and Infrastructure Limited and
Another v. Union of India and Others (2019) 8 SCC
416 : [2019] 10 SCR 381; Union of India and Others
v. R.C. Jain and Others (1981) 2 SCC 308 : [1981]
2 SCR 854; New Okhla Industrial Development
Authority v. Chief Commissioner of Income Tax and
Others (2018) 9 SCC 351 : [2018] 7 SCR 781; Haryana
v. Haryana Housing Board Employees' Union and
Others (1996) 1 SC 95 : [1995] 4 Suppl. SCR 533;
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
ANAND SONBHADRA
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Commissioner of Income Tax, Lucknow v. U.P. Forest
Corporation (1998) 3 SCC 530 : [1998] 2 SCR 22; in
Re: Rogers Pyatt Shellac Co. v. The Secretary of State
for India in Council AIR 1925 Calcutta; The
Commissioner of Income Tax, Bombay v. Ahmedbhai
Umarbhai and Co., Bombay AIR 1950 SC 134 : [1950]
SCR 335 - referred to.
Case Law Reference
[2019] 10 SCR 381
relied on
Para 42
[2019] 3 SCR 535
referred to
Para 43
[1994] 1 Suppl. SCR 790
referred to
Para 44
[2004] 5 Suppl. SCR 671
relied on
Para 58
[2012] 5 SCR 503
referred to
Para 60
[1961] 1 SCR 719
referred to
Para 99
(1980) Suppl. SCC 686
referred to
Para 100
[1988] 2 Suppl. SCR 406
referred to
Para 101
[2019] 10 SCR 381
referred to
Para 123
(2020) 8 SCC 401
referred to
Para 127
(2006) 9 SCC 591
relied on
Para 132
[1981] 2 SCR 854
referred to
Para 142
[2018] 7 SCR 781
referred to
Para 142
[1995] 4 Suppl. SCR 533
referred to
Para 142
[1998] 2 SCR 22
referred to
Para 142
[1950] SCR 335
referred to
Para 143
From the Judgment and Order dated 16.04.2021 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Ins.) No. 1183 of 2019.
With
Civil Appeal Nos. 2367-2369 of 2021.
Tushar Mehta, SG, Ms. Madhavi Goradia Divan, ASG, Rachit
Mittal, Sahil Monga, Ms. Pooja Kapur, Vinod Yadav, Sudhir Naagar,
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Sourav Roy, Kanu Agarwal, Prabudh Singh, Kaushal Sharma, Advs. for
the Appellant.
Dr. Abhishek Manu Singhvi, Sr. Adv., Prateek Gupta, Lokesh
Malik, Krishna Dev Jagarlamudi, Abhishek Agarwal, Abhijeet Sinha, Milan
Singh Negi, Nikhil Kumar Jha, Pulkit Srivastava, Ritin Rai, Gaurav Mitra,
Abhishek A., Ms. Ritika Sinha, Parth Maniktala, Akshay Goel, Ms. Udita
Singh, Ninad Dogra, Som Raj Choudhury, Anand Varma, Ms. Apoorva
Pandey, Shohit Chaudhry, Pankaj Agarwal, Advs. for the Respondent.
The Judgment of the Court was delivered by
K. M. JOSEPH, J.
1. Hardly six years old, the Insolvency and Bankruptcy Code
(hereinafter referred to as the 'IBC") continues to be a fertile ground to
spawn litigation. Born in the year 2016, the IBC this time around has
given rise to the question as to whether the appellant would be a financial
creditor and entitled to be so treated in the Corporate Insolvency
Resolution Process (CIRP, in short) commenced against the corporate
debtor under the 'IBC'.
THE APPEALS
CIVIL APPEAL NO.2222/2021
2. The appellant 'NOIDA' initially submitted Form 'B' and claimed
as anoperational creditor in regard to the dues outstanding under the
lease. Subsequently the appellant filed a claim in Form 'C' and claimed
as a financial creditor.There was some correspondence which reveals
that the appellant insisted upon being treated as a financial creditor.Finally,
the matter was considered by the adjudicating authority (NCLT) which
held that there was no financial lease in terms of the Indian Accounting
Standards and there was no financial debt.By the impugned order, NCLAT
has affirmed the view taken by the NCLT. Hence the appeal.
CIVIL APPEAL NOS.2367-2369 OF 2021
3. The appellant in 2222 of 2021 is the appellant in this case also.
The appeal is filed against an interim order passed by the NCLAT staying
the order passed by the NCLT. By the order passed by the NCLT, the
appellant herein was directed to be admitted as a financial creditor and
adjudicating authority also directed to admit the whole of the claim of
the appellant. In view of the order passed, which is the subject matter of
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
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C.A. No. 2222/2021,NCLAT found it fit to pass an order staying the
order passed by the NCLT. Hence the appeals.
4. Since a common question arises namely whether the appellant
is entitled to be treated as a financial creditor within the meaning of the
IBC, we are rendering the common judgment.
5. We have heard Shri Tushar Mehta, Learned Solicitor General
appearing for the appellant in C.A. No.2222/2021 and Smt. Madhavi
Divan, learned Additional Solicitor General for the appellant in C.A.
No.2367-2369/2021. We have also heard Shri Ritin Rai, learned Senior
Counsel appearing on behalf of the respondent in CA 2222/2021. Besides
we heard Dr. A.M. Singhvi, learned Senior Counsel who was allowed to
intervene in the matter on the basis that there is a case involving the
appellant NOIDA which is pending consideration.We also heard Shri
Devashish Bharuka on behalf of the first respondent in C.A. Nos. 23672369/2021.
THE LEASE
6. The terms of the lease are as found in C.A.No. 2222/2021.
The lease was entered into on the 30th day of July, 2010. The appellant
is the lessor described as the Authority under Section 3 of the Uttar
Pradesh Industrial Area Development Act, 1976 (hereinafter referred
to as the 'UPIAD Act'). 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'. The purpose of the lease is the construction of the
residential flats according to the setback and building plan approved by
the appellant. The lessee earned its right as lessee under the process of
two bid tender system in favour of aconsortium of which it is a member.
The lease deed provides that the shareholding of the lessor shall remain
unchanged till the temporary occupancy/completion certificate of at least
the first phase of the project is obtained from the lessor and the lessee is
permitted to transfer upto 49% of the shareholding subject to conditions.
Thereafter, it is recited that of the consideration of Rs.46,14,69,996.50,
10% stood paid. The lease deed further contemplated moratorium of 24
months from the date of allotment. Only the interest at 7% per annum
compounded half yearly which accrued during the moratorium period
shall be payable in equal half yearly instalments.The lease deed further
contemplated payment of the balance 90% of the amount after expiry of
the moratorium in 16 half yearly instalments along with interest as
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specifically set out. Relevant portions of the lease deed to be noticed
read as follows:
"And also, in consideration of the yearly lease rent hereby reserved
and the covenants provisions· and agreement herein contained
and on the part of the Lessee. to be respectively paid observed
and performed, the Lessor doth hereby demise on lease to the
lessee! that plot of land numbered as Group Housing Plot No.GH5/B, Sector-137, In the NOIDA, Distt. Gautam Budh Nagar (U.P.)
contained by measurement 22,565.77 Sq. mtrs. be the same a
little more or less and bounded:
On the North by :
As per Site
On the South by :
As per Site
On the East by
:
As per Site
On the West by
:
As per Site
And the said plot is more clearly delineated and shown In the
attached plan and therein marked red.
TO HOLD the said plot (hereinafter referred to as the demised
premises with their appurtenances up to the lessee for the term of
90 (ninety) years commencing from 30, JULY, 2010 except and
always reserving to the Lessor.
a) A right to lay water mains, drains, sewers or electrical wires
under or above the demised premises, if deemed necessary by
the Lessor in developing the area.
b) The Lessor reserves the right to all mine and minerals, claims,
washing goods, earth oil, quarries, over & under the allotted plot
and full right and powerat the time to do all acts and things which
may be necessary or expedient for the purpose of searching for
working and obtaining removing and enjoy the same Without
providing or leaving any vertical support for the surface of the
residential plot or for any building for the lime being standing
thereon provided always that the lessor shall make reasonable
compensation to the Lessee for all damages directly occasioned
by the exercise of such rights. To decide the amount of reasonable
compensation the decision of the Lessor will be final and binding
on the Lessee.
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
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(II) AND THE LESSEE DOTH HEREBY DECLARE AND
CONVENANTS WITH THE LESSOR IN THE MANNER
FOLLOWING: .
a) Yielding and paying therefore yearly in advance during the said
term unto the lessor In the month of MARCH for each year the
yearly lease rent indicated below: -
(i) Lessee has paid Rs. 46,14,699;96 say Rs.46,14,700,00 as lease
rent being 1% of the plot premium for the first 1O years of lease
period.
(ii) The lease rent may be enhanced by 50%after every 10 years
i.e., 1.5 times of the prevailing lease rent.
(ii) The lease rent shall be payable In _advance every year. First
such payment shall fall due on the date of execution of lease deed
and thereafter, every year, on or before the last date of previous
financial year.
(iv) Delay In payment of the advance lease rent will be subject to
Interest @14% per annum compounded half yearly on the defaulted
amount for the defaulted period.
(v) The lessee has the option to pay lease rent equivalent to 11
years @ 1 % of the premium of the plot per year as 'One Time
Lease Rent unless the Lessor decides to withdraw this facility:
On payment of One Time Lease Rent, no further annual lease
rent would be required to be paid for the balance lease· period.
This option may be exercised at any time during the lease period
provided the lessee has paid the earlier lease right due and lease
rent already paid will not be considered· in One Time Lease Rent
option.
b) The Lessee shall be liable to pay all rates, taxes, charges and
assessment leviable by whatever name called for every description
in respect of the plot of land or building constructed thereon
assessed or Imposed from time to time by the lessor or any
Authority/ Government. In exceptional circumstances the time of
deposit for the payment due may be extended by_the lessor. But
in such case of extension of time an interest@ 14% p.a.
compounded every half yearly shall be charged for the defaulted
amount for such delayed period. In case lessee fails to pay the
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above charges it would be obligatory on the part or Its members/
sub lessee to pay proportional charges for the allotted areas.
c) The Lessee shall use the allotted plot for construction of Group
Housing, however, the lessee shall be entitled to a lot the dwelling
unit on sublease basis to its allottee and also provide space for
facilities like Roads, Parks etc. as per their requirements,
convenience with the allotted plot, fulfilling requirements or building
bye-laws and prevailing and under mentioned terms and conditions
to the lessor. Further transfer/sub lease shall be governed by the
transfer policy of Lessor:
(i) Such allottee/sub lessee should be citizen of India and competent
to contract.
(ii) Husband/wife and their dependent children will not be
separately eligible for the purpose of allotment and shall be treated
as single entity.
(iii) The permission for part transfer of plot shall not be granted
under any circumstances. The Lessee shall not be entitled to
complete transaction for sale, transfer, assign or otherwise part
with possession of the whole or any part of the building constructed
thereon before making payment according to the schedule
specified in the lease deed of the plot to the Lessor. However,
after making payment of premium of the plot to the lessor as per
schedule specified in the lease deed, permission for transfer of
built up flats or to part with possession of the whole or any part of
the building constructed on the group housing plot, shall be granted
and subject to payment of transfer chargers as per policy prevailing
at the time of granting such permission of transfer. However, the
Lessor, reserves the right to reject any transfer application without
assigning any reason. The lessee will also be required to pay
transfer charges as per the policy prevailing at the time of such
permission of transfer.
The permission to transfer the part Or the built up space will be
granted subject to execution of tripartite sub- lease deed which
shall be executed in a form and format as prescribed by the
lessor."On the fulfillment of the following conditions: -
a) The Lease Deed of plot has been executed and the Lessee has
madethe payment according to the schedule specified in the lease
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
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deed of the plot, interest and one time lease rent. Permission of
sub-lease deed shall be granted phasewise on payment of full
premium (with interest upto the date of deposit) of the plot of that
phase.
b) Every sale done by the lessee shall have to be registered before
the physical possession of the property is handed over.
c) The Lessee has obtained building occupancy certificate from
Planning Department, Greater Noida (Lessor).
d) The Lessee shall submit list ofindividual allottees of flats within
6 months formthe date of obtaining occupancy certificate.
e) The Lessee shall have to execute tripartite sub lease in favour
of the individual allottees for the developed flats/plots in the form
and format as prescribed by the LESSOR.
f) The Sub-Lessee undertakes to put to use the premises for the
residential use of residential area only.
g) The Lessee shall pay an amount of Rs. 1000/- towards
processing fee and proportionate (pro-rate basis) transfer charges
and lease rent as applicable at the time of transfer and shall also
execute sub lease deedbetween Lessor, Lessee and proposed
transferee (sub-Lessee).