Kiran Raj

The National Company Law Tribunal (NCLT), Principal Bench, New Delhi, has allowed the Ghaziabad Development Authority’s (GDA) application to be recognized as a financial creditor in the corporate insolvency resolution process (CIRP) of M/s Celebration City Projects Pvt. Ltd. The Tribunal directed the Resolution Professional (RP) to include GDA in the Committee of Creditors (CoC) and accept its claim as a financial creditor.

This decision followed a detailed examination of the agreement to sell executed between GDA and the corporate debtor, which was deemed to have the attributes of a financial lease under the provisions of the Insolvency and Bankruptcy Code (IBC), 2016.

The matter concerned a property transaction initiated in 2007, when GDA sold a plot of land measuring 45,936 square meters to M/s Vridhi Merchant Pvt. Ltd. (now known as M/s Celebration City Projects Pvt. Ltd.) through a public auction for ₹100 crores. A registered agreement to sell was executed on July 6, 2007, with the corporate debtor paying ₹25 crores upfront and agreeing to pay the balance in 16 quarterly installments, along with 12% interest. The agreement stipulated that in case of default, an interest rate of 15% would be charged.

GDA claimed that the corporate debtor failed to adhere to the payment terms, leading to multiple reschedulings of the balance consideration. Eventually, the corporate debtor defaulted on the payments, prompting GDA to file a claim for ₹147.59 crores during the CIRP proceedings. The RP categorized GDA’s claim as that of an operational creditor, leading to the filing of this application.

GDA argued that the agreement to sell constituted a financial debt under Section 5(8)(d) of the IBC. It maintained that the transaction had the "commercial effect of borrowing," with the liability for unpaid installments and interest creating a financial debt. The RP, however, contended that the agreement was a lease arrangement and that no disbursement of funds had occurred, disqualifying GDA from being recognized as a financial creditor.

The NCLT examined the nature of the transaction under the agreement to sell and the applicable legal provisions. It referred to the definition of "financial debt" under Section 5(8) of the IBC, particularly focusing on Section 5(8)(d), which includes liabilities arising from financial leases. The Tribunal stated: “The liability arises on the part of the corporate debtor in respect of the sale agreement, which is in the nature of a financial lease under the Indian Accounting Standard.”

The Tribunal distinguished this case from judgments cited by the RP, including the Supreme Court’s decision in New Okhla Industrial Development Authority v. Anand Sonbhadra. It stated: “The judgment relied upon by the corporate debtor is based on a different factual matrix and primarily pertains to the ingredients of Section 5(8)(f) of the Code, whereas in the present case, the ingredients of Section 5(8)(d) are applicable.”

The NCLT observed that the agreement to sell incorporated the element of time value of money, a key factor in determining the existence of financial debt under the IBC. The judgment recorded: “The agreement includes specific clauses governing the interest component, with 12% on the remaining installments and 15% in case of default, which clearly indicates the time value of money.”

The Tribunal directed the Resolution Professional to accept GDA’s claim as a financial creditor and to include it in the Committee of Creditors of the corporate debtor. It stated: “In view of the above and for the reasons recorded therein, we are inclined to allow IA No. 3686 of 2022 filed for directing the RP to admit the claim of the applicant/GDA as a financial creditor.”

The application was allowed, and the RP was ordered to take the necessary actions in compliance with the Tribunal’s findings.

Case Title: Ghaziabad Development Authority v. Mr. Amit Agarwal

Case Number: IA-3686/2022 in CP(IB)-652(PB)/2019

Bench: Justice (Retd.) Ramalingam Sudhakar (President) and Shri Avinash K. Srivastava (Member Technical)

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