2022 (5) TMI 875 - SC - IBC

NOIDA authority classified as operational creditor not financial creditor under IBC Section 5(8) lease agreement lacks finance characteristics

NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY Versus ANAND SONBHADRA And NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY Versus MANISH GUPTA & Anr. Etc.

NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY Versus ANAND SONBHADRA And NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY Versus MANISH GUPTA & Anr. Etc. - TMI Issues Involved:1. Whether the appellant qualifies as a financial creditor under the Insolvency and Bankruptcy Code (IBC).2. Whether the lease in question is a financial lease under Section 5(8)(d) of the IBC.3. Whether the appellant is entitled to be treated as a financial creditor under Section 5(8)(f) of the IBC.4. Whether the appellant qualifies as an operational creditor under the IBC.Detailed Analysis:1. Financial Creditor Status under IBC:The primary issue revolves around whether the appellant qualifies as a financial creditor under the IBC. The appellant initially claimed to be an operational creditor but later sought recognition as a financial creditor. The adjudicating authority (NCLT) and the appellate authority (NCLAT) held that the appellant did not qualify as a financial creditor, affirming that the lease did not constitute a financial debt under the IBC.2. Financial Lease under Section 5(8)(d) of the IBC:The appellant argued that the lease should be classified as a financial lease under Section 5(8)(d) of the IBC, which includes leases deemed as finance or capital leases under the Indian Accounting Standards (IAS). The NCLAT found that the lease did not transfer substantially all the risks and rewards incidental to ownership of the underlying asset. The lease was heavily controlled by the appellant, with significant restrictions on the lessee's rights, including the right to transfer or mortgage the property without the appellant's permission. The lease did not meet the criteria for a financial lease as per IAS, such as transfer of ownership at the end of the lease term, or the lease term covering the major part of the economic life of the asset. Therefore, the lease was not classified as a financial lease.3. Financial Creditor under Section 5(8)(f) of the IBC:The appellant contended that the lease should be considered under the catch-all provision of Section 5(8)(f), which includes any amount raised under any other transaction having the commercial effect of a borrowing. The Supreme Court examined whether the lease involved raising funds from the appellant, which would have the commercial effect of a borrowing. The Court concluded that the lease did not involve any disbursement of funds by the appellant to the lessee. The mere provision of a moratorium and staggered payment terms did not constitute raising funds from the appellant. Therefore, the lease did not fall under Section 5(8)(f).4. Operational Creditor Status:The respondents argued that the appellant should be treated as an operational creditor, as the amounts claimed were dues arising under the lease, which could be considered operational debt. The Supreme Court noted that both the NCLT and NCLAT had treated the appellant as an operational creditor. The Court found no reason to disturb this finding and proceeded on the basis that the appellant qualifies as an operational creditor under the IBC.Conclusion:The Supreme Court dismissed the appeals, holding that the appellant does not qualify as a financial creditor under the IBC, neither under Section 5(8)(d) as a financial lease nor under Section 5(8)(f) as a transaction having the commercial effect of a borrowing. However, the appellant qualifies as an operational creditor.