No Inconsistency Between IBC And Sec. 13 & 13A Of U.P. Industrial Area Development Act: NCLT Delhi

The National Company Law Tribunal (“NCLT”), New Delhi Bench, comprising of Shri Ashok Kumar Bhardwaj (Judicial Member) and Shri L.N. Gupta (Technical Member), while adjudicating a petition filed in VMS Equipment v Primrose Infratech Private Limited, has held that there is no inconsistency between IBC and Sections 13 and 13A of the UP Industrial Area Development Act, 1976. If security interest was created in favour of Greater NOIDA Authority prior to commencement of moratorium/CIRP, then IBC would not override UP Industrial Area Development Act, 1976 in terms of Section 238 of IBC. “Since, in the instant case, the security interest of GNIDA was created by virtue of the operation of law prior to the commencement of CIRP/Moratorium, we see no inconsistency between the provision of Sections 13 and 13A of the Uttar Pradesh Industrial Area Development Act, 1976 and IBC 2016, hence the provisions of Section 238 of IBC, 2016 do not get attracted to.” Background Facts In 2011, the Greater Noida Industrial Development Authority (“GNIDA”) leased land to M/s Promise Infratech Pvt. Ltd. (“Corporate Debtor”), for developing a group housing project in Greater NOIDA. However, the Corporate Debtor defaulted in paying dues of GNIDA. On 21.12.2018, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT and moratorium was imposed. GNIDA submitted its claim of Rs. 55 Crores to the Resolution Professional of the Corporate Debtor, which was categorized as an Operational Debt. Thereafter, a Resolution Plan was approved by the Committee of Creditors for the Corporate Debtor. Nonetheless, the Resolution Plan did not make any provision for payment of complete dues of GNIDA. When the resolution plan was pending before the NCLT for approval, GNIDA filed its objections and sought rejection of the plan. It was argued that the land of GNIDA being a public property should not be permitted to be monetized by the resolution applicant, without making a provision to pay the entire dues of GNIDA. The dues payable to GNIDA constitute a charge over the land, which under the resolution plan will be transferred to the resolution applicant without paying dues. GNIDA should be treated as a secured operational creditor. The Resolution Professional submitted that by virtue of Section 238 of IBC, IBC has an overriding effect over the UP Industrial Area Development Act, 1976. Issue Whether provisions of Section 13 and Section 13A of Uttar Pradesh Industrial Area Development Act, 1976 are inconsistent with the provisions of IBC by virtue of Section 238 of IBC? NCLT Verdict The Bench observed that GNIDA is a Secured Operational Creditor in terms of Section 3(30) of IBC. It was observed that as per the Resolution Professional, Section 13 and Section 13A of UP Industrial Area Development Act, 1976 (“UPIAD Act”) are inconsistent with IBC by virtue of overriding effects of Section 238 of IBC. Further, the “charge” has not been registered in terms of Section 77 of the Companies Act, 2013. Section 13 and Section 13A of Uttar Pradesh Industrial Area Development Act, 1976 not inconsistent with IBC The Bench observed that Section 14(1)(a) of IBC states that no proceedings can be initiated against the Corporate Debtor “in any court of law, tribunal, arbitration panel or other authority”. Thus, moratorium would apply to GNIDA since it is an authority. “It emerges that due to the Moratorium under Section 14(1) commenced on 21.12.2018, all the recovery proceedings initiated post-21.12.2018 including security interest, if any, created by virtue of those proceedings are void.” It was observed that the Corporate Debtor had committed default in paying GNIDA’s dues prior to commencement of moratorium. Therefore, the provisions of Sections 13 and 13A of UPIAD Act were triggered prior to the initiation of the Moratorium. “Hence, we are of the considered view that the “charge” of GNIDA in the instant case has been created by virtue of law i.e., in terms of Sections 13 and 13A of the Uttar Pradesh Industrial Area Development Act 1976 well before the Moratorium period and Section 14 (1) of IBC 2016 will not create an escape route for the Corporate Debtor to get an exemption from the charge created by virtue of law under Section 13A of the Uttar Pradesh Industrial Area Development Act, 1976.” The Bench held that charge was created in GNIDA’s favour prior to moratorium imposition and therefore Section 13 and Section 13A of UPIAD Act are not inconsistent with IBC and overriding effect under Section 238 of IBC would not get attracted. “Since, in the instant case, the security interest of GNIDA was created by virtue of the operation of law prior to the commencement of CIRP/Moratorium, we see no inconsistency between the provision of Sections 13 and 13A of the Uttar Pradesh Industrial Area Development Act, 1976...

No Inconsistency Between IBC And Sec. 13 & 13A Of U.P. Industrial Area Development Act: NCLT Delhi

Pallavi Mishra

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No Inconsistency Between IBC And Sec. 13 & 13A Of U.P. Industrial Area Development Act: NCLT Delhi

Pallavi Mishra

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