Noida authority seeks amendment in bankruptcy code

NOIDA: The Noida authority on Monday said that it has written to the Centre and Uttar Pradesh government, seeking revision in the provisions of the Insolvency and Bankruptcy Code (IBC) 2016

NOIDA: The Noida authority on Monday said that it has written to the Centre and Uttar Pradesh government, seeking revision in the provisions of the Insolvency and Bankruptcy Code (IBC) 2016. The authority has asked to be included in the category of financial creditors for easier recovery of dues from defaulting realtors facing corporate insolvency resolution process (CIRP) at the National Company Law Tribunal (NCLT).

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“We have written to the Uttar Pradesh and central government seeking revision in the provisions of IBC-2016. We hope for a favourable decision to protect our financial interests,” said Ritu Maheshwari, chief executive officer, Noida authority.

On May 17, 2022, the Supreme Court declared the Noida authority as an operational creditor in a case against a realty firm, hurting its financial interests. According to its own estimate, the authority struggles to recover ₹6200 crore in financial dues from at least 25 realty firms.

Lenders are dragging debt-ridden realty firms to the NCLT to recover their money. The authority allotted group housing land to these realty firms in instalments amid economic slowdowns. The realtors failed to repay dues to the authority and the banks. On filing petitions against firms, the NCLT gives control of these companies to interim resolution professionals, leaving promoters without decision making powers.

“According to the process, if a realty company goes into liquidation, then the operational creditor is the last one to get its claim, compared to the financial creditor who is first in line. Also, the operational creditor has limited say in the CoC which makes crucial decisions about the fate of the bankrupt company,” said Kumar Mihir, advocate and CIRP expert.

The CoC invites proposals from other companies to take over the debt-ridden entity. Once proposals are submitted, the CoC finalises an option through a vote involving lenders such as banks and homebuyers, designated as financial creditors. Operational creditors have minimum say in the voting process. Also, when it comes to taking a haircut on the debt of a company (forgoing a portion of the money owed), the operational creditor becomes the first stakeholder to bear the loss.