Noida to challenge apex court’s order limiting its say in bankruptcy proceedings

A day after the Supreme Court declared Noida an operational creditor instead of a financial creditor in the Insolvency and Bankruptcy Code (IBC), the authority on Wednesday said it will challenge the order as it affects its financial interests and also limits its say in insolvency proceedings of debt-ridden companies

A day after the Supreme Court declared Noida an operational creditor instead of a financial creditor in the Insolvency and Bankruptcy Code (IBC), the authority on Wednesday said it will challenge the order as it affects its financial interests and also limits its say in insolvency proceedings of debt-ridden companies.

Noida, India-May 14, 2022: A view of Supertech Twin Tower, at Sector 93A, in Noida, India, on Saturday, May 14, 2022. (Photo by Sunil Ghosh / Hindustan Times) (Hindustan Times)

Since a number of realty companies having projects in Noida, and also Greater Noida, are currently facing insolvency proceedings before the National Company Law Tribunal (NCLT), being declared an operational creditor will hurt the authority’s financial interests, realty experts said.

With operational creditor status, the Noida authority’s financial interests will not be looked into on priority basis as it will have limited say in the voting of the committee of creditors that decides the fate of a realty or industrial company facing corporate insolvency resolution (bankruptcy) proceedings.

“We are exploring legal options. We will file either a review application or a curative plea in the Supreme Court against this order as it will impact our financial interests,” said Ritu Maheshwari, chief executive officer, Noida authority.

Subsequently, the resolution professional forms a committee of creditors (CoC) comprising banks, homebuyers and other stakeholders.

The CoC invites proposals from companies, which want to take over debt-ridden company. Once proposals are submitted, the CoC finalises one out of all available options on the basis of a voting in which lenders such as banks and homebuyers, who are financial creditors, take part. Operational creditors have minimum say in the voting, said legal experts.

And also, when it comes to taking a haircut on the debt of a company (forgoing a portion of the money owed), then the operational creditor (Noida) will become the first stakeholder to bear the loss, said experts.

As a result, in every case pending before the NCLT, the authority’s financial claim will get affected drastically, said experts. There are at least 20 cases of realty companies pending before the NCLT.

“But none of the 20 cases has reached the final stage. We will continue protecting our financial interests in every case as per the available legal options. We will not let these 20 cases affect our financial interests,” said Maheshwari.

Legal experts, however, said the Supreme Court ruling will benefit homebuyers.

“The order will end all confusion regarding the status of Noida authority in ongoing corporate insolvency resolution proceedings of real estate companies, which have projects that are stuck for a long time. As the authority has been declared as operational creditors, they are now at the end of the line when it comes to recovering dues, and it is in their interest now to ensure that the projects are revived and not liquidated. This will end the confrontational attitude adopted by these authorities and ensure revival of projects,” said Kumar Mihir, an advocate who is fighting Amrapali homebuyers’ case in the Supreme Court.

Piyush Singh, founding partner, PSP Legal, said, “The authority was claiming itself to be a financial creditor and was stalling the revival process. This judgment will bring a lot of relief to homebuyers whose homes are stuck in Noida, Greater Noida and Yamuna Expressway, as all these authorities will now become operational creditors and the homebuyers will enjoy the majority voting rights. “

Ashish Mohan Gupta, president of Jaypee Infratech Limited Real Estate Allottees Welfare Society, said, “This order establishes the authority’s role as merely a governance body and it reminds them that they should take timely action to ensure timely project completion and ensure justice to homebuyers. If a realty project is liquidated, then the authority will lose a lot of money. So, revival is the only way out for them going forward.”