NEW DELHI: In a significant ruling addressing the treatment of statutory delay penalties under the insolvency framework, the Supreme Court of India held that time extension charges levied by the New Okhla Industrial Development Authority (NOIDA) cannot be treated as Corporate Insolvency Resolution Process (CIRP) costs or recovered from homebuyers and the incoming resolution applicant. A Bench comprising Justice J. B. Pardiwala and Justice K. Vinod Chandran set aside the National Company Law Appellate Tribunal’s (NCLAT) directions classifying three years of lease extension charges as CIRP costs, allowing the appeal filed on behalf of the homebuyers and dismissing NOIDA’s plea seeking extension charges up to the tenth year.
Background of the Case
The matter originates from two residential high-rise projects—’Lotus Boulevard’ in Sector 100 and ‘Lotus Panache’ in Sector 110, NOIDA—developed by M/s Granite Gate Properties Private Limited on land allotted by NOIDA under perpetual lease deeds at a high premium. The developer failed to complete the projects within the initial timeline of 2016 and ran into severe financial distress, subsequently being admitted into the Corporate Insolvency Resolution Process as a Corporate Debtor.
The Committee of Creditors (CoC), constituted of homebuyers forming a class of financial creditors, took charge of the crisis. To prevent the abandonment of the project, the homebuyers pooled their own funds as advance payments under a CoC-approved ‘Pool and Build’ mechanism to keep construction alive as a going concern.
Eventually, the Adjudicating Authority (NCLT) approved a Resolution Plan submitted by M/s SMV Agencies Private Limited, the Successful Resolution Applicant (SRA). However, disputes arose regarding lease time extension charges claimed by NOIDA. On appeal, the NCLAT directed that time extension charges under both lease deeds be treated as CIRP costs for the maximum period of three years provided under the original lease deeds. Dissatisfied, both the Authorised Representative of the homebuyers (AR) and NOIDA preferred appeals before the Supreme Court.
Arguments of the Parties
Appearing for the AR representing the homebuyers, Senior Counsel Mr. Dhruv Mehta contended that time extension charges are penal in nature and cannot be included under Section 5(13)(c) of the Insolvency and Bankruptcy Code (Insolvency Resolution Process for Corporate Persons) Regulations, as they were neither incurred by the Resolution Professional nor aimed at the continuation of the project. It was submitted that NOIDA had even sealed three towers of Lotus Panache on October 16, 2024, pending a determination on these charges. Counsel emphasized that the default was solely on the part of the erstwhile developer for periods starting December 2016 up to the insolvency commencement date of January 10, 2019, and innocent homebuyers could not be mulcted with that liability.
Conversely, counsel for NOIDA, Mr. Rachit Mittal, asserted that without discharging the time extension charges, the project could not legally proceed, thereby qualifying the dues as essential CIRP costs. NOIDA argued that the leases are governed by the Uttar Pradesh Industrial Area Development Act, 1976, and subsequent policy office orders dated June 18, 2015, and October 18, 2019. Under these orders, time extensions could be granted beyond three years and up to the tenth year at escalating rates—7%, 8%, 9%, and 10% for the first four years, and 1% of the total premium annually up to the tenth year—which NOIDA insisted must all be included as CIRP costs.
Senior Counsel Mr. Krishnendu Datta, representing the SRA, adopted the AR’s arguments and pointed out that under the approved resolution plan, contingent protection was capped at the overlap period balance alone. He noted that the plan stipulated that unless specifically adjudicated to form part of CIRP costs by a binding judicial pronouncement, any cost exceeding an estimated Rs. 3 crore would first be recovered from the allottees of towers 17, 18, and 19 of Lotus Panache as super area charges.
Court’s Analysis
Examining the lease agreements executed by NOIDA under the Land Acquisition Act, 1894, the Bench reflected on the socio-economic realities of the stalled housing sector, observing:
“Yet another case highlighting the plight of home buyers, who invest their hard-earned life savings for a roof over their heads, on promises of living in style and luxury, in grandiose high-rise buildings promised by the developer, with exotic names, end up with the realization that it was all a pipe dream.”
The Court explained that while NOIDA operates commercial ventures, its foundational mandate as a local authority is rooted in public welfare and urban development rather than sheer profit-making. The Bench noted that default charges and time extension percentages under the lease deeds and subsequent policies were specifically designed to penalize and deter a defaulting developer.
However, in the current scenario, the defaulting developer had already been ousted through insolvency proceedings, and the stalled project was being revived through the collective funding of homebuyers and the SRA. Emphasizing that penalizing the incoming stakeholders would defeat the very purpose of development, the Court observed:
“In the peculiar circumstances of this case, we are of the opinion that it is only proper that NOIDA waives the penalty charges since it is neither the default of the homebuyers nor the default of the SRA, which led to the delay. The homebuyers and the SRA are sought to be penalised for past sins of the Corporate Debtor, which cannot be allowed, especially in the context of the authority imposing penalty, ie: the local authority being concerned essentially with the development of the area under its control.”
Decision of the Court
The Supreme Court ruled that the delay penalty sought to be imposed by NOIDA cannot be validly mulcted on the SRA and the homebuyers. The Bench set aside the NCLAT’s directions treating the time extension charges as CIRP costs and modified the impugned order accordingly. Furthermore, the Court rejected NOIDA’s claim seeking extension charges beyond three years up to the tenth year.
Consequently, Civil Appeal No. 3132 of 2026 filed by the Authorised Representative of the homebuyers was allowed, while Civil Appeal No. 4207 of 2026 filed by NOIDA was dismissed.
Case Details
Case Title: The Authorised Representative for Granite Gate Properties Private Limited, Ms. Rakesh Verma v. M/s New Okhla Industrial Development Authority and Ors. (with Civil Appeal No. 4207 of 2026)
Case No.: Civil Appeal No. 3132 of 2026 with Civil Appeal No. 4207 of 2026
Bench: Justice J. B. Pardiwala and Justice K. Vinod Chandran
Date: September 03, 2026
