The resolution process for real estate companies is anything but simple, given the complexities involved and the plethora of parties with varied and conflicting interests. One such issue was whether local industrial development authorities, in particular the New Okhla Industrial Development Authority (“NOIDA”), should be classified as financial creditors or operational creditors, by virtue of the lease deeds they enter into with various corporate debtors.
The question has now finally been answered. The Hon’ble Supreme Court of India vide its judgment dated May 17, 2022, in the case of New Okhla Industrial Development Authority v. Anand Sonbhadra, has now declared that NOIDA is not a financial creditor and would be classified as an operational creditor under the Insolvency and Bankruptcy Code, 2016 (the “Code”). The issue involved in the Anand Sonbhadra (supra.) judgment was whether 90 year leases entered into between NOIDA and real estate companies give rise to a financial or operational debt in the event that corporate insolvency resolution proceedings are initiated against such real estate companies.