NOIDA Must Waive Delay Penalties on Two Stalled Housing Projects; Homebuyers and New Developer Cannot Be Penalised for Past Developer’s Default: Supreme Court

Granite Gate Properties Private Limited obtained perpetual leases from the New Okhla Industrial Development Authority (NOIDA) for developing the “Lotus Boulevard” and “Lotus Panache” housing projects in Sectors 100 and 110, respectively.

The developer was subsequently admitted into corporate insolvency resolution proceedings, with the homebuyers constituting the Committee of Creditors. A resolution plan submitted by M/s SMV Agencies Private Limited was approved and the resolution applicant assumed responsibility for implementing the projects.

The National Company Law Appellate Tribunal directed that NOIDA’s time-extension charges under the lease deeds be treated as insolvency resolution process costs for the maximum three-year period stipulated in the leases.

The homebuyers’ authorised representative challenged this direction, contending that the charges related to the Corporate Debtor’s pre-CIRP default and were penal in nature. NOIDA filed a separate appeal seeking inclusion of additional charges under its subsequent policy dated 18 October 2019, extending the relevant period up to ten years.

During the CIRP, the homebuyers pooled funds to continue construction, while NOIDA had sealed three towers of the Lotus Panache project pending resolution of the dispute regarding the charges.

1. Whether NOIDA’s time-extension charges under the lease deeds for the period of delay could be treated as CIRP costs payable by the homebuyers or the Successful Resolution Applicant.

2. Whether the additional time-extension charges introduced by NOIDA’s office order dated 18 October 2019, extending the period up to ten years, were liable to be included as CIRP costs.

3. Whether, in the peculiar circumstances, the delay-related penalty charges ought to be waived since the default was attributable to the erstwhile developer and not to the homebuyers or the Successful Resolution Applicant.

The Court considered the concept of CIRP costs under Section 5(13) of the Insolvency and Bankruptcy Code, 2016, including the argument concerning Section 5(13)(c), which covers amounts necessary for managing the operations of the Corporate Debtor as a going concern.

It also examined the lease deeds, which were governed by the U.P. Industrial Area Development Act, 1976 and the rules, regulations, and directions issued under it.

The Court treated the time-extension charges stipulated in the lease deeds and subsequently introduced by NOIDA’s policy as delay penalties intended to deter default and secure timely completion, rather than as ordinary expenses necessary for continuation of the project.

Applying the equitable principle that innocent homebuyers and a subsequent resolution applicant should not be burdened with penalties arising from the prior developer’s default, the Court held that such charges could not validly be imposed in the peculiar facts of the case.

The Court recognised that NOIDA’s lease arrangements served the broader purpose of urban development, infrastructure creation, and provision of housing, although the authority also had commercial and revenue-generating functions.

The project had been delayed by the erstwhile developer, whose default preceded the CIRP; thereafter, the homebuyers themselves funded construction and the Successful Resolution Applicant undertook implementation of the approved resolution plan.

The charges were calculated as escalating percentages of the lease premium for each year of delay and were expressly designed to penalise default and deter time overruns.

Since neither the homebuyers nor the Successful Resolution Applicant caused the delay, treating the historical penalties as CIRP costs would transfer the consequences of the Corporate Debtor’s default to parties attempting to complete the stalled housing project.

The Court therefore held that imposing those charges would undermine, rather than advance, the essential developmental and housing purpose of the project.

The same reasoning applied to NOIDA’s claim for charges under the later policy extending the period up to ten years.

It held that the delay-related penalties could not be imposed on the homebuyers or the Successful Resolution Applicant because the delay resulted from the erstwhile Corporate Debtor’s default.

Civil Appeal No. 4207 of 2026, filed by NOIDA seeking payment of charges for the extended period up to ten years, was dismissed.

Pending applications, if any, were disposed of.