Lease Deed Does Not Constitute Financial Lease: NCLAT rules

Lease Deed Does Not Constitute Financial Lease: NCLAT rules

The tribunal held that rewards incidental to ownership of the underlying asset-land were not transferred

The National Company Law Appellate Tribunal (NCLAT) dismissed an appeal filed against the order passed by the National Company Law Tribunal (NCLT) at New Delhi Bench which held that the Appellant – Greater Noida Industrial Development Authority (GNIDA) cannot be treated as having a financial claim.

The matter titled as Greater Noida Industrial Development Authority Vs. Shri Pramod Agrawal & Anr was heard by the Division Bench of the National Company Law Appellate Tribunal at New Delhi, comprising of Justice A.I.S. Cheema and Dr Alok Srivastava.

The facts of the case are that Appellant had leased the land by Registered Lease Deed dated 29 September 2011 in favour of the Corporate Debtor – M/s Primrose Infratech Pvt Ltd. One Operational Creditor – VMS Equipment Pvt Ltd initiated the Corporate Insolvency Resolution Process (CIRP). The Appellant claimed that it was treated as a Financial Creditor as can be seen from the Minutes of the 4th Meeting of Committee of Creditors (CoC).

However, the Respondent – Suspended Director of the Corporate Debtor filed an Application before the NCLT to exclude the Appellant as Member of the CoC claiming it was not a Financial Creditor. The NCLT directed the Resolution Professional (RP) to place the matter before the CoC wherein the Appellant was declared as Operational Creditor and not Financial Creditor in the 6th Meeting of the CoC, held on 17 December 2019, considering the Indian Accounting Standards and judicial orders referred. The Appellant further claimed that that it moved an Application to quash and set aside the proceedings and decision taken in the said meeting and same is pending for orders.

The Appellant submitted that the recitals for the Lease Deed show that the land has been leased for 99 years with recitals showing that rights incidental to ownership have been given to the Corporate Debtor and it argued that as per the Indian Accounting Standard, the Lease Deed is required to be categorized as financial lease.

The Resolution Plan has already been approved and placed before the NCLT at New Delhi Bench.

The Division Bench after going through materials on record held that the Lease Deed does not constitute the Financial Lease. It observed the following:

"For similar reasons we do not find that Appellant is able to show Financial Lease in its favour. Rewards incidental to ownership of the underlying asset-land were not transferred, in the Lease Deed if contents are considered reading the same with Indian Accounting Standards."

The Bench observed that on the face of it the Lease Deed does not appear to be Financial Lease. However, the Appellant was earlier treated as Financial Creditor for the dues claimed by Appellant but later on the Appellant has been treated as Operational Creditor.

The Division Bench dismissed the appeal by concluding to not go into the technicalities of the manner in which the Appellant was excluded from the CoC as the Resolution Plan is stated to be already approved, when it appears that the Appellant is not a Financial Creditor.