The Supreme Court on Thursday set aside directions treating NOIDA's time-extension charges as insolvency process costs in two delayed high-rise projects, holding that homebuyers and the new resolution applicant cannot be made to pay penalties for the original developer's default.

The Court held that homebuyers, who constitute a class of financial creditors in the Corporate Insolvency Resolution Process of a defaulting developer, cannot be saddled with the liability to pay time extension charges for the underdeveloped project, especially when the project is being completed with the pooled financial contributions of the homebuyers themselves.

“The homebuyers and the SRA (Successful Resolution Applicant) 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.”, observed a bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran, while allowing the appeal filed by the homebuyers, setting aside the National Company Law Appellate Tribunal's (NCLAT) directions upholding the NOIDA's demand to treat time extension charges as CIRP costs.

The Court held that although the penalty on a developer is intended to act as a deterrent against project delays, the liability to pay time extension charges cannot be imposed on the homebuyers or the Successful Resolution Applicant, particularly when the developer is in insolvency and the project is being sustained by the pooled contributions of the homebuyers.

The case arose from two housing projects developed by Granite Gate Properties Private Limited in Noida Sectors 100 and 110, 'Lotus Boulevard' and 'Lotus Panache.' The developer had taken perpetual lease of two plots from NOIDA to construct high-rise apartment complexes.

The developer ran into financial difficulties and was subjected to CIRP. The Committee of Creditors (CoC) was constituted of homebuyers, who formed a class of financial creditors. A Resolution Plan was approved through M/s SMV Agencies Private Limited as the Successful Resolution Applicant (SRA).

During the CIRP, homebuyers pooled their own resources under a CoC-approved 'Pool and Build' mechanism to continue construction. However, NOIDA sealed three towers of Lotus Panache on October 16, 2024, demanding payment of time extension charges.

The project was to be completed in 2016, but more than a decade later, homebuyers were still waiting for possession.

While the NCLT approved the resolution plan, the NCLAT treated the time extension charges as a CIRP cost, prompting the homebuyers to move to the Supreme Court.

Setting aside the impugned order, the judgment authored by Justice Chandran held that time extension charges are penal in nature and cannot be treated as CIRP costs.

“The default charges, as imposed in the lease deed as also now introduced as per the new policy, specifies a percentage of the lease premium to penalise a defaulting developer. The intention is also to motivate completion within time lines and to act as a deterrent to avoid time lags. In the present case, the defaulting developer is out of the picture and the half baked project can be completed only if the Resolution Plan is put into operation and completed.”, the Court observed.

“…in the peculiar facts and circumstances of the case, the penalty as imposed by the NOIDA on delay, now mulcted on the SRA and the homebuyers, cannot be so validly imposed. We set aside the directions to consider the time extension charges as CIRP costs and modify the impugned order to that extent.”, the Court held.

As a result, the homebuyers appeal was allowed, directing NOIDA to waive the penalty charges.

Headnote

Insolvency and Bankruptcy Code, 2016 (IBC) – Corporate Insolvency Resolution Process (CIRP) – CIRP Costs – Real Estate Project – Time Extension Charges / Delay Penalty imposed by Local Industrial Authority – Whether delay penalty / time extension charges payable to a development authority can be mulcted on Homebuyers or Successful Resolution Applicant (SRA) as CIRP Costs – Held that no, the default charges stipulated in the lease deed or subsequent policy directives specify a percentage of the lease premium to penalise a defaulting developer and serve as a deterrent against time lags - Where the defaulting corporate debtor/developer is out of the picture and the homebuyers pooled funds under a 'Pool and Build' mechanism and approved a resolution plan to complete the half baked project, it is unjust to penalise the homebuyers and the SRA for the past sins of the Corporate Debtor - Local development authorities operate with the underlying welfare objective of facilitating urban housing and development, not merely a commercial profit motive - in such peculiar circumstances, time extension charges/delay penalties cannot be validly imposed or treated as CIRP costs - Direction of the NCLAT treating time extension charges as CIRP costs set aside - NOIDA's claim for extended charges up to the 10th year rejected. [Paras 11–16].

Cause Title: The Authorised Representative for Granite Gate Properties Private Limited Rakesh Verma Versus M/s New Okhla Industrial Development Authority and Ors.

Citation : 2026 LiveLaw (SC) 893

Appearance:

Mr. Dhruv Mehta, Sr. Adv. argued for the homebuyers

Mr. Rachit Mittal, Adv. argued for the NOIDA

Mr. Krishnendu Datta, Sr. Adv. argued for the Successful resolution applicant