Amendment to Insolvency and Bankruptcy Code, 2026 Clarifies Statutory Charges Do Not Constitute Security Interest; Resolution Plan Treating Authorities as Unsecured Creditors Upheld
In a landmark judgment delivered on September 16, 2026, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, dismissed appeals filed by the Greater Noida Industrial Development Authority (GNIDA) and the New Okhla Industrial Development Authority (NOIDA), holding that these authorities cannot claim secured creditor status solely on the basis of statutory recovery mechanisms or contingent clauses in their lease deeds under the amended Insolvency and Bankruptcy Code (IBC), 2016.
The appeals arose from a corporate insolvency resolution process (CIRP) involving M/s Shubhkamna Buildtech Private Limited, where the Authorities contended that their dues were secured by a statutory charge under the Uttar Pradesh Industrial Area Development Act, 1976, and thus should be treated as secured creditors. Their claim was based on lease deeds granting first charge over leased properties for recovery of dues including lease premiums, interest, and rents.
The NCLAT bench, comprising Mr. Justice Mohammad Faiz Alam Khan (Judicial Member) and Mr. Naresh Salecha (Technical Member), examined the impact of the 2026 amendment to Section 3(31) of the IBC, which introduced a critical Explanation clarifying that "security interest" only exists if created by an agreement or arrangement between two or more parties and excludes security interests created merely by operation of law, including statutory charges.
Upon detailed scrutiny, the Tribunal found that the lease deeds executed by GNIDA and NOIDA did not contain an unconditional first-charge clause over all dues but only a contingent charge related to "unearned increase" upon mortgage foreclosure - a condition not triggered in this case. Further, the lease deeds' clause classifying arrears as recoverable as land revenue was held to be a statutory recovery mechanism, not a contractual security interest.
The Tribunal distinguished this case from the recent "Assets Care & Reconstruction Enterprise Ltd." judgment, where a tripartite sub-lease deed expressly created a first charge in favor of NOIDA, constituting a security interest under the IBC. The present lease deeds, being standard form head leases, lacked such express and unconditional charge clauses.
Additionally, the Tribunal held that the 2026 amendment to Section 3(31) of the IBC is clarificatory and retrospective, thereby overruling earlier Supreme Court precedents like "Greater Noida Industrial Development Authority v. Prabhjit Singh Soni" and "State Tax Officer v. Rainbow Papers Ltd." to the extent they recognized statutory charges as security interests.
The Resolution Plan approved by the Committee of Creditors (CoC) treated GNIDA and NOIDA as unsecured operational creditors and allocated payments accordingly (approximately Rs. 18.5 crores to GNIDA and Rs. 25 crores to NOIDA against claimed dues of Rs. 60.6 crores and Rs. 99.3 crores, respectively). The Tribunal upheld this classification and the commercial wisdom of the CoC, noting that the homebuyers bore significantly higher haircuts under the plan.
The Tribunal also observed that any modification to the resolution plan at this stage would disturb the finality and certainty essential to insolvency resolution. It further noted that the plan contained a mechanism to address any additional liabilities arising from future court orders, with homebuyers liable to contribute excess amounts on a pro-rata basis, thus safeguarding stakeholders' interests.
In conclusion, the NCLAT dismissed the appeals of GNIDA and NOIDA, affirming that statutory authorities relying solely on statutory recovery rights or contingent lease deed clauses cannot claim secured creditor status under the IBC post the 2026 amendment. Their claims are to be treated as unsecured operational dues within the insolvency resolution framework.
This judgment clarifies the scope of "security interest" under the IBC and the treatment of statutory authorities in insolvency proceedings, balancing statutory recovery powers with the objective of equitable insolvency resolution.
Bottom Line:
Authorities like Greater Noida Industrial Development Authority and New Okhla Industrial Development Authority cannot claim secured creditor status solely on the basis of statutory recovery mechanisms or contingent clauses in lease deeds, especially after the 2026 amendment to Section 3(31) of the Insolvency and Bankruptcy Code.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 3(31) (as amended in 2026), Section 30, Section 53; Uttar Pradesh Industrial Area Development Act, 1976 Sections 13, 13-A, and 14; Insolvency and Bankruptcy Code (Amendment) Act, 2026.
