NOIDA SPECIAL ECONOMIC ZONE AUTHORITY vs. MANISH AGARWAL & ORS.

A) ABSTRACT / HEADNOTE

This case examines the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Special Economic Zone Act, 2005 (SEZ Act) concerning claims and dues arising during the Corporate Insolvency Resolution Process (CIRP). The dispute arose when the NOIDA Special Economic Zone Authority (appellant) filed claims totaling INR 6.29 crores for lease defaults, against which the approved Resolution Plan by the Committee of Creditors (CoC) allocated INR 50 lakhs. The Supreme Court adjudicated the correctness of the National Company Law Appellate Tribunal’s (NCLAT) decision to uphold the Resolution Plan’s terms. The judgment reaffirmed the IBC’s overriding effect (Section 238) on conflicting laws and upheld the commercial wisdom of the CoC, rejecting the appellant’s objections.

Keywords: Insolvency and Bankruptcy Code, NOIDA SEZ Authority, Resolution Plan, Corporate Insolvency, Special Economic Zone Act.

B) CASE DETAILS

  • i) Judgment Cause Title: Noida Special Economic Zone Authority v. Manish Agarwal & Ors.
  • ii) Case Number: Civil Appeal No(s). 5918-5919 of 2022
  • iii) Judgment Date: 5 November 2024
  • iv) Court: Supreme Court of India
  • v) Quorum: Hon’ble Justices Abhay S. Oka and Augustine George Masih
  • vi) Author: Justice Augustine George Masih
  • vii) Citation: [2024] 11 S.C.R. 489
  • viii) Legal Provisions Involved:
    • Section 31(1), Section 60(5), and Section 238 of the Insolvency and Bankruptcy Code, 2016.
    • Relevant regulations under the Special Economic Zone Act, 2005.
    • Regulation 35 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
  • ix) Judgments Overruled: None
  • x) Related Law Subjects: Corporate Law, Insolvency and Bankruptcy Law, Public Economic Regulations.

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The case stemmed from financial defaults by Shree Bhoomika International Ltd., the lessee of a NOIDA Special Economic Zone (SEZ) plot. The appellant initiated CIRP to recover arrears. While the admitted claim stood at INR 6.29 crores, the approved Resolution Plan allocated a significantly lower amount. The appellant contested the process before NCLT and NCLAT, both of which dismissed the objections, prompting the current appeal before the Supreme Court.

D) FACTS OF THE CASE

  1. Lease Default: The Corporate Debtor, a sub-lessee of the NOIDA SEZ Authority, defaulted on payments since 1999.
  2. CIRP Initiation: The appellant filed an insolvency application due to consistent violations of SEZ rules, leading to financial losses.
  3. Admitted Claim: The Resolution Professional (RP) admitted the appellant’s claim of INR 6.29 crores.
  4. Valuation and Resolution Plan: Two valuers fixed the Corporate Debtor’s liquidation value at INR 4.25 crores, and the CoC approved a Resolution Plan allocating INR 50 lakhs to the appellant.
  5. Judicial Challenges: The appellant’s challenge to this plan at NCLT and NCLAT was dismissed on grounds of procedural compliance and CoC’s commercial wisdom.

E) LEGAL ISSUES RAISED

  • Whether the Resolution Plan’s allocation of INR 50 lakhs violated statutory dues provisions under SEZ Act.
  • Whether the valuation process complied with IBC regulations.
  • Whether the overriding effect of Section 238 of IBC invalidated SEZ Act provisions.
  • Whether CoC’s decisions regarding claims are non-justiciable except for procedural lapses.

F) PETITIONER/APPELLANT’S ARGUMENTS

  1. Claim Validity: The appellant argued that its claim of INR 6.29 crores, being admitted by the RP, warranted full payment.
  2. Flawed Valuation: Alleged non-compliance with Regulation 35(1)(a) requiring physical inspection of assets.
  3. Violation of SEZ Act: Contended that the Resolution Plan bypassed statutory dues under SEZ Act, leading to unjust enrichment.
  4. Non-Participation: Highlighted exclusion from key auction-related proceedings.

G) RESPONDENT’S ARGUMENTS

  1. IBC Supremacy: Asserted that Section 238 of IBC overrides the SEZ Act, making the Resolution Plan binding.
  2. Commercial Wisdom: Defended the CoC’s discretion in determining fair value and plan approval.
  3. Compliance: Emphasized adherence to CIRP procedures, including fair valuation and statutory obligations.

H) JUDGMENT

a. Ratio Decidendi:

  1. IBC’s Overriding Effect: Section 238 ensures IBC provisions take precedence over conflicting laws, including the SEZ Act.
  2. Commercial Wisdom of CoC: Judicial intervention in CoC decisions is limited to breaches of Section 30(2) IBC.
  3. Valuation Process: Courts do not interfere in factual valuations unless shown to be arbitrary.

b. Obiter Dicta: The Court noted the importance of a balanced approach in adjudicating disputes involving overlapping statutory provisions, without undermining the IBC’s objectives.

c. Guidelines:

  1. Statutory dues outside approved Resolution Plans are extinguished.
  2. Courts must refrain from interfering in CoC decisions, barring statutory violations.

I) CONCLUSION & COMMENTS

The judgment reinforces IBC’s primacy over other laws and upholds the CoC’s autonomy in financial decisions. It clarifies the treatment of statutory dues within CIRP, ensuring predictability in insolvency processes.

J) REFERENCES

Important Cases Referred:

  1. Duncans Industries Ltd. v. State of U.P. (2000) 1 SCC 633
  2. Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh (2020) 11 SCC 467
  3. Committee of Creditors of Essar Steel v. Satish Kumar Gupta (2020) 8 SCC 531
  4. Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions (2022) 2 SCC 401

Statutes Referred:

  1. Insolvency and Bankruptcy Code, 2016.
  2. Special Economic Zone Act, 2005.
  3. IBBI Regulations, 2016.
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