Holding

The appellant is not a financial creditor under the IBC; it is an operational creditor.

Summary

The Supreme Court examined whether the New Okhla Industrial Development Authority (NOIDA), as the lessor in a 90‑year lease of land for a residential project, could be treated as a financial creditor under the Insolvency and Bankruptcy Code, 2016. The Court held that the lease does not qualify as a financial lease under Indian Accounting Standards because the risks and rewards of ownership are not substantially transferred to the lessee, and there is no disbursement of funds from the appellant to the corporate debtor. Consequently, the appellant does not fall within the definition of a financial creditor under s.5(8)(d) or s.5(8)(f) and is instead an operational creditor. The appeals were dismissed.

Issues considered

Whether the lease in question constitutes a financial lease within the meaning of s.5(8)(d) of the IBC.
Whether the appellant’s claim satisfies the requirements of a financial debt under s.5(8) – specifically the necessity of disbursement and time‑value consideration.
Whether the appellant can be deemed a financial creditor under the residuary clause s.5(8)(f) of the IBC.
Whether the appellant should be classified as an operational creditor under s.5(21) and s.20 of the IBC.
Whether the appellant qualifies as a local authority for the purposes of the IBC.

Legislation cited

Companies Act, 2013s. 2(133)
Indian Accounting Standards (IAS) – Lease Accountings. Rule 61, s. Rule 62, s. Rule 63, s. Rule 64, s. Rule 65, s. Rule 66, s. Rule 67
Insolvency and Bankruptcy Code, 2016s. 21, s. 27, s. 28, s. 30, s. 5(20), s. 5(21), s. 5(8)
Real Estate (Regulation and Development) Act, 2016
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 2(ha)
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s. 2(ma)
Uttar Pradesh Apartment Owners Act, 2010
Uttar Pradesh Industrial Area Development Act, 1976 (UPIAD)s. 10, s. 11, s. 12, s. 13, s. 14, s. 15, s. 20, s. 21, s. 22, s. 23, s. 24, s. 2(f), s. 3, s. 31, s. 40, s. 41, s. 42, s. 43, s. 44, s. 45, s. 47, s. 51, s. 53, s. 58, s. 6, s. 7, s. 8
Uttar Pradesh Urban Planning and Development Act, 1973

Subjects

IBCfinancial creditoroperational creditorCommittee of Creditorsfinancial leaselease classificationIndian Accounting Standardsdisbursementraising of fundscorporate debtorresolution planlocal authority

Judgment

[2022] 5 S.C.R. 319 319

NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY A
v.
ANAND SONBHADRA
(Civil Appeal No. 2222 of 2021)
MAY 17, 2022 B
[K. M. JOSEPH AND HRISHIKESH ROY, JJ.]
Insolvency and Bankruptcy Code, 2016: ss. 21, 27, 28, 30 –
Proceedings involving Corporate Debtor – Committee of Creditors
– Importance and Procedure – In the idea of resurrecting an ailing
C
corporate debtor, the Code contemplates the formation of Committee
of Creditors as per s.21 – The Committee consists of financial
creditors as per s. 27 – The Committee is conferred with the duty to
appoint Resolution Professionals – The Resolution Plan scrutinized
by such professionals then awaits the decision of the Committee as
per s. 30 – It is a fundamental aspect of the committee that it consists D
of Financial Creditors and not operational Creditors – Therefore.
the one seeking to exercise the powers of such Committee, must, at
the very first instance, establish the fact of being a Financial
Creditors.
Insolvency and Bankruptcy Code, 2016: Financial Creditors E
and Operational Creditors – Distinction with respect to Privileges
– s.5(7) defines ‘financial creditor’ as person to whom a financial
debt is due besides an assignee or transferee from such person –
Financial Creditors constitutes the Committee of Creditors as per
the policy of IBC – Such policy does not includes Operational
F
Creditors in the aforesaid constitution of committee – Hence
Operational creditors, unlike Financial Creditors, do not enjoy the
powers of the Committee – Apart from this aspect, the peculiar benefit
of being Operational Creditor is that they enjoy priority over
Operational Creditors in matters of payment of amount.
Insolvency and Bankruptcy Code, 2016 – s. 2(20) – G
Operational Creditor – A person is operational creditor to whom
the operational debt (a debt in respect of dues arising under any
law for the time being in force and payable to any local authority)
is owed and includes any person to whom such debt has been legally
assigned or transferred. H
319
320 SUPREME COURT REPORTS [2022] 5 S.C.R.

A Insolvency and Bankruptcy Code, 2016: s. 5 (8) – Financial
Debt – When an amount could be termed as such – The policy of
law under IBC requires “Disbursement” leading to a debt along
with interest – Interest, as such, is not a necessary requirement of s.
5(8), but the fact of disbursement from the creditor to the debtor is
B a necessity for looking a debt as financial debt, as contemplated by
the said section – Such Disbursement has to be understood in terms
of money which has been paid by the creditor and debtor.
Insolvency and Bankruptcy Code, 2016: ss 5(8), 3(33) –
Words ‘Transaction’ and ‘Disbursed’ – Distinguished – The word
C “transaction” includes transfer of assets, funds or goods and
services from or to the corporate debtors – But imposing such a
meaning of the word “Transaction” as inclusive in the word
“Disbursed” will lead to unnecessary straining of the provision –
Interpretation of the term Disbursed, as occurring u/s.5(8), should
mean the payment of money, which flows to the debtor.
D
Insolvency and Bankruptcy Code, 2016: ss 3(6), 5(8) – Words
‘Claim’ and ‘Debt’ – Claim, as defined u/s.3(6), may or may not be
fixed, disputed or undisputed, secured or unsecured but it bears an
indispensable element of “right to payment” – Claim cannot exists
independent of the element of “right to payment” – The source of
E such “right to payment” can be either under a judgment or under
any other circumstance – When claim is accompanied by liability it
gives rise to debt – Debt, as defined under the Code includes
financial as well as operational debt and the same appears to be
intertwined with the definition of “claim” – Debt denotes a liability
F or obligation which relates to a claim.
Insolvency and Bankruptcy Code, 2016: s.5(8)(d) – Indian
Accounting Standards – rr.61 to 67 – Financial Lease – Financial
lease as such is not defined under IBC – s.5(8)(d) refers lease as
inclusive of Financial lease as given under Indian Accounting
G Standards – r.62 declares that a lease is classified as a financial
lease if it transfers, substantially, all the risks and rewards incidental
to ownership of an underlying asset – As per r.63, what matters for
a lease to be financial lease is its substance and not the form – In
the instant case, the rights are transferred in favour of the allotees
only by way of a sub-lease, and therefore there is no transfer of
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NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 321
ANAND SONBHADRA

ownership of the underlying asset (plot) by the end of the lease A
terms – Further the criteria u/r.63 that the lease will be a financial
lease even if the title is not transferred provided the lease term is
for the major part of economic life – In the instant case the “principle
of economic life of underlying asset” is inapposite as here the
underlying asset is land and the economic life of the land is not B
limited as the land does not depreciate with the passage of time – In
the instant case, there is no substantial transfer of risks and rewards
incidental to ownership since the appellant (lessor) has reserved
the right of cancellation of lease in larger public interest and
therefore such appellant is not a financial lessor u/s.5(8)(d) of IBC.
C
Lessee and sub-lease – Rights and Limitations – Lessee can
assign his rights as a lessee which amounts to assignment of his
rights and, therefore, can create a sub-lease – But the creation of
such sub-lease has limitation and it must conform to the terms of
contract between the lessor and lessee.
D
Lessee and his right to Mortgage – Extent and Limitation – A
lease may enable the lessee to mortgaged the leased property – But
in cases where the mortgage by the lessee can be only with the
prior permission of lessor, his rights are not absolute and is
conditional upon the approval or denial by the lessor of the
permission to make such mortgage. E

Insolvency and Bankruptcy Code, 2016: s.5(8)(f) –
Interpretation – “Financial Debt includes any amount raised under
any other transaction, including any forward sale or purchase
agreement, having the commercial effect of a borrowing” – Scope
F
of – The phrase has a relevance as the same is residuary in nature
– For this phrase to apply so as to enable a person for being termed
as Financial Creditor, there has to be a raising of funds in a
transaction which has a commercial effect – The first and foremost
rule for making such phrase to apply there has to be “raising of
funds” – The raising of funds can be by issuing bonds, notes, G
debentures or loan stock etc – In the instant case, the raising of
funds was done by the lessee from the allottees and not by the
appellants and hence the appellant is not entitled to the application
of the said residuary provision and therefore he cannot avail the
benefit of being called a “Financial Creditor”
H
322 SUPREME COURT REPORTS [2022] 5 S.C.R.

A Dismissing the appeals, the Court
HELD: 1. It is undoubtedly true that in the scheme of the
IBC, Section 21 of the IBC contemplates the constitution of the
Committee of Creditors. The Committee of Creditors is to consist
of all financial creditors of the corporate debtor. It is the
B Committee of Creditors, which has power to appoint and replace
the Interim Resolution Professional as the Resolution
Professional. Under Section 27 of the IBC, the Committee of
Creditors, which would consist of only the financial creditors,
would have the right to replace a Resolution Professional. Under
Section 28, the approval of the Committee of Creditors is
C mandatory in respect of various powers which need to be
exercised by the Resolution Professional. Central to the IBC,
and what would, in fact, constitute its very soul, is the idea of
resurrecting an ailing corporate debtor. The means,
contemplated, is the submission, consideration and approval of
D Resolution Plans to be given by Resolution Applicants. Here
again, Section 30 contemplates that the Resolution Plan is to be
initially scrutinised by the Resolution Professional, who is to
present the Resolution Plan, which conforms to Section 30(2), to
the Committee of Creditors. The Committee of Creditors may
approve the Resolution Plan in the manner provided in Section
E 30(4). Regulation 38 of the Insolvency Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016, no doubt, provides for the mandatory contents
of the Resolution Plan, which may be approved. The Plan must
include the submission as to how the interests of stakeholders,
F including financial creditors and operational creditors, are to be
dealt with. Regulation 38(1), inter alia in fact, contemplates that
the Resolution Plan must provide that the amount payable to the
operational creditors shall be paid in priority over the financial
creditors. [Para 49][364-A-F]
G 2. The essential requirements to attract Section 5(8) are
that there must be a debt along with interest, if any, which is
disbursed against consideration for the time value of money.
There can be no dispute that there is a debt in this case. Even
the respondents would contend that it is actually a debt but an

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NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 323
ANAND SONBHADRA

operational debt under Section 5(21). That interest is payable in A
connection with the debt, cannot be disputed, having regard to
the terms of the lease deed. It is another matter that liability to
pay interest is not an essential feature to attract Section 5(8).
The next requirement is that there be disbursement.
Disbursement is an indispensable requirement to constitute a
B
debt, a financial debt, within the meaning of Section 5(8) and that
disbursement must be from the creditor to debtor. [Para 53]
[366-C-E]
Orator Marketing Private Limited v. Samtex Desinz
Private Limited 2021 SCC Online SC 513 – relied on.
C
3. A debt is a liability or an obligation in respect of a right to
payment. Irrespective of whether there is adjudication of the
breach, if there is a breach of contract, it may give rise to a debt.
In the context of Section 5(8), in Pioneer, disbursement has been
understood as money, which has been paid. In the context of the
transaction involved in the said case, the homebuyers advanced D
sums to the builder, who would then utilise the amount towards
the construction in the real estate project. That there must be a
disbursement, was clearly present in the mind of the Court, is
clear from the fact that it has expressly proceeded on the basis
that when the money was paid by the homebuyer to the builder, E
the amount disbursed was no longer with the homebuyer. The
homebuyer was paying lesser sums by way of installments than
he would have to pay for the ultimate price of the flat/apartment.
The Court went on to hold that the expression ‘borrow’ was wide
enough to include the advance by the homebuyer to the real estate
developer for the temporary use. Both parties had commercial F
interests, which was further found. But what is relevant is to
attract Section 5(8), on its plain terms, is disbursement. While, it
may be true that the word ‘transaction’ includes transfer of assets,
funds or goods and services from or to the corporate debtor, in
the context of the principal provisions of Section 5(8) of the IBC, G
to import the definition of ‘transaction’ in Section 3(33), involving
the need to expand the word ‘disbursement’, to include a promise
to pay money by a debtor to the creditor, will be uncalled for
straining of the provisions. ‘Disbursement’, within the meaning
of Section 5(8), is the payment of money, which flows to the debtor.
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324 SUPREME COURT REPORTS [2022] 5 S.C.R.

A In the word ‘claim’, as defined in Section 3(6), right to payment
is one of the components. The golden thread that runs through
the word ‘claim’, is the right to payment. The right to payment
may arise from a Judgement. It may or may not be fixed. It may
be disputed or undisputed. It may be legal or equitable. It may
be secured or unsecured, but what is indispensable is, there must
B
be a right to payment. Similarly, in cases of breach of contract,
under any law in force, if it gives rise to a right to payment,
irrespective of whether it is reduced to a Judgment or fixed or
matured or unmatured, disputed or undisputed, secured or
unsecured, as long as there is a right to payment, a claim arises.
C When there is a claim and, in regard to such a claim, there is a
liability or obligation, which is due from any person, it gives rise
to a debt. A debt includes a financial debt and an operational debt.
It is after defining the word ‘debt’ with reference to the existence
of a right to payment in the broadest terms, as defined in the
term ‘claim’ and including the word ‘financial debt’ within the
D
expression ‘debt’, the word financial debt, in turn, is elaborately
defined in Section 5(8). What is relevant for the purpose of Section
5(8), has been clearly articulated and can be understood with
reference to what is expressly provided. It is unnecessary to bring
in the concept of transaction, as defined in Section 2(33), for
E appreciating its scope. A perusal of definition of the word ‘debt’,
no doubt, reveals that it is closely intertwined with the definition
of the word ‘claim’ in Section 3(6). The word ‘transaction’ is
conspicuous by its absence in the definition of both the word
‘claim’ and the word ‘debt’. Therefore it is held that ‘debt’ means
a liability or obligation, which relates to a claim. The claim or
F
right to payment or remedy for breach of contract occasioning a
right to payment must be due from any person. Now, if it is due
from any person, it must be due to someone who would then be
the creditor. Section 5(7) defines ‘financial creditor’ as person to
whom a financial debt is due besides an assignee or transferee
G from such person. While it may be true that there would be the
brooding omnipresence of a transaction, as defined, underlying a
debt and claim as defined, it would be unnecessary and
unreasonable to import in the concept of transfer of funds, from
or to a corporate debtor, to glean the meaning of disbursement
in Section 5(8), at least, in the facts of the instant case. The Court
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 325
ANAND SONBHADRA

is of the view that, in the lease in question, there has been no A
disbursement of any debt (loan) or any sums by the appellant to
the lessee. The appellant would, therefore, not be a financial
creditor within the ambit of Section 5(8). [Para 56][367-H;
368-A-H; 369-A-F]
Pioneer Urban Land and Infrastructure Limited and B
Another v. Union of India (UOI) and Others (2019) 8
SCC 416 : [2019] 10 SCR 381 – relied on.
4. The Rules, which are relevant in regard to the
specification of a lease as a financial lease are set down as Rules
61 to 67 of Indian Accounting Standards [for short “IAS”]. They C
have been made under Section 133 of the Companies Act, 2018.
Rule 62, the sheet anchor of the appellant, declares that a lease
is classified as a financial lease if it transfers, substantially, all the
risks and rewards incidental to ownership of an underlying asset.
Moving on to Rule 63, it undoubtedly, declares that what matters
is not the form but the substance. Thereafter, under the examples D
of situations, either individually or in combination, which would
lead to a lease being classified as a finance lease, certain
situations have been depicted. As far as the first situation is
concerned, it would involve a lease, where, there is a transfer of
ownership of an underlying asset to the lessee by the end of the E
lease term. There is no case for the appellants that the lease
contemplates transfer of ownership of the underlying asset. The
underlying asset is the land. In fact, the case of the appellant
would appear to be also that there is no transfer of ownership
because by the end of lease term third party rights would have
been created over the dwelling unit/ built up space/ plot F
constructed by the Lessee. It is also the further case set up that
the Lessee alone brings third parties on to the property and gets
paid by such parties. It will be relevant to notice that the so called
third parties do not get ownership rights as such. The rights are
transferred in favour of the allotees of dwelling units /built up G
space/ plot only by way of a sub-lease. Therefore, there is no
transfer of the ownership of the underlying asset by the end of
the lease term. The third criteria in Rule 63 is, where the lease
term is for the major part of the economic life of the underlying
asset, even if the title is not transferred. The definition of
H
326 SUPREME COURT REPORTS [2022] 5 S.C.R.

A ‘economic life’, as provided in Indian Accounting Standards The
lease in question is for a period of ninety years. In regard to land,
the underlying asset, ‘the principle of economic life of underlying
asset’, is inapposite. The economic life of land is not limited. The
principle in the said situation is predicated with reference to
measuring the economic life of an asset. More importantly, it
B
speaks of the major part of the economic life of the asset. Both
these concepts are inapposite and even inapplicable with regard
to land. Land does not depreciate with the passage of time.
Ordinarily, the price of land would only increase, unlike
other assets. [Paras 62, 64, 68][373-F-G; 375-G-H; 376-A-D;
C 377-C-G]
Asea Brown Boveri Ltd. v. Industrial Finance
Corporation of India and Others (2004) 12 SCC 570 :
[2004] 5 Suppl. SCR 671 – relied on.
5. Undoubtedly, in law, generally the lessee can assign his
D rights as a lessee which amounts to assignment of his right. A
lessee may create a sub- lease. A lessee can also create a
mortgage. All of these rights vest with a lessee, subject to a
contract to the contrary. In the lease in question what is prohibited
in Clause 12 under other clauses is the right to assign his rights
E as lessee. Any reward which the lessee could have obtained if it
wished to absolutely assign its right, is clearly denied by virtue
of the provision in the lease which acts as a contract to the
contrary. [Para 111][395-E-G]
6. As far as the right to mortgage is concerned the lessee
F is indeed permitted to mortgage the land. However, the mortgage
can be effected only with prior permission of the lessor. The right
to mortgage which flows as an incident of ownership is one of the
bundle of rights which vests with an owner. It is undoubtedly a
lesser right and the owner would be possessed of the residual
right. However, it is one of the many rights which is incidental to
G ownership but there is no absolute right to create a mortgage.
The requirement of prior permission to create a mortgage would
mean that the permission may be forthcoming or it can be denied.
If there is a denial of the right to create a mortgage, then it would
impliedly mean that to the said extent the right to raise funds for
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NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 327
ANAND SONBHADRA

the purpose of financing the investment is impaired. Depending A
on whether or not the right is permitted actually the rewards
incidental to ownership is transferred. The clause relating to
mortgage, in fact, indicates that the purpose contemplated, is
that the mortgage can only be for the purpose of raising loan or
for the purpose of financing the lessee’s investment in the project.
B
This in turn is to be on receipt of the payment by the allottee or
on receipt of assurance of payment by the bank or under any
other suitable arrangement. In this regard, the lease contemplated
a mutual settlement amongst the lessor, the developer and the
financial institution/bank. It clearly constitutes a foray into the
right of a person ‘if an owner’ to deal with the property including C
the right to create a mortgage. The suitable arrangement in mutual
settlement contemplates the lessor giving its consent to the terms
of the mortgage. It includes the right of the lessor to prevail
upon, in regard to the terms of the mortgage. Its object may be
lofty and in keeping with its role as a statutory authority but its
D
impact on the true interpretation of the lease and as to whether it
involves transfer of rewards incidental to ownership is another
matter. The terms and conditions of the NOC which is
contemplated as necessary for mortgaging the land to facilitate
housing loans of final purchaser will be as decided by the lessor.
Still further it may be noticed that under the proviso if there is a E
sale or a foreclosure of the mortgaged property, the lessor is
given the right to such percentage of the unearned increase in
value as will be decided by the lessor. [Paras 113, 114][396-F-H;
397-A-E]
7. Section 5(8) defines ‘financial debt’ as meaning ‘a debt F
along with interest, if any, which is disbursed against the
consideration of time value of money’. Thereafter, Clauses (a) to
(i) deal with transactions which are included as financial debt. It
is, thereafter, that Clause (f) provides that a financial debt includes
any amount raised under any other transaction, including any
forward sale or purchase agreement, having the commercial effect G
of a borrowing. To further simplify the concept, in Section 5(8)(f),
it would be appropriate to eclipse the words ‘includes any forward
sale or purchase agreement’, and then, the provision would read
as ‘any amount raised any other transaction having commercial
effect of a borrowing’. The word ‘transaction’ has been defined H
328 SUPREME COURT REPORTS [2022] 5 S.C.R.

A in Section 2(33) to include ‘an agreement or arrangement in
writing for the transfer of an asset, or funds, goods or services
from or to the corporate debtor. At this very juncture, it may
noticed that ‘operational debt’ has been defined in Section 5(21),
which means ‘a claim in respect of provision of goods or services
including employment’. Operational debt also means a debt in
B
respect of payment of dues arising under any law for the time
being in force and payable to any Local Authority, inter alia.
‘Operational creditor’ is defined in Section 2(20) as meaning ‘a
person to whom operational debt is owed and includes any person
to whom such debt has been legally assigned or transferred’.
C Under Section 5(8)(f), the words used, inter alia, are ‘any amount
raised under any other transaction’. In our quest for similar words,
namely, any amount raised, it may be discovered that similar words
are used namely ‘any amount raised’ specifically in clauses 5(8)(b)
and 5(8)(c). It may noticed that, in fact, Section 5(8)(a) specifically
deals with money borrowed against the payment of interest. It
D
has already been found that under the main provision an interest
free loan has been held by this Court to entitle the unpaid creditor
to describe himself as a financial creditor. The words ‘any amount
raised pursuing to any note purchase facility or issue of bonds,
notes, debentures, loans stocks’ are followed by the words or by
E any similar instrument. Since, Part II of the IBC deals with
resolution and liquidation for corporate persons and the definition
of financial debt is found in Section 5(8) falling under Part II, it
may be born in mind that Section 3(8) defines corporate debtor
as a corporate person who owes a debt to any person. The word
corporate person has in turn been defined under Section 3(7) as
F
a company under the Companies Act as defined in Section 2(20)
of the Companies Act, 2013, a limited liability partnership as
defined in the Limited Liability Partnership Act, 2008 or any other
person incorporated with limited liability but under any law for
the time being in force but will not include any financial service
G provider. In fact, a perusal of Part III of IBC which deals with
Insolvency Resolution for individuals and partnership firms will
show that it does not contain the concept of financial debt as
indicated in Section 5(8). Section 5(8)(c) comprehensively refers
to raising of any amount based on note purchase facility, issue of
bonds, notes, debentures, loan stock or any similar instrument.
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NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 329
ANAND SONBHADRA

Thus, what is contemplated is ordinarily the corporate debtor A
raises funds by issuing bonds, notes, debentures or loan stock
which are well known instruments usually used by corporate
bodies to generate funds for its needs. These instruments are
ordinarily transferable. [Paras 122, 132][406-E-H; 417-E-H;
418-A-C]
B
State of Orissa v. State of A.P. (2006) 9 SCC 591 –
relied on.
8. In the present case it cannot be hold that the lessee has
raised any amounts from the appellant. The question, therefore,
of considering the last limb of Section 5(8)(f), namely, whether it C
has commercial effect of a borrowing could not arise. But it can
be safely said that the obligation incurred by the lessee to pay
the rental and the premium cannot be treated as an amount raised
by the lessee from the appellant. [Para 138][421-F-G]
State of Tamil Nadu v. Binny Ltd., Madras (1980) Suppl. D
SCC 686; State of Orissa and Another v. M/s. Chakobhai
Ghelabhai and Company AIR 1961 SC 284 : [1961]
1 SCR 719; Jaypee Infratech Limited v. Axis Bank
Limited and Others (2020) 8 SCC 401; Swiss Ribbons
Private Limited and Another v. Union of India and
Others (2019) 4 SCC 17 : [2019] 3 SCR 535; Mohd. E
Noor and Others v. Mohd. Ibrahim and Others (1994)
5 SCC 562 : [1994] 1 Suppl. SCR 790; Aneeta Hada
v. Godfather Travels and Tours Private Limited (2012)
5 SCC 661 : [2012] 5 SCR 503; M/s. Shroff and Co. v.
Municipal Corpn. of Greater Bombay and Another F
(1989) 1 Suppl. SCC 347 : [1988] 2 Suppl. SCR 406;
Pioneer Urban Land and Infrastructure Limited and
Another v. Union of India and Others (2019) 8 SCC
416 : [2019] 10 SCR 381; Union of India and Others
v. R.C. Jain and Others (1981) 2 SCC 308 : [1981]
2 SCR 854; New Okhla Industrial Development G
Authority v. Chief Commissioner of Income Tax and
Others (2018) 9 SCC 351 : [2018] 7 SCR 781; Haryana
v. Haryana Housing Board Employees’ Union and
Others (1996) 1 SC 95 : [1995] 4 Suppl. SCR 533;
H
330 SUPREME COURT REPORTS [2022] 5 S.C.R.

A Commissioner of Income Tax, Lucknow v. U.P. Forest
Corporation (1998) 3 SCC 530 : [1998] 2 SCR 22; in
Re: Rogers Pyatt Shellac Co. v. The Secretary of State
for India in Council AIR 1925 Calcutta; The
Commissioner of Income Tax, Bombay v. Ahmedbhai
Umarbhai and Co., Bombay AIR 1950 SC 134 : [1950]
B
SCR 335 – referred to.
Case Law Reference
[2019] 10 SCR 381 relied on Para 42
[2019] 3 SCR 535 referred to Para 43
C
[1994] 1 Suppl. SCR 790 referred to Para 44
[2004] 5 Suppl. SCR 671 relied on Para 58
[2012] 5 SCR 503 referred to Para 60
[1961] 1 SCR 719 referred to Para 99
D
(1980) Suppl. SCC 686 referred to Para 100
[1988] 2 Suppl. SCR 406 referred to Para 101
[2019] 10 SCR 381 referred to Para 123
(2020) 8 SCC 401 referred to Para 127
E
(2006) 9 SCC 591 relied on Para 132
[1981] 2 SCR 854 referred to Para 142
[2018] 7 SCR 781 referred to Para 142
[1995] 4 Suppl. SCR 533 referred to Para 142
F
[1998] 2 SCR 22 referred to Para 142
[1950] SCR 335 referred to Para 143
From the Judgment and Order dated 16.04.2021 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
G (Ins.) No. 1183 of 2019.
With
Civil Appeal Nos. 2367-2369 of 2021.
Tushar Mehta, SG, Ms. Madhavi Goradia Divan, ASG, Rachit
Mittal, Sahil Monga, Ms. Pooja Kapur, Vinod Yadav, Sudhir Naagar,
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 331
ANAND SONBHADRA

Sourav Roy, Kanu Agarwal, Prabudh Singh, Kaushal Sharma, Advs. for A
the Appellant.
Dr. Abhishek Manu Singhvi, Sr. Adv., Prateek Gupta, Lokesh
Malik, Krishna Dev Jagarlamudi, Abhishek Agarwal, Abhijeet Sinha, Milan
Singh Negi, Nikhil Kumar Jha, Pulkit Srivastava, Ritin Rai, Gaurav Mitra,
Abhishek A., Ms. Ritika Sinha, Parth Maniktala, Akshay Goel, Ms. Udita B
Singh, Ninad Dogra, Som Raj Choudhury, Anand Varma, Ms. Apoorva
Pandey, Shohit Chaudhry, Pankaj Agarwal, Advs. for the Respondent.
The Judgment of the Court was delivered by
K. M. JOSEPH, J.
C
1. Hardly six years old, the Insolvency and Bankruptcy Code
(hereinafter referred to as the ‘IBC”) continues to be a fertile ground to
spawn litigation. Born in the year 2016, the IBC this time around has
given rise to the question as to whether the appellant would be a financial
creditor and entitled to be so treated in the Corporate Insolvency
Resolution Process (CIRP, in short) commenced against the corporate D
debtor under the ‘IBC’.
THE APPEALS
CIVIL APPEAL NO.2222/2021
2. The appellant ‘NOIDA’ initially submitted Form ’B’ and claimed E
as anoperational creditor in regard to the dues outstanding under the
lease. Subsequently the appellant filed a claim in Form ‘C’ and claimed
as a financial creditor.There was some correspondence which reveals
that the appellant insisted upon being treated as a financial creditor.Finally,
the matter was considered by the adjudicating authority (NCLT) which
F
held that there was no financial lease in terms of the Indian Accounting
Standards and there was no financial debt.By the impugned order, NCLAT
has affirmed the view taken by the NCLT. Hence the appeal.
CIVIL APPEAL NOS.2367-2369 OF 2021
3. The appellant in 2222 of 2021 is the appellant in this case also. G
The appeal is filed against an interim order passed by the NCLAT staying
the order passed by the NCLT. By the order passed by the NCLT, the
appellant herein was directed to be admitted as a financial creditor and
adjudicating authority also directed to admit the whole of the claim of
the appellant. In view of the order passed, which is the subject matter of
H
332 SUPREME COURT REPORTS [2022] 5 S.C.R.

A C.A. No. 2222/2021,NCLAT found it fit to pass an order staying the
order passed by the NCLT. Hence the appeals.
4. Since a common question arises namely whether the appellant
is entitled to be treated as a financial creditor within the meaning of the
IBC, we are rendering the common judgment.
B 5. We have heard Shri Tushar Mehta, Learned Solicitor General
appearing for the appellant in C.A. No.2222/2021 and Smt. Madhavi
Divan, learned Additional Solicitor General for the appellant in C.A.
No.2367-2369/2021. We have also heard Shri Ritin Rai, learned Senior
Counsel appearing on behalf of the respondent in CA 2222/2021. Besides
C we heard Dr. A.M. Singhvi, learned Senior Counsel who was allowed to
intervene in the matter on the basis that there is a case involving the
appellant NOIDA which is pending consideration.We also heard Shri
Devashish Bharuka on behalf of the first respondent in C.A. Nos. 2367-
2369/2021.
D THE LEASE
6. The terms of the lease are as found in C.A.No. 2222/2021.
The lease was entered into on the 30th day of July, 2010. The appellant
is the lessor described as the Authority under Section 3 of the Uttar
Pradesh Industrial Area Development Act, 1976 (hereinafter referred
E to as the ‘UPIAD Act’). The lease deed recites that the leasehold property
forms part of the land acquired under the Land Acquisition Act and
developed by the lessor for the purposes of setting up of an ‘Urban and
Industrial Township’. The purpose of the lease is the construction of the
residential flats according to the setback and building plan approved by
the appellant. The lessee earned its right as lessee under the process of
F two bid tender system in favour of aconsortium of which it is a member.
The lease deed provides that the shareholding of the lessor shall remain
unchanged till the temporary occupancy/completion certificate of at least
the first phase of the project is obtained from the lessor and the lessee is
permitted to transfer upto 49% of the shareholding subject to conditions.
G Thereafter, it is recited that of the consideration of Rs.46,14,69,996.50,
10% stood paid. The lease deed further contemplated moratorium of 24
months from the date of allotment. Only the interest at 7% per annum
compounded half yearly which accrued during the moratorium period
shall be payable in equal half yearly instalments.The lease deed further
contemplated payment of the balance 90% of the amount after expiry of
H the moratorium in 16 half yearly instalments along with interest as
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 333
ANAND SONBHADRA [K. M. JOSEPH, J.]

specifically set out. Relevant portions of the lease deed to be noticed A
read as follows:
“And also, in consideration of the yearly lease rent hereby reserved
and the covenants provisions· and agreement herein contained
and on the part of the Lessee. to be respectively paid observed
and performed, the Lessor doth hereby demise on lease to the B
lessee! that plot of land numbered as Group Housing Plot No.GH-
5/B, Sector-137, In the NOIDA, Distt. Gautam Budh Nagar (U.P.)
contained by measurement 22,565.77 Sq. mtrs. be the same a
little more or less and bounded:
On the North by : As per Site C
On the South by : As per Site
On the East by : As per Site
On the West by : As per Site
And the said plot is more clearly delineated and shown In the D
attached plan and therein marked red.
TO HOLD the said plot (hereinafter referred to as the demised
premises with their appurtenances up to the lessee for the term of
90 (ninety) years commencing from 30, JULY, 2010 except and
always reserving to the Lessor. E
a) A right to lay water mains, drains, sewers or electrical wires
under or above the demised premises, if deemed necessary by
the Lessor in developing the area.
b) The Lessor reserves the right to all mine and minerals, claims,
washing goods, earth oil, quarries, over & under the allotted plot F
and full right and powerat the time to do all acts and things which
may be necessary or expedient for the purpose of searching for
working and obtaining removing and enjoy the same Without
providing or leaving any vertical support for the surface of the
residential plot or for any building for the lime being standing G
thereon provided always that the lessor shall make reasonable
compensation to the Lessee for all damages directly occasioned
by the exercise of such rights. To decide the amount of reasonable
compensation the decision of the Lessor will be final and binding
on the Lessee.
H
334 SUPREME COURT REPORTS [2022] 5 S.C.R.

A (II) AND THE LESSEE DOTH HEREBY DECLARE AND
CONVENANTS WITH THE LESSOR IN THE MANNER
FOLLOWING: .
a) Yielding and paying therefore yearly in advance during the said
term unto the lessor In the month of MARCH for each year the
B yearly lease rent indicated below: -
(i) Lessee has paid Rs. 46,14,699;96 say Rs.46,14,700,00 as lease
rent being 1% of the plot premium for the first 1O years of lease
period.
(ii) The lease rent may be enhanced by 50%after every 10 years
C i.e., 1.5 times of the prevailing lease rent.
(ii) The lease rent shall be payable In _advance every year. First
such payment shall fall due on the date of execution of lease deed
and thereafter, every year, on or before the last date of previous
financial year.
D
(iv) Delay In payment of the advance lease rent will be subject to
Interest @14% per annum compounded half yearly on the defaulted
amount for the defaulted period.
(v) The lessee has the option to pay lease rent equivalent to 11
years @ 1 % of the premium of the plot per year as ‘One Time
E
Lease Rent unless the Lessor decides to withdraw this facility:
On payment of One Time Lease Rent, no further annual lease
rent would be required to be paid for the balance lease· period.
This option may be exercised at any time during the lease period
provided the lessee has paid the earlier lease right due and lease
F rent already paid will not be considered· in One Time Lease Rent
option.
b) The Lessee shall be liable to pay all rates, taxes, charges and
assessment leviable by whatever name called for every description
in respect of the plot of land or building constructed thereon
G assessed or Imposed from time to time by the lessor or any
Authority/ Government. In exceptional circumstances the time of
deposit for the payment due may be extended by_the lessor. But
in such case of extension of time an interest@ 14% p.a.
compounded every half yearly shall be charged for the defaulted
amount for such delayed period. In case lessee fails to pay the
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 335
ANAND SONBHADRA [K. M. JOSEPH, J.]

above charges it would be obligatory on the part or Its members/ A
sub lessee to pay proportional charges for the allotted areas.
c) The Lessee shall use the allotted plot for construction of Group
Housing, however, the lessee shall be entitled to a lot the dwelling
unit on sublease basis to its allottee and also provide space for
facilities like Roads, Parks etc. as per their requirements, B
convenience with the allotted plot, fulfilling requirements or building
bye-laws and prevailing and under mentioned terms and conditions
to the lessor. Further transfer/sub lease shall be governed by the
transfer policy of Lessor:
(i) Such allottee/sub lessee should be citizen of India and competent C
to contract.
(ii) Husband/wife and their dependent children will not be
separately eligible for the purpose of allotment and shall be treated
as single entity.
(iii) The permission for part transfer of plot shall not be granted D
under any circumstances. The Lessee shall not be entitled to
complete transaction for sale, transfer, assign or otherwise part
with possession of the whole or any part of the building constructed
thereon before making payment according to the schedule
specified in the lease deed of the plot to the Lessor. However, E
after making payment of premium of the plot to the lessor as per
schedule specified in the lease deed, permission for transfer of
built up flats or to part with possession of the whole or any part of
the building constructed on the group housing plot, shall be granted
and subject to payment of transfer chargers as per policy prevailing
at the time of granting such permission of transfer. However, the F
Lessor, reserves the right to reject any transfer application without
assigning any reason. The lessee will also be required to pay
transfer charges as per the policy prevailing at the time of such
permission of transfer.
The permission to transfer the part Or the built up space will be G
granted subject to execution of tripartite sub- lease deed which
shall be executed in a form and format as prescribed by the
lessor.”On the fulfillment of the following conditions: -
a) The Lease Deed of plot has been executed and the Lessee has
madethe payment according to the schedule specified in the lease H
336 SUPREME COURT REPORTS [2022] 5 S.C.R.

A deed of the plot, interest and one time lease rent. Permission of
sub-lease deed shall be granted phasewise on payment of full
premium (with interest upto the date of deposit) of the plot of that
phase.
b) Every sale done by the lessee shall have to be registered before
B the physical possession of the property is handed over.
c) The Lessee has obtained building occupancy certificate from
Planning Department, Greater Noida (Lessor).
d) The Lessee shall submit list ofindividual allottees of flats within
C 6 months formthe date of obtaining occupancy certificate.
e) The Lessee shall have to execute tripartite sub lease in favour
of the individual allottees for the developed flats/plots in the form
and format as prescribed by the LESSOR.
f) The Sub-Lessee undertakes to put to use the premises for the
D residential use of residential area only.
g) The Lessee shall pay an amount of Rs. 1000/- towards
processing fee and proportionate (pro-rate basis) transfer charges
and lease rent as applicable at the time of transfer and shall also
execute sub lease deedbetween Lessor, Lessee and proposed
E transferee (sub-Lessee). The Lessee/ Sub Lessee shall also endure
adherence to the building regulations and directions of the Lessor.
The Lessee as well as sub Lessee shall have to follow rules and
regulations prescribed in respect of lease hold properties and shall
have to pay the charges as per rules of the Lessor/Government
F of U.P.
The transfer charges shall not be payable in case of transfer
between son/daughter, husband/wife, mother/father and vice versa
or between these six categories. A processing fee of Rs.1000/-
will be payable in such case. The transfer of the flat in favour of
G 1st sub-Lessee shall be allowed without any transfer charges but
sub lease deed will be executed between the Lessor & Lessee
and allottee. However, a processing fee of the Rs. 1000/- will be
payable at the time of transfer/execution of the sub-lease deed.
The physical possession of dwelling units/ flats/plots will be
permitted to be given after execution of sub-lease deed.
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 337
ANAND SONBHADRA [K. M. JOSEPH, J.]

i) Every transfer done by the Lessee shall have to be registered A
before the physical possession of the flat/ plot is handed over.
J) Except otherwise without obtaining the completion certificate,
the Lessee shall have the option to divide the allotted plot and to
sub lease the same with the prior approval of lessor on payment
of transfer charges. However, the area of each of such sub divided B
plot should not be less than 10,000 sq. metres.
k) Rs.1000/- shall be paid as processing fee in each case of
transfer of flat in addition to transfer charges.
7. Norms of development are specifically set out as maximum
permissible FAR, maximum ground coverage and maximum height. The C
construction is to be completed in maximum five phases within a period
of seven years from the date of execution of the lease deed. Delay
specifically entitled the appellant to cancel, as also gave rise to power to
extend time in the manner provided therein with penalty. The period of
extension is fixed at 3 years with penalty.It further provided that further D
extension will normally be not permitted. If the lease is cancelled, the
Lessee is to lose all rights and the building appurtenant thereto. The
lessee is at total liberty to design the size of the flat/plots. The FAR
earmarked for commercial/institutional use would be admissible but the
allottee/lessee may utilize the same for their residential use as per their
convenience. The clause relating to mortgage reads as follows: E

MORTGAGE
“The lessee may with prior permission of the Lessor, mortgage
the land to any Financial Institution(s)/ Bank(s) for raising loan
for the purpose of financing his investment in the project on receipt F
of payment by allottee or on receipt of assurance of payment by
bank or under any other suitable arrangement. In mutual settlement
amongst the LESSOR, developer and the financial institution(s)/
Bank(s). As regards the case of mortgaging the land to any
Financial Institution(s)/ Bank(s) to mortgage the said land to
facilitate the housing loans of the final purchasers, N.O.C may be G
issued subject to such terms and conditions as may be decided by
the LESSOR at the time of granting the permission.
Provided that in the event of sale or foreclosure of the mortgaged/
charged property the LESSOR shall be entitled to claim and
recover such percentage, as decided by the LESSOR of the H
338 SUPREME COURT REPORTS [2022] 5 S.C.R.

A unearned increase in values of properties in respect of the market
value of the said land as first chare, having priority over the said
mortgage charge, the decision of the LESSOR in respect of the
market value of the said land shall be final and binding on all the
parties concerned.
B The LESSOR’S right to the recovery of the unearned increase
and the pre-emptive right to purchase the property as mentioned
herein before shall apply equality to involuntary sale or transfer,
be it bid or through execution of decree of insolvency/court.”
Transfer of plot is the next provision to notice and it reads as
C follows:
“TRANSFER OF PLOT
Without obtaining the completion certificate the lessee shall have
the right to sub-divide the allotted plot into suitable smaller plots
D as per planning norms and to transfer the same to the interested
parties upto 30.09.2010 with the prior approval of LESSOR on
payment of transfer charges @ 2% of allotment rate. However,
the area of each of such sub-divided plots should not be less than
20,000 sq. mtrs. However, individual flat/plot will be transferable
with prior approval of the LESSOR as per the following conditions:
E -
(i) The dues of LESSOR towards cost of land shall be paid in
accordance with the payment schedule specified in the Lease
Deed before executing of sub-lease deed of the flat.

F (ii) The lease deed has been executed.
(iii) Transfer of flat will be allowed only after obtaining completion
certificate for respective phase by the Lessee.
(iv) The sub-lessee undertakes to put to use the premises for the
residential use only.
G
(v) The lessee has obtained building occupancy certificate from
Building Cell, NOIDA.
(vi) First sale/transfer of a flat/plot to an allottee shall be through
a Sub-lease/ Lease Deed to be executed on the request of the
H Lessee to the LESSOR in writing.
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 339
ANAND SONBHADRA [K. M. JOSEPH, J.]

(vii) No transfer charges will be payable in case of first sale, A
including the built-up premises on the sub-divided plot(S) as
described above. However, on subsequent sale, transfer charges
shall be applicable on the prevailing rats as fixed by the LESSOR.
(viii) Rs. 1000/- shall be paid as processing fee in in each case of
transfer of flat in addition to transfer charges.” B
8. Under the heading “Misuse, addition, alteration etc.”, it is
provided that the lessee shall not use the flat for any purpose other than
residential purpose. Violation would open the doors for cancellation. The
lessee is liable to pay all rates, taxes, charges and assessment of every
description imposed by any lessor empowered in this behalf, whether it C
be imposed on the plot or the building constructed thereon from time to
time.
9. Under the heading “Overriding power over dormant property”,
it is provided as under:
“OVERRIDING POWER OVER DORMANT PROPERTIES D
The lessor reserves the right to all mines, minerals, coals, washing
gold earth’s olls, quarries on or under the plot and full right and
power at any time to do all acts and things which may be necessary
or expedient for the purpose of searching for, working and obtaining
removing and enjoying the same without providing or leaving any E
vertical support for the surface of the plot(s)/ flats or for the
structure time being standing thereon provided always that the
Lessor shall make reasonable compensation to the Lessee for all
damages directly occasioned by exercise of the rights hereby
reserved. The decision of the Chief Executive Office/ Lessor on F
the amount of such compensation shall be final and binding on the
lessee/ sub-lessee.”
10. The lessee is to maintain the premises. Under the head
‘Maintenance’, it is, inter alia, stated as follows:
“5. The lessee/sub lessee shall make such arrangements as are G
necessary for the maintenance of the building and common
services and · If the building Is not maintained properly.The Chief
Executive Officer or any officer authorized by· Chief. Executive
Officer of the Lessor will have power to get the maintenance
done through the Lessor and recover the amount so spent from
H
340 SUPREME COURT REPORTS [2022] 5 S.C.R.

A the lessee/sub lessee. The lessee/sub lessee will be individually
and severally liable for payment of the maintenance amount. The
rules/regulation of UP Flat ownership act 1975 shall be applicable
on the lessee/sub lessee. No objection on the amount spent for
maintenance of the building the lessor shall be entertained and
decision of the Chief Executive Officer of the Lessor In this regard
B
shall be final.”
11. Cancellation of lease deeds is separately provided as follows:
“CANCELLATION OF LEASE DEED
“In addition to the other specific clauses relating to cancellation,
C the Lessor, as the case may be, will be free to exercise its right of
cancellation of lease in the case of:-
1. Allotment being obtained through misrepresentation/suppression
of material facts, misstatement and/or fraud.
2. Any violation of directions issued or rules and regulation framed
D
by Lessor or by any other statutory body.
3. Default on the part of the lessee for breach/violation of terms
and conditions of registration/allotment/lease and/or non-deposit
of allotment amount.
E 4. If at the same time of cancellation, the plot is occupied by the
Lessee thereon the amount equivalent to 25% of the total premium
of the plot shall be fortified and possession of the plot will be
resumed by the Lessor with structure thereon, if any, and the
lessee will have no right to claim compensation thereof. The
balance, if any shall be refunded without any interest. The forfeited
F amount shall not exceed the deposited amount with the Lessor
and no separate notice shall be given in this regard.
5. If the allotment is cancelled on the ground mentioned in sub
clause 1 above, then the entire amount deposited by the lessee, till
the date of cancellation shall be forfeited by the Lessor and no
G claim whatsoever shall be entertained in this regard.”
12. We may also notice the provisions under other clauses:
“OTHER CLAUSES
1. The Lessor reserves the right to make such additions/
H alternations or modifications in the terms and conditions of
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 341
ANAND SONBHADRA [K. M. JOSEPH, J.]

allotment/lease deed/sub lease deed from time to time, as may be A
considered just and expedient.
2. In case of any clarification or interpretation regarding these
terms and conditions the decision of Chief Executive Officer or
the lessor shall be final and binding.
3. If due to any “Force Majeure” or such circumstances beyond B
the lessor’s control, the lessor is unable to make allotment or
facilitate the Lessee to undertake the activities in pursuance of
executed lease deed, the deposits depending on the stages of
payments will be refunded along with simple interest @ 4% p.a.,
if the delay in refund is more than one year from such date. C
4. If the Lessee commits any act of omission on the demised
premised resulting in nuisance, it shall be lawful for the lessor to
ask the Lessee to remove the nuisance within a reasonable period
falling which the LESSOR shall itself get the nuisance removed
at the Lessee’s cost and charge damages from the Lessee during D
the period of submission of nuisance.
5. Any dispute between the lessor and Lessee/ Sub-Lessee shall
be subject to the territorial jurisdiction of the Civil Courts having
jurisdiction over District Gautam Budh Nagar or the Courts
designated by the Hon’ble High Court of Judicature at Allahabad. E
6. The Lease Deed/ allotment will be governed by the provisions
of the U.P. Industrial Area Development Act, 1978 (U.P. Act no.
6 of 1976) and by the rules and/ or regulations made or directions
issued, under this act.
7. The lessor will monitor the implementation of the project. F
Applicants who do not have a firm commitment to implement the
project within the time limits prescribed are advised not to avail
the allotment.
8. The lessee/ sub-lessee of the Lessee shall be liable to pay all
taxes/ charges livable from time-to-time lessor or any other G
authority duly empowered by them to levy the tax/charges.
9. Dwelling units flats shall be used for residential purpose only, in
case of default, render the allotment/ lease liable for cancellation
and the Allottee/Lessee/sub-lessee will not be paid any
compensation thereof. H
342 SUPREME COURT REPORTS [2022] 5 S.C.R.

A 10. Other buildings earmarked for community facilities cannot be
used for purposes other than community requirements.
11. All arrears due to the Lessor would be recoverable as arrears
of land revenue.
12. The Lessee shall not be allowed to assign or change his role,
B otherwise the lease shall be cancelled and entire money deposited
shall be forfeited.
13. The lessor in larger public interest may take back the possession
of the land/building/ by making payment at the prevailing rate.

C 14. In case the lessor is not able to give possession of the land in
any circumstances deposited money will be refunded to the allottee
with simple interest.
15. All terms and conditions of brochure and its corrigendum,
allotment, building bye-laws and as amended from time to time
D shall be binding on the Lessee.
For and on behalf of LESSOR”
(Emphasis supplied)
FINDINGS OF THE NCLAT
E 13. FINDINGS
I. The NCLAT finds that the lease deed does not have any clause
of transfer of ownership of the underlying asset, which is land and not
flat, as harped upon by the appellant. This is noted as one of the factors,
which is an important factor. The appellant has not done any classification
F of the lease as a financial lease, however observing that it would not be
a deciding factor. The NCLAT has proceeded to evaluate the contents
of the lease. It proceeds to remind itself that to be classified as a financial
lease, what is relevant is whether there is a substantial transfer of all the
risks and rewards incidental to ownership of an underlying asset. It
proceeds to further hold that the lease is heavily tilted in favour of the
G appellant, controlling almost all the aspects and while passing over the
risks keeps the rewards with lessor, except the liberty to sell the flats
which would be constructed. Thereafter, the NCLAT proceeded to
consider whether rewards incidental to ownership of the underlying asset
were transferred. It is found that appellant put a condition that the lessee
H will be allowed to transfer/sell upto 49% of its shareholding, subject to
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 343
ANAND SONBHADRA [K. M. JOSEPH, J.]

the condition that the original shareholders indicated on the date of A
submission of the tender, shall continue to hold at least fifty-one per cent
of the shareholding, till the temporary occupancy completion certificate
is obtained of at least one phase.
II. There is reference to a total premium of Rs.46 crores and the
down payment of ten percent. So also, reference is made to half-yearly B
instalments to be paid between 2010 and 2020. The term of the lease is
for ninety years. Reference is made to the clause reserving rights to all
mine and minerals under the allotted plot, inter alia. Reliance is placed
on ten percent of the amount paid towards premium being repeated, by
referring to the same amount as lease rent. Lease rent and premium are
used interchangeably. The option of paying the lease rent is referred C
to.The liability to pay taxes is adverted to. There is further reference to
the following clause:
“c) The Lessee shall use the allotted plot for construction of Group
Housing. However, the lessee shall be entitled to allot the dwelling
units on sublease basis to its allottee and also provide space for D
facilities like Roads, Parks etc. as per their requirements,
convenience with the allotted plot, fulfilling requirements or building
bye-laws and prevailing and under mentioned terms & conditions
to the lessor. Further transfer/sub lease shall be governed by the
transfer policy of the Lessor.” E
Reference is made to the clause that the allottee/sub-lessee, should
be a citizen of India and should be competent and that husband, wife,
and dependent children would be considered single entity. Further
reference is made to the following clause:
“iii) The permission for part transfer of plot shall not be granted F
under any circumstances. The Lessee shall not be entitled to
complete transaction for sale, transfer, assign or otherwise part
with possession of the whole or any part of the building constructed
thereon before making payment according to the schedule
specified in the lease deed of the plot to the Lessor. However, G
after making payment of premium of the plot to the lessor as per
schedule specified in the lease deed permission of transfer of
built-up flats or to part with possession of the whole or any part of
the building constructed on the Group Housing Plot, shall be
granted and subject to payment of transfer charges as per policy
prevailing at the time of granting such permission of transfer. H
344 SUPREME COURT REPORTS [2022] 5 S.C.R.

A However, the Lessor, reserves the right to reject any transfer
application without assigning any reason. The lessee will also be
required to pay transfer charges as per the policy prevailing at the
time of such permission of transfer.”
III. Reference is made to the following clause, which reads as
B follows:
The lessee shall have to execute sub-lease in favour of the
individual allottees for the developed flats/plots in the form and
format, as prescribed by the lessor. This is relied upon by the
NCLAT to conclude that rewards incidental to ownership is not
C transferred.
IV. Next, it is found that the lease deed contemplates that the
number of phases within which the work needs to be completed. The
schedule of time had to be adhered to by the lessee. The power of
cancellation loomed large in this context.
D V. Next, reliance is placed on the clause relating to mortgage,
which required permission of the appellant to mortgage the plot. The
priority of charge of the appellant was maintained. The use of the flat
was limited to residential purpose only. Departure from the same would
invite the wrath of cancellation. The appellant reserved the right to even
E remove the vertical support for the surface of the plots/flats with only
liability to pay compensation and the right to determine which was lodged
with the appellant and it was to be binding on the lessee/sub-lessee. The
general power of cancellation is maintained.
VI. Thereafter, we may notice the following:
F “21. Thus, the Appellant, even after creating the lease kept with
itself all the rights to control and monitor the project which was to
come up. The Appellant of course now has tried to say in the
Appeal that it was “only exercising minor supervision over the
land use” (see 9.12 of the Appeal), which we do not agree to.
What we can see from the Lease Deed which we have just
G
referred in brief, is that the acts which could be performed by the
lessee, were fully controlled by the Appellant. The lessee, of
course, had the liberty to construct and transfer the flats by way
of sublease. The above discussion shows that while risks and
liabilities were transferred to the lessee, the rewards incidental to
H ownership were not transferred. There is no Clause of transfer
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 345
ANAND SONBHADRA [K. M. JOSEPH, J.]

of ownership at the end of lease term. There is no option given to A
the lessor to purchase the asset at a price that is accepted to be
sufficiently lower than the fair value. The lease is for a term of 90
years. For life of a land, 90 years cannot be said to be major part
of economic life of the asset. There are no calculations available,
and the Lease Deed does not state that the present value of the
B
lease payments amounts to at least substantially all of the fair
value of the asset i.e. the land. The right to cancel the lease by
the lessor are specified at various places in the lease deed,
however, there is no option to the lessee to step out. There is no
option available in the lease deed for the lessee to continue lease
for secondary period. This is, leave apart, the indicator which C
requires that said secondary period should be at a rent that is
substantially lower than market rent.
22. Thus, when we have gone through the Lease Deed keeping
the classification of leases and the indicators mentioned above,
we do not find that the lease deed in question can be said to be a D
finance lease.
23. Keeping in view the Indian Accounting Standards, what
appears broadly is that when lease involves real estate (like land
in present matter) with a fair value different from its carrying
amount, the lease can be classified as a finance lease if the lease E
transfers ownership of the property to the lessee by the end of
the lease term or there is bargain purchase option. The lease must
transfer substantially all the risks and also rewards incidental to
ownership of the asset.
24. The argument of the Appellant trying to mix up transfer of F
ownership of the asset which is land with right to transfer flats to
be constructed has no substance. Merely, because the lessee was
given right to fix the price of the dwelling units to be constructed,
that by itself is not sufficient to say that the lease of the land is a
finance lease. The argument of the Appellant that lessee has an
option to pay onetime lease rent and that if such right was exercised G
lessee would not be required to pay further rent and that this
shows that present value of the lease payment amounts to at least
substantially all of the fair value of the asset, is also baseless. No
material is brought to show as to what is and would be the fair
value. With regard to right to cancel lease, it is reserved with the H
346 SUPREME COURT REPORTS [2022] 5 S.C.R.

A lessor but not the lessee. The Appellant argues that the question
of cancellation of lease deed by lessee would not arise as lessee
would build and transfer dwelling units. This is speculative and
cannot be helpful in construing the document. Again, it is not that
the right to land would get transferred to the flat purchasers (who
B are referred rather as sub-lessees). We do not find substance in
the arguments being raised by the Appellant to bring the Lease
Deed within the requirements of Indian Accounting Standards.
We rather find substance in the submissions of the Respondent as
recorded in the Chart reproduced supra.”

C VII. Finally, we may further also notice paragraphs-29 and 30 at
page 41 and 42 of impugned Order in C.A. No. 2222 of 2021.
“29. In the present matter, there is no sale of land. It is lease, for
premium /rent with almost all rights controlled by the Lessor. We
have gone through the provisions of Section 5(8)(f) and also when
D we keep the above observations of the Hon’ble Supreme Court
of India, we are unable to persuade ourselves to accept the
submission that when land is leased out, if premium is fixed and
instalments are given, it should be treated as a financial lease. We
do not find substance in this argument.
E 30. We may record that we are not finding fault with the various
terms and conditions in the Lease Deed. It is a Lease Deed from
a development authority which has the object of developing the
township and thus wants to control the manner in which the
constructions of housing come up. That purpose is alright. However,
such lease does not fit in with the requirements of Indian Accounting
F
Standards which we have referred. Just to be part of COC, the
lease of land between developing authority and the builders cannot
be considered or treated as a financial lease.”
RELEVANT PROVISIONS OF THE IBC
G 14. Section 5(8), which is at the centre of the controversy,defines
‘financial debt’ as: -
“5(8) “financial debt” means a debt alongwith interest, if any, which
is disbursed against the consideration for the time value of money
and includes–
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 347
ANAND SONBHADRA [K. M. JOSEPH, J.]

(a) money borrowed against the payment of interest; A
(b) any amount raised by acceptance under any acceptance credit
facility or its dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or
the issue of bonds, notes, debentures, loan stock or any similar B
instrument;
(d) the amount of any liability in respect of any lease or hire
purchase contract which is deemed as a finance or capital lease
under the Indian Accounting Standards or such other accounting
standards as may be prescribed; (e) receivables sold or discounted C
other than any receivables sold on non-recourse basis; (f) any
amount raised under any other transaction, including any forward
sale or purchase agreement, having the commercial effect of a
borrowing; 1 [Explanation. -For the purposes of this sub-clause, -
(i) any amount raised from an allottee under a real estate project
shall be deemed to be an amount having the commercial effect of D
a borrowing; and (ii) the expressions, “allottee” and “real estate
project” shall have the meanings respectively assigned to them in
clauses (d) and (zn) of section 2 of the Real Estate (Regulation
and Development) Act, 2016 (16 of 2016);]
E
(g) any derivative transaction entered into in connection with
protection against or benefit from fluctuation in any rate or price
and for calculating the value of any derivative transaction, only
the market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee,
F
indemnity, bond, documentary letter of credit or any other instrument
issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clause (a) to (h)
of this clause;” G
15. Section 3(11) defines the word ‘debt’. It reads as: -
“(11) “debt” means a liability or obligation in respect of a claim
which is due from any person and includes a financial debt and
operational debt;”
H
348 SUPREME COURT REPORTS [2022] 5 S.C.R.

A 16. Section 3(6) defines the word ‘claim’. It reads as: -
“(6) “claim” means—
(a) a right to payment, whether or not such right is reduced to
judgment, fixed, disputed, undisputed, legal, equitable, secured or
B unsecured;
(b) right to remedy for breach of contract under any law for the
time being in force, if such breach gives rise to a right to payment,
whether or not such right is reduced to judgment, fixed, matured,
unmatured, disputed, undisputed, secured or unsecured;”
C 17. Section 5(21) defines the word ‘operational debt’. It reads
as:-
“(21) “operational debt” means a claim in respect of the provision
of goods or services including employment or a debt in respect of
the repayment of dues arising under any law for the time being in
D force and payable to the Central Government, any State
Government or any local authority;”
18. Section 5(20) defines the word ‘operational creditor’. It reads
as:-
“(20) “operational creditor” means a person to whom an operational
E debt is owed and includes any person to whom such debt has
been legally assigned or transferred;”
19. Section 3(33) defines the word ‘transaction’. It reads as:-
“(33) “transaction” includes a agreement or arrangement in writing
for the transfer of assets, or funds, goods or services, from or to
F
the corporate debtor;”
THE UTTAR PRADESH INDUSTRIAL AREA
DEVELOPMENT ACT, 1976 UNDER WHICH APPELLANT
WAS CREATED (‘UPIAD’, FOR SHORT)
G 20. The Act defines the word ‘transferee’ in Section 2(f) as
follows:-
“2(f) ‘Transferee’ means a person (including a firm or other body
of individuals whether incorporated or not to whom any land or
building is transferred in any manner whatsoever, under this act
H and includes his successors and assigns,”
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 349
ANAND SONBHADRA [K. M. JOSEPH, J.]

21. Section 3 deals with the Constitution of the authority and reads A
as follows:-
“3. (1) The State Government may, by notification, constitute for
the purposes of this Act, An authority to be called (Name of the
area) Industrial Development Authority, for any industrial
development area. B
(2) The Authority shall be a body corporate.
(3) The Authority shall consist of the following: –
(a) The Secretary to the Government, Uttar Pradesh, Member
Industries Department or his Nominee not below Chairman the C
rank of Joint Secretary-ex-official.
(b) The Secretary to the Government, Uttar Pradesh, Member
Public works Department or his nominee not below the rank of
Joint Secretary ex-official.
(c) The Secretary to the Government, Uttar Pradesh, Local D
Member Self-Government or his nominee not below the rank of
joint Secretary-ex official.
(d) The Secretary to the Government, Uttar Pradesh, Finance
Member Department or his nominee not below the rank of Joint
Secretary-ex official. E
(e) The Managing Director, U.P. State Industrial Development
Member Corporation-ex official.
(f) Five members to be nominated by the State Government
Member by notification.
F
(g) Chief Executive Officer. Member Secretary (4) The
headquarters of the Authority shall be at such place as may be
notified by the State Government.
(5) The procedure for the conduct of the meetings for the Authority
shall be such as may be prescribed. G
(6) No act or proceedings of the Authority shall be invalid by
reason of the existence of any vacancy in or defect in the
constitution of the Authority.”
22. Section 6 of the UPIAD deals with the functions of the
Authority, which in this case is the appellant. Section 6 reads as follows: H
350 SUPREME COURT REPORTS [2022] 5 S.C.R.

A “FUNCTION OF THE AUTHORITY
6. (1) The object of the Authority shall
be to secure the planned development of the industrial development
area.
B (2) Without prejudice to the generality of the objects of the
Authority, the Authority shall perform the following functions :–
(b) to prepare a plan for the development of the industrial
development area;
(c) to demarcate and develop sites for industrial, commercial and
C residential purpose according to the plan;
(d) to provide infrastructure for industrial, commercial and
residential purposes;
(e) to provide amenities;
D (f) to allocate and transfer either by way of sale or lease or
otherwise plots of land for industrial, commercial or residential
purposes;
(g) to regulate the erection of buildings and setting up of industries:
and
E (h) to lay down the purpose for which a particular site or plot of
land shall be used, namely for industrial or commercial or residential
purpose or any other specified purpose in such area.”
23. Section 7 deals with the power to transfer. It reads as follows:-

F “7. The authority may sell, lease or otherwise transfer whether
by auction, allotment or otherwise any land or building belonging
to the Authority in the industrial development area on such terms
and conditions as it may, subject to any rules that may be made
under this Act think fit to impose.”
The proviso deals with consequences of not utilising it for the
G
purpose for which it was allowed.
24. Section 8 provides that for the proper planning and development
of the industrial development area, the authority may issue such direction
as it considered necessary regardingvarious aspects. They include
architectural features of the elevation or frontage of any building, the
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 351
ANAND SONBHADRA [K. M. JOSEPH, J.]

alignment of building on any site, the number of residential buildings that A
may be erected on any site, the restrictions in regard to open spaces and
height to be maintained, maintenance of amenities, restrictions of use of
any site for a purpose other than that for which it has been allocated.
25. Section 10 deals with power to require proper maintenance of
site and buildings. Section 11 deals with power to levy taxes. It, inter B
alia, reads as follows: -
“11. Levy such Taxes. — [(1) For the purposes of providing,
maintaining or continuing any amenities in the industrial
development area, the Authority may with the previous approval
of the State Government, levy such taxes as it may consider C
necessary in respect of any site or building on the transferee or
occupier thereof, provided that the total incidence of such tax
shall not exceed one per cent of the market value of such site,
including the site of the building.
Explanation—For the purpose of this sub-section, the expression D
“market value” means, the amount of—
(a) consideration, in the case of sale; or
(b) premium, in the case of lease; or
c) the minimum value determined in accordance with the rules
E
made under the Indian Stamp Act, 1899, whichever is more]
2) If the State Government considers it necessary or expedient in
the public interest, it may, by a general or special order, exempt
wholly or partly-any such transferee or occupier or any class
thereof from the taxes levied under sub-section (1).”
F
26. Section 11A inserted with effect from 21.03.2016 empowers
collection of tolls. Section 11B inserted likewise provides for levy of
additional stamp duty.
27. Section 12 reads as follows: -
“12. Applications of certain provisions of President’s Act XI of G
1973.—The provisions of Chapter VII and Sections 30, 32, 40,
41, 42, 43, 44, 45, 46, 47, 49, 50, 51, 53, and 58 of the Uttar Pradesh
Urban Planning and Development Act, 1973, as re-enacted and
modified by the Uttar Pradesh President’s Act (Re-enactment
with Modifications) Act, 1974, shall mutatis mutandis apply to the H
352 SUPREME COURT REPORTS [2022] 5 S.C.R.

A Authority with adaptation that— (a) any reference to the aforesaid
Act shall be deemed to be a reference to this Act; (b) any
reference to the Authority constituted under the aforesaid Act
shall be deemed to be a reference to the Authority constituted
under this Act; and (c) any reference to the Vice-Chairman of
the Authority shall be deemed to be a reference to the Chief
B
Executive Officer of the Authority.”
28. Section 13 reads as follows: -
“(13) Where any transferee makes any default in the payment of
any consideration and money or instalment thereof or any other
C amount due — account of the transfer of any site or building by
the Authority or any rent due to the Authority in respect of any
lease, or where any transferee or occupier makes any default in
the payment of any fee or tax levied under this Act, the Chief
Executive officer may direct that in addition to the amount of
arrears, further sum not exceeding that amount shall be recovered
D from the transferee or occupier, as the case may be, by way of
penalty.”
29. It is necessary to notice Section 12A and 12B inserted with
effect from 12.03.2016. They read as follows: -

E “12-A. No Panchayat for industrial township.—Notwithstanding
anything contained to the contrary in any Uttar Pradesh Act, where
an industrial development area or any part thereof is specified to
be an industrial township under the proviso to clause (1) of Article
243-Q of the Constitution, such industrial development area or
part thereof, if included in a Panchayat area, shall, with effect
F from the date of notification made under the said proviso, stand
excluded from such Panchayat area and no Panchayat shall be
constituted for such industrial development area or part thereof
under the United Provinces Panchayat Raj Act, 1947 or the Uttar
Pradesh Kshettra Panchayats and Zila Panchayats Adhiniyam,
G 1961, as the case may be, and any Panchayat constituted for
such industrial development area or part thereof before die date
of such notification shall cease to exist,
Explanation:—The expression “Panchayat and Panchayat area”
shall have the meanings respectively assigned to them in part IX
of the Constitution.]
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 353
ANAND SONBHADRA [K. M. JOSEPH, J.]

12-B.—(1) The Governor may, by notification, specify under A
Article 243-Q of the Constitution of India, the whole of Special
Investment Region or the Industrial Development Area or any
part thereof to be an Industrial Township.
(2) Notwithstanding anything to the contrary contained in any Uttar
Pradesh Act, where an special investment region or industrial B
development area or any part thereof is specified to be an Industrial
Township under the proviso to clause (1) of Article 243- Q of the
Constitution of India, such industrial development area or part
thereof, falling in a Municipality shall from the date of notification
stand excluded from that Municipality area and all powers and
functions performed with respect to such area shall be exercised C
or performed by the Authority.
Explanation: —The expression “Municipality” shall have the
meaning assigned to it in Part IX or Part IX-A of the Constitution of
India.]”
D
30. Section 14 reads as follows: -
“14. For feature for breach of conditions of transfer. —(1) In the
case of non-payment of consideration money or any installment
thereof on account of the transfer by the Authority of any site or
building or in case of breach of any condition of such transfer or E
breach of any rules or regulations made under this Act, the Chief
Executive Officer may resume the site or building so transferred
and may further forfeit the whole or any part of the money, if any,
paid in respect thereof.
(2) Where the Chief Executive Officer orders resumption of any F
site or building under sub-section (1) the Collector may, on his
requisition, cause possession thereof to be delivered to him and
may for that purpose use or cause to be used such force as may
be necessary.”
31. We may further notice Section 17:
G
“(17) Upon any area being declared on industrial development
area under the provision of this act, such area, if included in the
master plan or the zonal development plan under the Uttar Pradesh
Urban planning and Development Act, 1973, or any development
plan under any other Uttar Pradesh Act, shall with effect from
H
354 SUPREME COURT REPORTS [2022] 5 S.C.R.

A the date of such declaration be deemed to be excluded from any
such plan.”
THE PROVISIONS OF THE UTTAR PRADESH URBAN
PLANNING AND DEVELOPMENT ACT, 1973 MADE
APPLICABLE TO THE AUTHORITY VIDE SECTION 12 OF
B THE UPIAD ACT [For short, ‘the 1973 Act’]
32. Chapter VII dealing with Finance, Accounts and Audit begins
with Section 20. Section 20 provides for fund of the authorities. It reads
as follows:
“20. (1) The authority shall have and maintain its own fund to
C which shall be credited–
(a) all moneys received by the Authority from the State
Government by way to grants, loans advances or otherwise;
(b) all moneys borrowed by the Authority from sources other than
D the State Government by way of loans or debentures;
(c) all fees, tolls and charges received by the Authority under this
Act;
(d) all moneys received by the Authority from the disposal of
lands, buildings and other properties movable and immovable; and
E (e) all moneys received by the Authority by way of rents and
profits or in any other manner or from any other sources.
(2) The fund shall be applied towards meeting the expenses
incurred by the Authority in the administration of this Act for no
other purposes.
F
(3) Subject to any directions of the State Government, the Authority
may keep in current account of any Scheduled Bank such sum of
money out of its funds as it may think necessary for meeting its
expected current requirements and invest any surplus money in
such manner as it thinks fit.
G
(4) The state Government may, after due appropriation made by
Legislature by law in that behalf, make such grants, advances
and loans to the Authority as that Government may deem necessary
for the performance of the functions of the authority under this
Act, and all grants, loans and advances, made shall be on such
H terms and conditions as the State Government may determine.
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 355
ANAND SONBHADRA [K. M. JOSEPH, J.]

(5) The Authority shall maintain a sinking fund for the repayment A
of moneys borrowed under sub-section (5), and shall pay every
year into the sinking fund such sum as may be sufficient for
repayment within the period fixed of all moneys so borrowed.
(7) The sinking fund or any part thereof shall be applied in, or
towards, the discharge of the loan for which such fund was created, B
and until such loan is wholly discharged it shall not be applied for
any other purpose.”
33. Section 21 provides that the authority shall prepare a budget
in the form and at such time as the State Government may specify.
34. Section 22 providesthat the authority is to maintain proper C
accounts.The accounts of the authority shall be subject to audit annually
by the Examiner Local Fund Accounts.
35. Section 23 mandates that the authority shall prepare a report
and submit it to the State Government in such form and on or before
such date as specified by the State Government and the report is to be D
laid before both Houses of the Legislature.
36. Section 24 deals with Pension and Provident Fund. It reads as
follows: -
“24. (1) The Authority may constitute for the benefit of its whole-
E
time paid members and of its officers and other employers in
such manner and subject to such conditions, as the State
Government may specify, such pension or provident funds as it
may deem fit.
(2) Where any such pension or provident fund has been constituted,
F
the State Government may declare that the provisions of the
Provident Funds Act, 1925, shall apply to such fund as if it were a
Government Provident Fund.”
37. We must notice Section 40:
“40. Recovery of moneys due to Authority—Any money due to G
an Authority on account of any fee; or charges, or from disposal
of land, building or any other property, movable or immovable, by
way of rent, premium, profit or hire purchase instalment, may,
without prejudice to the right of recovery by any other mode of
recovery provided by or under this Act or any other law for the
time being in force, be realised— H
356 SUPREME COURT REPORTS [2022] 5 S.C.R.

A (a) either, as arrears of land revenue upon a certificate of the
amount due sent by the Authority to the collector, or (b) by
attachment and sale of property in the manner provided in Sections
504, 505, 506, 507, 508, 509, 510, 512, 513 and 514 of the [Uttar
Pradesh Municipal Corporation, 1959) (2 of 1959)]; and such
provisions of the said [Act] shall mutatis mutandis apply to
B
recovery of dues of an Authority as they apply to recovery of a
tax due to a [Municipal Corporation], so however, that references
in the aforesaid section of the said Adhiniyam to ‘Mukhya Nagar
Adhikari’, [Corporation] and Executive Committee shall be
constructed as references to ‘Vice Chairman, ‘Development
C Authority’ and ‘Chairman respectively:
Provided that no two or more modes of recovery shall be
commenced or continued simultaneously.]
the old Section 40, U.P. Urban Planning and Development Act,
1973 prior to Amendment Act 21 of 1985 is given below:
D
“40, Mode of recovery of money due to Authority any money
certified by the Authority as due to it on account of fees or charges,
or from the disposal of lands, buildings or other properties, movable
or immovable, or by way of rents and profits may, if the recovery
thereof is not expressly provided for in any other provision of this
E Act, be recovered by the Authority as arrears of land revenue,
and no suit shall lie in the Civil Court for recovery of such money.”
38. Section 41 provides for directions being issued by the State
Government for the administration of the Act being binding on the
Authority. Under Section 42 of the UP 1973 Act, the Authority is to
F furnish return and other information to the Government. Section 43 deals
with manner of service of notices, orders, and other documents. Section
44 deals with how public notices areto be made known. Section 45
mandates fixing of reasonable time in any notice, order, or document,
unless time is otherwise fixed by the Act or Regulation. Section 47
G proclaims that every member and every officer and other employee of
the Authority shall be deemed to be a public servant within the meaning
of Section 21 of the Indian Penal Code. Without sanction of the Chief
Executive Officer of the Authority or any other officer authorised by
him, there cannot be prosecution for any offence under the Act. Section
51 deals with power of delegation, both of the State Government and of
H the Authority and the Chief Executive Officer. Section 53 empowers
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 357
ANAND SONBHADRA [K. M. JOSEPH, J.]

the State Government to exempt, by notification, any land or building A
from the provisions of the 1976 Act or Rules or Regulations made
thereunder. Section 58 of the UP 1973 Act, as made applicable to the
1976 Act, provides for the dissolution of the Authority, on the State
Government forming the opinion, that the purpose for which the Authority
was established, has been substantively achieved, rendering the continued
B
existence of the Authority unnecessary.
CONTENTIONS OF THE APPELLANTS
39. The learned Solicitor General would rely on Section 5(8)(d)
and Section 5(8)(f) of the IBC in attempting to persuade the Court that
the appellant is actually a financial creditor. He would point out with C
reference to Section 5(8)(d) that a careful analysis of the lease deed
would show that the lease in question is a financial lease. In his endeavour,
in this regard, he emphasised the part of the provision, which brings in
the concept of a deeming provision. In other words, he contended that
the Court is bidden to treat a certain position as deemed. The NCLAT
has proceeded as if what is involved is classification of a financial lease D
he complained. He took us through the statutory rules, which have come
to embody the Indian Accounting Standards (IAS) within the meaning
of Section 5(8)(d), which have been enacted under the Companies Act,
2013.
40. He would first and foremost point out that the most prominent E
and indispensable element to make a lease a financial lease is that there
should be a substantial transfer of the risks and rewards incidental to
ownership from the lessor to the lessee. What is contained in later rules
are essentially by way of examples or illustrations. The mere fact that
with reference to each one of them, the appellant may not answer the F
description of a financial lessor, may not suffice to deprive the appellant
of the status of a financial creditor, as the vital question to be posed and
answered is whether substantially there is a transfer of risks and rewards
incidental to ownership. He does not dispute that in the case in question,
appellant has not classified the lease as a financial lease in the balance
sheet. He would however point out that the NCLAT has erred in finding G
that reward incidental to ownership has not been transferred to the lessee.
In this regard, he would point out that the lessee is free to fix the amount
of consideration it can charge from the buyers from the lessee. The
appellant cannot demand any share in the consideration received by the
lessee. In other words, the lessee is free to appropriate the entire profits. H
358 SUPREME COURT REPORTS [2022] 5 S.C.R.

A This is crucial in appreciating whether the rewards incidental to ownership
has been transferred to the lessee. He highlights the fact the appellant is
an Authority constituted under a statute, namely the UPIAD. He took
us through the provisions of Section 6 and 7 of the Act. He would contend
that as the Authority is charged with the statutory duty to carry out
planned development of the area and group housing being residential in
B
nature and since the construction had to be carried out in accordance
with the laws in force and the appellant was also charged with the duty
to regulate the activity, all that has happened is that the lease deed contains
provisions for the regulatory regime.This cannot detract from the transfer
of rewards substantially to the lessee. he contends.
C 41. As far as Section 5(8)(f) of the IBC is concerned it is pointed
out that the said provision is a catch-all section and acts as a residuary
reservoir, and what remains after what has been provided in the preceding
provisions, are captured within its scope. He would contend that the
Court must not overlook the object and scheme of the IBC. The financial
D creditors occupy a position of dominance whereby they call the shots
when it comes to ruling on the destiny of the corporate debtor. Under
the IBC, true power vests with the Committee of Creditors. It is the
financial creditors, who are at the helm of affairs of the Committee. It is
the Committee which will vote and finally decide, on the Resolution Plan,
which binds all. A financial creditor would be in a position to sway the
E views of others on the Committee. He would, in the context of the facts
point out that as things stand, the Committee isvirtually filled with
homebuyers. It would be unjust to deny the appellant its say in the
proceedings of the Committee. Huge sums of public money are at stake.
As the custodian of public interest, the appellant must be vouch-safedits
F legitimate position in the Committee of Creditors. It is this important
perspective, which has been overlooked by the NCLAT, it is complained.
The appellant cannot be treated as an operational creditor, whose interest
is no more than the mere realisation of the money due to it. The appellant
is more comparable with a bank. In other words, the lease in question
provides the lessee with the mechanism, by which on payment of a
G mere ten percent of the total premium upfront, the lessee gets possession
of the land. A moratorium follows. Thereafter, under the lease, the lessee
is no doubt obliged to pay the balance ninety per cent of the premium
and that too in 16 half-yearly instalments. If the lessee had wanted to
purchase the property and required finance from any other source,
H including a bank, it would have had to receive financial accommodation
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 359
ANAND SONBHADRA [K. M. JOSEPH, J.]

in some form or the other, under which, the respondent would become A
obliged to pay back the loan to the bank in terms of the arrangement. In
this case, on the other hand, under the lease, a lessee, instead of
approaching a bank, must be treated as raising funds in the manner
provided in the lease and that too on very easy and reasonable terms.
The lessee pays ten percent only in the beginning. The lessee is, in fact,
B
given the benefit of a reprieve and thereafter, he is enabled to pay the
lessor directly the balance amount. Therefore, this is a transaction, as
defined in Section 2(33) of the IBC. He would submit that the amounts
are to be paid back with interest. Therefore, on the whole, it must be
treated as a case where, there is raising of funds by the lessee, which,
has a commercial underpinning, as required under Section 5(8)(f) of the C
IBC. He would point out that the main provision, i.e., as contained in
Section 5(8) contemplates a debt, which is disbursed. Various clauses,
which are enumerated thereafter, need not contain the aspect of
disbursement. Therefore, raising of funds, within the meaning of Section
5(8)(f), can be contemplated without actual disbursement. He would
D
rely on the Judgement of this Court in Pioneer Urban Land and
Infrastructure Limited and Another vs. Union of India (UOI) and
Others 1
42. Smt. Madhavi Divan, learned Additional Solicitor General,
appears for NOIDA in the connected matter. She adopts the contentions
of the learned Solicitor General appearing for the same party. However, E
the learned Additional Solicitor General, would make three-pronged
submissions with regard to the appellant qualifying as a financial creditor.
She would contend that the appellant would fall in the main provisions of
Section 5(8). There is a debt. There is a time value of money. Interest is
predicated on the strength of the same. As far as the requirement of F
disbursement is concerned, she draws our attention to Section 2(33) of
the IBC, which defines the word ‘transaction’. It is her contention that
the disbursement need not be unidimensional. In the modern world, with
the sophistication and development of the financial market, the
disbursement can be from the creditor to the debtor or from the debtor
to the creditor. Therefore, even without the aid of the provisions, which G
appear by way of inclusion, the appellant fits the bill as a financial creditor.
She also highlighted the true role of the appellant under the Statute of
which it is an offspring. She would point out that there are long-term

1
(2019) 8 SCC 416 H
360 SUPREME COURT REPORTS [2022] 5 S.C.R.

A stakes, as far as the appellant is concerned. The appellant is charged
with the sublime function of ensuring planned development. The lease
operates as a tool of financing. Whatever be the form, of which the
Court must not be a prisoner, the substance cries out for labelling the
appellant as a financial creditor. Borrowing must not be viewed from the
prism of convention. The lease contemplates an upfront payment, a
B
moratorium and staggered payments of installments. She also draws
considerable inspiration from Pioneer (supra). She would contend that
in Pioneer (supra), which involved a challenge to including homebuyers
as financial creditors on the strength of the Explanation, which was
included in Section 5(8)(f) of the IBC, this Court recognised that a
C homebuyer is not a borrower in the traditional sense and yet the Court
found that homebuyer was a financial creditor and builder was being
financed by the payment of advances and staggered payment of
installments and, at the end of which, the equivalent in terms of the flat,
was promised. It would involve a manifest absurdity, if the appellant,
who would be in a better position, in fact, than the homebuyers, is yet
D
excluded from the Committee of Creditors on the score that it is to be
treated as an operational creditor.
43. With reference to the expression ‘raising of funds’,
contemplated in Section 5(8)(f), she would persuade the Court to hold
that the lessee, by entering into the lease, comes to enjoy the property
E and also have other rights, including the right to entirely appropriate the
profit from the transfer of the flats constructed thereon. By the staggered
payments, after the initial payments of advance of ten percent and a
moratorium freeing the funds of the corporate debtor clearly takes place.
There is generation of funds by the mechanism provided in the lease and
F it plainly has the effect of borrowing and bringing into play the statutory
mantra also, of commercial effect of borrowing. It works extremely
well for the lessee, in fact, in comparison to how it would have fared,
had it approached the bank or a financial institution. With regard to Section
5(8)(d), the learned Additional Solicitor General also emphasised upon
the word ‘deemed’ to be financial lease with reference to the Indian
G Accounting Standards. It is her case that, in fact, in the accounts of the
appellant, the transaction is reflected as a sale. This assumes significance
as, under the Indian Accounting Standards, the dominant test is, whether,
substantially, the risks and rewards incidental to ownership has been
transferred. There cannot be a more eloquent fulfilment of this requirement
H than the very action of the appellant in treating the transaction as a sale
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 361
ANAND SONBHADRA [K. M. JOSEPH, J.]

in the balance-sheet, and what is more, for the years, much prior to the A
enactment of the IBC. It is submitted that Court may not be oblivious
that the premium under the lease, is, indeed, linked to the market value,
indicating, unerringly, in the direction of a sale. She would make a thinly
veiled threat that if the appellant is to be excluded in the manner from
the Committee of Creditors, there can be possible cancellation of leases
B
being resorted to by the appellant, which may not augur well for the real
estate world. She relied upon Swiss Ribbons Private Limited and
Another v. Union of India and Others2.
SUBMISSIONS OF SHRI RITIN RAI
44. The respondent in Civil Appeal No. 2222/2021 namely the C
resolution professional who appears through Shri Ritin Rai, learned Senior
Counsel would make the following submission.
The case of the appellant that the disbursal can flow in either
direction ignores that what is disbursed is a debt and not its repayment.
The appellant has not parted with any money that is now with the corporate D
debtor. Section 5(8) does not use the word ‘transaction’ and any other
interpretation other than a flow of funds from creditor to the debtor
should not be accepted, and it will lead to absurdity. As far as the case
under Section 5(8)(d) is concerned, it is submitted that the appellant has
not classified in its books of accounts classifying the lease as financial
lease. The classification as operating lease or financial lease is to be E
made from the inception date. Neither at the time of entering into the
lease deed nor subsequently has any classification been made. Under
the Indian Accounting Standards, a Lessee under a capital lease
transaction recognises the lease as an asset in his Balance Sheet and it
is presented as Receivable at an amount equal to net investment. The F
objective of IAS 116 is that both the Lessor and Lessee provides relevant
information. In the case of financial lease, a lessor is required to disclose
in its financial statement selling profits or loss, finance income on the net
investment in the lease, income relatable to variable lease, payment, not
included in the measurement of the net investment of the lease. A pattern
is expected. Lease payment under an operating lease are on the other G
hand on straight line basis or another systematic basis. There is difference
of substance between the two cases. The absence of classification
amounts to non-compliance with mandatory requirement as to standards

2
(2019) 4 SCC 17 H
362 SUPREME COURT REPORTS [2022] 5 S.C.R.

A required under Section 133 of the Companies Act for which a penalty is
provided. The lease in question does not countenance substantially the
transfer of all the rewards. The Lessee in terms of clause 12 of other
clauses is not permitted to assign leasehold interest. Restrictions are put
even on the lessee’s shareholding.The clause relating to mortgage would
B inter alia indicate apart from restriction otherwise that any unearned
increase in the value of the lease premises will be at the disposal of the
appellant.Therefore, the gains would enure to the appellant. There is no
renewal of the lease. Support is drawn otherwise from the order of
NCLAT. Reliance is placed on the following judgment of this Court in
Mohd. Noor and Others v. Mohd. Ibrahim and Others3 :
C
“..The ownership concept does not accord with the status of a
person who is paying the rent. A tenant under various legislations
either urban or rural property, agricultural or otherwise, enjoys
right of heritability and transferability. At the same time, he does
not become owner of the property. Transfer of ownership is distinct
D and different from transfer of interest in the property. A licensee
or even a tenant may be entitled by law to transfer his interest in
the property but that is not a transfer of ownership.”
A lessee’s right to sub-lease comes with certain restrictions.The
appellant continues to be the owner. The reward incidental to ownership
E is not to be read as profit from the commercial practice. The reward has
to be considered as purely emanating from the rights of ownership.
Towards the development, selling and promotion, the appellant has no
role. The word ‘reward’ bears the meaning that which is offered or
given for some service or attainment. Therefore, the rewards cannot be
F said to mean the profit generated from the commercial activities of selling
the units by the Lessee. Land has no economic life. As regards Section
5(8)(f) goes, it is contended that the claim of the appellant in view of the
terms of the lease under which after the initial payment there is a
moratorium and the Lessee is permitted to pay the balance premium in
easy instalments overlooks the fact that a claim under any lease would
G
then be termed as financial debt.Leases are already covered under
Section 5(8)(d). There is no amount raised pursuant to any other
transaction in the present case. The situation in Pioneer (supra) is
distinguishable as no amount is raised from the appellant.
3
H (1994) 5 SCC 562
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 363
ANAND SONBHADRA [K. M. JOSEPH, J.]

SUBMISSIONS OF DR. ABHISHEK MANU SINGHVI A
45. There are concurrent findings of two courts against the
appellants. Findings have been rendered which should dissuade this court
from interfering in the matter. The appellants have understood itself to
be an operational creditor. This is sought to be substantiated with
reference to the submission of the claim initially in form B meant for B
operational creditors except workmen and employee. Subsequently that
it was belatedly an amended claim in form C was found. The appellant
has improved its case at each stage.
46. Before the NCLT it contended it must be treated as a financial
creditor in view of Section 5(8)(d). Finding they will be unable to meet C
the requirements under the Indian Accounting Standards set out in Section
5(8)(d), for the first time in its written submission before the NCLAT the
contention was raised under Section 5(8)(f). The appellant cannot
concurrently claim that the lease deed is covered by a specific provision
relating to financial leases contained in Section 5(8)(d) and also under
Section 5(8)(f) which is a general provision. The dues to the appellant D
qualify as statutory dues. Reliance is placed on Section 12 of the UPIAD
which makes Section 40 of the U.P. Act. 1973 applicable.
47. Appellant under UPIAD is not permitted to carry out any
activity which is of a financial nature and consequently any dues arising
from disposal of land which are in the discharge of statutory duties, must E
be considered as statutory dues. In fact, NOIDA has been treated in a
better manner than afinancial creditor, having been given 41% share of
its admitted claim.
48. It is contended that the risks and rewards incidental to
ownership have not been transferred the leases not a finance lease. F
There has been no disbursement under the lease deed within the meaning
of Section 5(8). The repercussions of NOIDA being declared as a
financial creditor would be to frustrate the CIRP of the real estate
corporate debtor. Having regard to its position as a public authority and
the nature and transactions commercial wisdom of NOIDA would in G
fact compel the appellant to vote against all resolution plans proposed.
Thehome buyers will be most adversely affected. Shri Devashish
Bharuka, appearing for the flat owners contended that the flat owners
have a heritable and transferable right under Section 5 and 7 of the U.P.
Apartments Flat Owners Act, 2010.
H
364 SUPREME COURT REPORTS [2022] 5 S.C.R.

A THE IMPORTANCE OF BEING A FINANCIAL
CREDITOR UNDER THE IBC
49. In this context, it is undoubtedly true that in the scheme of the
IBC, Section 21 of the IBC contemplates the constitution of the Committee
of Creditors. The Committee of Creditors is to consist of all financial
B creditors of the corporate debtor. It is the Committee of Creditors, which
has power to appoint and replace the Interim Resolution Professional as
the Resolution Professional. Under Section 27 of the IBC, the Committee
of Creditors, which would consist of only the financial creditors, would
have the right to replace a Resolution Professional. Under Section 28,
the approval of the Committee of Creditors is mandatory in respect of
C
various powers which need to be exercised by the Resolution Professional.
Central to the IBC, and what would, in fact, constitute its very soul, is
the idea of resurrecting an ailing corporate debtor. The means,
contemplated, is the submission, consideration and approval of Resolution
Plans to be given by Resolution Applicants. Here again, Section 30
D contemplates that the Resolution Plan is to be initially scrutinised by the
Resolution Professional, who is to present the Resolution Plan, which
conforms to Section 30(2), to the Committee of Creditors. The Committee
of Creditors may approve the Resolution Plan in the manner provided in
Section 30(4). Regulation 38 of the Insolvency Bankruptcy Board of
India (Insolvency Resolution Process for Corporate Persons) Regulations,
E
2016, no doubt, provides for the mandatory contents of the Resolution
Plan, which may be approved. The Plan must include the submission as
to how the interests of stakeholders, including financial creditors and
operational creditors, are to be dealt with. Regulation 38(1), inter alia in
fact, contemplates that the Resolution Plan must provide that the amount
F payable to the operational creditors shall be paid in priority over the
financial creditors.
50. It is true that, in a given case, it may appear that the interests
of operational creditors have been best looked after in the circumstances
under a particular approved Resolution Plan. In fact, this is also one of
G the contentions of the respondents, who would point out that the appellants
interests have been adequately and fairly addressed in the Resolution
Plan. However, what is pointed out is that, as a matter of principle, it
isvital, both from the point of view of the interest and rights of the appellant
and also the object of the IBC itself, that the appellant must be treated
as a financial creditor. By being a Member of the Committee of Creditors,
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 365
ANAND SONBHADRA [K. M. JOSEPH, J.]

the appellant would have the right to place its perspective. It would have A
the opportunity to persuade the other Members of the Committee of
Creditors to either accept or reject or modify a Resolution Plan. The
corporate debtor slipping into liquidation, is a matter, which would,
undoubtedly, impact the appellant in a considerable manner. None of these
aspects have been borne in mind by the NCLAT, it is complained of.
B
CERTAIN MISCELLANEOUS OBJECTIONS
51. The argument of the respondent/intervenor that if the appellant
is recognised as a financial creditor, since it claims itself to be a public
authority and it holds the property as a trustee, it will not agree to any
hair cut proposed by any resolution applicant does not appeal to us. The C
provisions in question cannot be construed on the basis of a prophecy of
how a financial creditor will behave in its capacity as financial creditor.
If the appellant falls within the ambit of the financial creditor as defined
in Section 5(8), then as to how it will conduct itself being a public authority
cannot be a relevant factor. Equally unimpressive is the argument that
D
the appellant would have the largest claim in most real estate resolutions
where it is a lessor and would therefore have the largest vote share in
the committee of creditors and consequently have a domineering role in
deciding on the fate of any resolution plan. If the appellant falls within
the scope of the financial creditor, then none of these aspects can weigh
with the court. Apparently, the respondent/intervenor represent the E
interests of flat owners. It is undoubtedly true that being financial creditor
who perhaps fall under a particular class, they have their own interests
to espouse. But if the appellant is actually a financial creditor, then the
mere fact that the interest of the appellant clashes with that of the rest
of the body of financial creditors cannot detract from the court holding
F
the appellant a financial creditor if otherwise it establishes the case that
it is a financial creditor. We cannot overlook the fact that large sums of
money form the subject matter of the debt claimed by the appellant as
due to it. There can be no objection to the appellant setting up the claim
to be a financial debt and succeeding on the strength of the provisions
entitling it to be so treated and therefore, the court should not hesitate to G
recognize the appellant as financial creditor if it is one. The contention
also that the appellant would be more interested in realizing the greater
value of its assets and would allow the corporate debtor to descend into
liquidation and would not allow any resolution plan to pass muster are all
arguments which we must only mention before it is rejected as it seeks
H
366 SUPREME COURT REPORTS [2022] 5 S.C.R.

A to deflect usfrom proper understanding of the relevant provisions with
the aid of the lease and other apposite inputs.
SECTION 5 (8) OF THE IBC: WHETHER SECTION 5(8)
OF IBC ITSELF SUFFICES TO EMBRACE THE LEASE IN
QUESTION?
B 52. Out of deference to submissions addressed by Smt. Madhavi
Diwan, learned Additional Solicitor General, appearing on behalf of
appellant-NOIDA, that appellant would be a financial creditor, even with
reference to Section 5(8), though such a line was not taken by the learned
Solicitor General, who purported to appear for NOIDA in the main matter,
we shall deal with the said submission.
C
53. The essential requirements to attract Section 5(8) are that
there must be a debt along with interest, if any, which is disbursed against
consideration for the time value of money. There can be no dispute that
there is a debt in this case. Even the respondents would contend that it is
actually a debt but an operational debt under Section 5(21). That interest
D is payable in connection with the debt, cannot be disputed, having regard
to the terms of the lease deed. It is another matter that liability to pay
interest is not an essential feature to attract Section 5(8), as held by this
Court in Orator Marketing Private Limited v. Samtex Desinz Private
Limited 4. The next requirement is that there be disbursement.
E Disbursement is an indispensable requirement to constitute a debt, a
financial debt, within the meaning of Section 5(8) and that disbursement
must be from the creditor to debtor. Or is it that, our understanding is
mistaken? Our understanding, in this regard, is sought to be shaken by
the learned Additional Solicitor General by raising the following argument.
It is her case that the requirement of disbursement is fulfilled by the
F payment of ten per cent down payment, which takes place upfront in the
facts of the case before us. Further, it is her case that disbursal can flow
both from the debtor to the creditor and the other way also. Myriad
methods of availing financial facilities can render the flow of funds in
either direction. It need not be unidirectional. It is, in this regard, that the
meaning of the word ‘transaction’, as defined in Section 3(33), is invoked.
G Section 3(33) of the IBC reads as follows:
“3(33) “transaction” includes a agreement or arrangement in
writing for the transfer of assets, or funds, goods or services,
from or to the corporate debtor;
4
H 2021 SCC Online SC 513
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 367
ANAND SONBHADRA [K. M. JOSEPH, J.]

54. What is contemplated in the principal provisions of Section A
5(8) is a transaction, she contends. This is as Section 5(8)(f) refers to
‘any other transaction’, and therefrom, the provisions which precede
Section 5(8)(f) would also involve transactions. The Legislature has not
chosen to use a suffix ‘from creditor to debtor’ before the word
‘disbursed’. So long as there is a disbursal against consideration for the
B
time value of money, which is present in the case, and from which, the
debt arises, viz., a liability or an obligation, Section 5(8) stands attracted.
A default, by way of breach by the lessee, gives rise to a cause of action
for breach of contract where the appellant can seek to recover damages
for the lost opportunity in developing the land. The word ‘claim’ includes
a right to remedy for breach of contract, it is pointed out. C
55. The word ‘transaction’, as such, is not used in Section 5(8), as
pointed out by the respondents. Unless there is disbursement of the debt,
Section 5(8) will not apply. We do bear in mind the following exposition
of law in regard to the interplay between the words ‘debt’ and ‘claim’ in
Pioneer (supra): D
“69. It is precisely to do away with judgments such as Raman
Iron Foundry [Union of India v. Raman Iron Foundry, (1974)
2 SCC 231] that “claim” is defined to mean a right to payment or
a right to remedy for breach of contract whether or not such
right is reduced to judgment. What is clear, therefore, is that a E
debt is a liability or obligation in respect of a right to payment,
even if it arises out of breach of contract, which is due from any
person, notwithstanding that there is no adjudication of the said
breach, followed by a judgment or decree or order. The expression
“payment” is again an expression which is elastic enough to include
“recompense”, and includes repayment. For this purpose, see H.P. F
Housing & Urban Development Authority v. Ranjit Singh
Rana [H.P. Housing & Urban Development Authority v. Ranjit
Singh Rana, (2012) 4 SCC 505 : (2012) 2 SCC (Civ) 639] (at
paras 13 and 14 therein), where Webster’s Comprehensive
Dictionary (International Edn.), Vol. 2 and Law Lexicon by P. G
Ramanatha Aiyar (2nd Edn., Reprint) are quoted.”
56. Thus, a debt is a liability or an obligation in respect of a right to
payment. Irrespective of whether there is adjudication of the breach, if
there is a breach of contract, it may give rise to a debt. In the context of
Section 5(8), in Pioneer (supra), disbursement has been understood as H
368 SUPREME COURT REPORTS [2022] 5 S.C.R.

A money, which has been paid. In the context of the transaction involved
in the said case, the homebuyers advanced sums to the builder, who
would then utilise the amount towards the construction in the real estate
project. That there must be a disbursement, was clearly present in the
mind of the Court, is clear from the fact that it has expressly proceeded
on the basis that when the money was paid by the homebuyer to the
B
builder, the amount disbursed was no longer with the homebuyer. The
homebuyer was paying lesser sums by way of installments than he would
have to pay for the ultimate price of the flat/apartment. The Court went
on to hold that the expression ‘borrow’ was wide enough to include the
advance by the homebuyer to the real estate developer for the temporary
C use. Both parties had commercial interests, which was further found.
But what is relevant is to attract Section 5(8), on its plain terms, is
disbursement. While, it may be true that the word ‘transaction’ includes
transfer of assets, funds or goods and services from or to the corporate
debtor, in the context of the principal provisions of Section 5(8) of the
IBC, we are of the view that to import the definition of ‘transaction’ in
D
Section 2(33), involving the need to expand the word ‘disbursement’, to
include a promise to pay money by a debtor to the creditor, will be uncalled
for straining of the provisions. ‘Disbursement’, within the meaning of
Section 5(8), is the payment of money, which flows to the debtor. In the
word ‘claim’, as defined in Section 3(6), right to payment is one of the
E components. The golden thread that runs through the word ‘claim’, is
the right to payment. The right to payment may arise from a Judgement.
It may or may not be fixed. It may be disputed or undisputed. It may be
legal or equitable. It may be secured or unsecured, but what is
indispensable is, there must be a right to payment. Similarly, in cases of
breach of contract, under any law in force, if it gives rise to a right to
F
payment, irrespective of whether it is reduced to a Judgment or fixed or
matured or unmatured, disputed or undisputed, secured or unsecured, as
long as there is a right to payment, a claim arises. When there is a claim
and, in regard to such a claim, there is a liability or obligation, which is
due from any person, it gives rise to a debt. A debt includes a financial
G debt and an operational debt. It is after defining the word ‘debt’ with
reference to the existence of a right to payment in the broadest terms,
as defined in the term ‘claim’ and including the word ‘financial debt’
within the expression ‘debt’, the word financial debt, in turn, is elaborately
defined in Section 5(8). What is relevant for the purpose of Section 5(8),
has been clearly articulated and can be understood with reference to
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 369
ANAND SONBHADRA [K. M. JOSEPH, J.]

what is expressly provided. It is unnecessary to bring in the concept of A
transaction, as defined in Section 2(33), for appreciating its scope. A
perusal of definition of the word ‘debt’, no doubt, reveals that it is closely
intertwined with the definition of the word ‘claim’ in Section 3(6). The
word ‘transaction’ is conspicuous by its absence inthe definition of both
the word ‘claim’ and the word ‘debt’. We do hold that ‘debt’ means a
B
liability or obligation, which relates to a claim. The claim or right to
payment or remedy for breach of contract occasioning a right to payment
must be due from any person. Now, if it is due from any person, it must
be due to someone who would then be the creditor. Section 5(7) defines
‘financial creditor’ as person to whom a financial debt is due besides an
assignee or transferee from such person. While it may be true that there C
would be the brooding omnipresence of a transaction, as defined,
underlying a debt and claim as defined, it would be unnecessary and
unreasonable to import in the concept of transfer of funds, from or to a
corporate debtor, to glean the meaning of disbursement in Section 5(8),
at least, in the facts of the instant case. In other words, while the word
D
‘transaction’ does contemplate a transfer of fund, inter alia, to a corporate
debtor, it is unnecessary to explore the converse situation projected by
the learned Additional Solicitor General, for understanding the scope of
the word ‘financial debt’, as contained in Section 5(8), viz., the principal
provision. As to the employment of the word ‘transaction’ in the various
clauses of Section 5(8) and the true scope of Section 5(8)(f), it is a E
matter, which will be discussed separately. We are of the view that, in
the lease in question, there has been no disbursement of any debt (loan)
or any sums by the appellant to the lessee. The appellant would, therefore,
not be a financial creditor within the ambit of Section 5(8).
SECTION 5(8)(D): WHETHER THE APPELLANT IS A F
FINANCIAL LESSOR
57. The IBC was enacted in the year 2016. It is interesting to
note that the word ‘financial lease’ has been defined in the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 by insertion of
Section 2 (ha). This insertion was effected by Act 44 of 2016. It reads G
as follows:
“2(ha) “financial lease” means a lease under a lease agreement
of tangible asset, other than negotiable instrument or negotiable
document, for transfer of lessor’s right therein to the lessee for a
certain time in consideration of payment of agreed amount H
370 SUPREME COURT REPORTS [2022] 5 S.C.R.

A periodically and where lessee becomes the owner of the such
assets at the expiry of the term of lease or on payment of the
agreed residual amount, as the case may be.”
Section 2 (ma) of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 which is also
B inserted by Act 44 of 2016 w.e.f. 1.9.2016 defines the word ‘financial
lease’ identically to Section 2(ha) in the Recovery of Debts Due to Banks
and financial Institutions Act, 1993. We notice this for the reason that
the same law giver has enacted Section 5(8) defining financial debt in
the IBC including a lease which is a financial lease in a manner which is
different in scope from the words ‘financial lease’ as defined in the
C aforesaid two enactments. In the definition of ‘financial lease’ in the
two Acts which we have adverted to, the conventional concept of a
‘financial lease’ inevitably and indispensably involving the transformation
of a lessee into the owner of the assets when the lease ends, is essentially
captured whereas for purpose of IBC, Parliament has set out the definition
D which we will recapitulate here
Section 5(8)(d)- “the amount of any liability in respect of any
lease or hire purchasecontract which is deemed as a finance or
capital lease under the Indian AccountingStandards or such other
accounting standards as may be prescribed;”
E 58. The concept of a financial lease has engaged the attention of
this court in a decision which has been applied by the NCLAT.
In Asea Brown Boveri Ltd. v. Industrial Finance Corporation
of India and Others 5 the appellant entered into a lease and finance
agreement with the third respondent therein under which the subject
F matter of the lease was 57 cars. The third respondent became a notified
party under a law under which the special court found that the transaction
was only a lease and nota finance lease. In this context this court went
on to hold as follows:
“13. What is a lease finance? According to Dictionary of
G Accounting & Finance by R. Brockington (Pitman Publishing,
Universal Book Traders, 1996 at p. 136):
“A finance lease is one where the lessee uses the asset for
substantially the whole of its useful life and the lease payments

5
H (2004) 12 SCC 570
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 371
ANAND SONBHADRA [K. M. JOSEPH, J.]

are calculated to cover the full cost together with interest A
charges. It is thus a disguised way of purchasing the asset
with the help of a loan. SSAP 23 required that assets held under
a finance lease be treated on the balance sheet in the same way, as
if they had been purchased and a loan had been taken out to
enable this.”
B
(emphasis supplied)
14. In Lease Financing & Hire Purchase by Dr. J.C. Verma
(4th Edn., 1999 at p. 33), financial lease has been so defined:
“Financial lease is a long-term lease on fixed assets, it may not be
cancelled by either party. It is a source of long-term funds C
and serves as an alternative of long-term debt financing. In
financial lease, the leasing company buys the equipment and leases
it out to the use of a person known as the lessee. It is a full payout
lease involving obligatory payment by the lessee to the lessor that
exceeds the purchase price of the leased property and finance D
cost.
Financial lease has been defined by International Accounting
Standards Committee as ‘a lease that transfers substantially all
the risks and rewards incident to ownership of an asset. Title may
or may not eventually be transferred’. Lessor is only a financier E
and is not interested in the assets. This is the reason that financial
lease is known as full payout lease where contract is irrevocable
for the primary lease period and the rentals payable during which
period are supposed to be adequate to recover the total investment
in the asset made by the lessor.”
F
(emphasis supplied)
16. In our opinion, financial lease is a transaction current in the
commercial world, the primary purpose whereof is the financing
of the purchase by the financier. The purchase of assets or
equipments or machinery is by the borrower. For all practical
G
purposes, the borrower becomes the owner of the property
inasmuch as it is the borrower who chooses the property to be
purchased, takes delivery, enjoys the use and occupation of the
property, bears the wear and tear, maintains and operates the
machinery/equipment, undertakes indemnity and agrees to bear
the risk of loss or damage, if any. He is the one who gets the H
372 SUPREME COURT REPORTS [2022] 5 S.C.R.

A property insured. He remains liable for payment of taxes and other
charges and indemnity. He cannot recover from the lessor, any of
the abovementioned expenses. The period of lease extends over
and covers the entire life of the property for which it may remain
useful divided either into one term or divided into two terms with
clause for renewal. In either case, the lease is non-cancellable.”
B
59. We shall take up Section 5(8)(d) of the IBC. The subject
matter of Section 5(8)(d) is a lease or a hire-purchase contract. The
matter does not end there. In other words, it is not any lease or a hire-
purchase contract, which would entitle the lessor to be treated as the
financial creditor. There must be a lease or hire-purchase contract, which
C
is deemed as a finance or capital lease. The Law Giver has not left the
courts free to place, its interpretation on the words ‘finance or capital
lease’. The Legislature has contemplated the finance or a capital lease,
which is deemed as such a lease under the Indian Accounting Standards.
It could also be deemed as a financial or a capital lease under any other
D accounting standards as may be prescribed. The word ‘prescribed’ has
been defined in Section 3(26) as meaning prescribed under Rules made
by the Central Government. There is no case for the appellant that Central
Government has made any Rules providing for other accounting standards
under Section 5(8)(d) of the IBC.In Section 5(8)(d), it is necessary to
notice the opening words of the provision, viz., ‘the amount of any liability
E
in respect of’. The Law Giver, in other words, has contemplated that
should there be any liability arising out of a lease or hire-purchase, which
is deemed as a finance or a capital lease in terms of the Indian Accounting
Standards,then, the person, who has incurred the liability, would become
the debtor and the person, in respect of whom, the liability has been
F incurred, would become the financial creditor.
60. Much emphasis was laid by the appellant on the word ‘deemed’
in Section 5(8)(d). One would have expected that on turning to the Indian
Accounting Standards, there would be a provision providing for a deemed
finance or capital lease. The inquiry in this direction, however, did leave
G us with failure and even disillusionment. We found that there is no
provision, which articulates a deeming provision, as such, providing for a
lease or a hire-purchase contract, which is deemed as a finance or capital
lease. The word ‘deemed’ is used as a verb. It is a legislative devise by
way of a fiction. In other words, the provision requires the Court to
imagine a state of affairs as true. The province of a deeming provision is
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 373
ANAND SONBHADRA [K. M. JOSEPH, J.]

the subject matter of a large body of case law. Suffice it to notice the A
following paragraphs from Aneeta Hada v. Godfather Travels and
Tours Private Limited6:
“34.Lord Asquith, in East End Dwellings Co. Ltd. v. Finsbury
Borough Council [1952 AC 109 : (1951) 2 All ER 587 (HL)] ,
had expressed his opinion as follows : (AC pp. 132-33) B

“If you are bidden to treat an imaginary state of affairs as real,
you must surely, unless prohibited from doing so, also imagine as
real the consequences and incidents which, if the putative state of
affairs had in fact existed, must inevitably have flowed from or
accompanied it. … The statute says that you must imagine a certain C
state of affairs; it does not say that having done so, you must
cause or permit your imagination to boggle when it comes to the
inevitable corollaries of that state of affairs.”
38. From the aforesaid pronouncements, the principle that can be
culled out is that it is the bounden duty of the court to ascertain for D
what purpose the legal fiction has been created. It is also the duty
of the court to imagine the fiction with all real consequences and
instances unless prohibited from doing so. That apart, the use of
the term “deemed” has to be read in its context and further, the
fullest logical purpose and import are to be understood. It is because E
in modern legislation, the term “deemed” has been used for
manifold purposes. The object of the legislature has to be kept in
mind.”
61. It is apposite, at this juncture, to advert to the Indian Accounting
Standards relevant to our inquiry. F
62. The Rules, which are relevant in regard to the specification of
a lease as a financial lease are set down as Rules 61 to 67 of Indian
Accounting Standards [for short “IAS”]. They have been made under
Section 133 of the Companies Act, 2018.
G
“Classification of leases (paragraphs B53–B58)
61 A lessor shall classify each of its leases as either an operating
lease or a finance lease.

6
2012 (5) SCC 661 H
374 SUPREME COURT REPORTS [2022] 5 S.C.R.

A 62 A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership of an underlying
asset. A lease is classified as an operating lease if it does not
transfer substantially all the risks and rewards incidental to
ownership of an underlying asset.
B 63 Whether a lease is a finance lease or an operating lease depends
on the substance of the transaction rather than the form of the
contract. Examples of situations that individually or in combination
would normally lead to a lease being classified as a finance lease
are:
C (a) the lease transfers ownership of the underlying asset to the
lessee by the end of the lease term;
(b) the lessee has the option to purchase the underlying asset
at a price that is expected to be sufficiently lower than the fair
value at the date the option becomes exercisable for it to be
D reasonably certain, at the inception date, that the option will be
exercised;
(c) the lease term is for the major part of the economic life of
the underlying asset even if title is not transferred;
(d) at the inception date, the present value of the lease payments
E amounts to at least substantially all of the fair value of the
underlying asset; and
(e) the underlying asset is of such a specialised nature that
only the lessee can use it without major modifications.
64 Indicators of situations that individually or in combination could
F
also lead to a lease being classified as a finance lease are:
(a) if the lessee can cancel the lease, the lessor’s losses
associated with the cancellation are borne by the lessee;
(b) gains or losses from the fluctuation in the fair value of the
G residual accrue to the lessee (for example, in the form of a
rent rebate equaling most of the sales proceeds at the end of
the lease); and
(c) the lessee has the ability to continue the lease for a
secondary period at a rent that is substantially lower than market
H rent.
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 375
ANAND SONBHADRA [K. M. JOSEPH, J.]

65 The examples and indicators in paragraphs 63–64 are not always A
conclusive. If it is clear from other features that the lease does
not transfer substantially all the risks and rewards incidental to
ownership of an underlying asset, the lease is classified as an
operating lease. For example, this may be the case if ownership
of the underlying asset transfers at the end of the lease for a
B
variable payment equal to its then fair value, or if there are variable
lease payments, as a result of which the lessor does not transfer
substantially all such risks and rewards.
66 Lease classification is made at the inception date and is
reassessed only if there is a lease modification. Changes in
estimates (for example, changes in estimates of the economic life C
or of the residual value of the underlying asset), or changes in
circumstances (for example, default by the lessee), do not give
rise to a new classification of a lease for accounting purposes.
Finance leases
D
Recognition and measurement
67 At the commencement date, a lessor shall recognise assets
held under a finance lease in its balance sheet and present them
as a receivable at an amount equal to the net investment in the
lease.” E
63. The analysis of the said criteria in the context of the lease in
question, would yield the following results. Under Rule 61, the lessor is
obliged to classify each of its leases as an operating lease or a finance
lease. In Civil Appeal No. 2222 of 2021, there is no case for the appellant-
NOIDA, that it has been classified as finance lease. As far as the other F
Civil Appeal filed by the very same Authority, i.e., NOIDA is concerned,
Smt. Madhavi Diwan, sought to contend that, while it is not shown as a
finance lease as such, the transaction is characterised as a sale in the
balance sheet.
64. Rule 62, the sheet anchor of the appellant, declares that a
G
lease is classified as a financial lease if it transfers, substantially, all the
risks and rewards incidental to ownership of an underlying asset. Moving
on to Rule 63, it undoubtedly, declares that what matters is not the form
but the substance. Thereafter, under the examples of situations, either
individually or in combination, which would lead to a lease being classified
as a finance lease, certain situations have been depicted. As far as the H
376 SUPREME COURT REPORTS [2022] 5 S.C.R.

A first situation is concerned, it would involve a lease, where, there is a
transfer of ownership of an underlying asset to the lessee by the end of
the lease term. There is no case for the appellants that the lease
contemplates transfer of ownership of the underlying asset. The
underlying asset is the land.In fact, the case of the appellant would appear
to be also that there is no transfer of ownership because by the end of
B
lease term third party rights would have been created over the dwelling
unit/ built up space/ plot constructed by the Lessee. It is also the further
case set up that the Lessee alone brings third parties on to the property
and gets paid by such parties.
It will be relevant to notice that the so called third parties do not
C get ownership rights as such. The rights are transferred in favour of the
allotees of dwelling units /built up space/ plot only by way of a sub-lease.
Therefore, there is no transfer of the ownership of the underlying asset
by the end of the lease term.Under the next situation considered relevant
under the Indian Accounting Standards, is the granting of an option to
D the lessee to purchase the underlying asset at a price, which is expected
to be sufficiently lower than the fair value at the date of option becoming
exercisable for it to be reasonably certain at the inception date, that the
option will be exercised. The underlying asset is the plot.
65. From the Table presented before the NCLAT by the appellant,
E we find that appellant appears to have taken the stand that the lease rent
is paid for the leasing of the land and the premium is paid for the rights to
develop and construct the buildings on the lease land. Therefore, the
underlying asset is not just a land but the right to develop or construct a
building.

F 66. A lease of immovable property is defined in Section 105 of the
Transfer of Property Act, inter alia, as a transfer of a right to enjoy
such property. The property, which is leased, under the lease is the plot
of land. Section 105 speaks about the terms on which the lease takes
place. The right to enjoy the leased property and the terms, on which it
is to be enjoyed, must be distinguished from the property, which is the
G subject matter of lease. The subject matter of the lease is such property.
It is such property, viz., immovable property, in the case of a lease of an
immovable property, which can be treated as the underlying asset, for
the purpose of the Rules made under Section 133 of the Companies Act,
2013. The contention of the appellant that the underlying asset is also
H the right to develop or construct a building on the leased land, does not
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 377
ANAND SONBHADRA [K. M. JOSEPH, J.]

appear to be tenable. The very contention contains an irreconcilable A
contradiction. On the one hand, the land is correctly described as the
leased land. The right to develop or construct a building on the leased
land, cannot be treated as the underlying asset. In fact, there is no case
that the buildings that are put up on the leased land, would also constitute
part of the underlying asset. We may firstly notice that there is no option
B
to purchase ‘the right to develop or construct the building’. This itself
suffices to expose the fallacy that the right to develop or construct the
building is also part of the underlying asset.
67. At any rate there is no right within the meaning of criteria with
the Lessee to purchase the asset. This criterion is also not fulfilled as
there is no option to purchase at all that is vested with the lessee. C

68. The third criteria in Rule 63 is, where the lease term is for the
major part of the economic life of the underlying asset, even if the title is
not transferred. The definition of ‘economic life’, as provided in Indian
Accounting Standards (hereinafter referred to as ‘the IAS’, for short)
17, reads as under: D

“Economic life is either:
(a) the period over which an asset is expected to be economically
usable by one or more users; or
(b) the number of production or similar units expected to be E
obtained from the asset by one or more users.”
(Emphasis supplied)
The lease in question is for a period of ninety years.In regard to
land, the underlying asset, ‘the principle of economic life of underlying
F
asset’, is inapposite. The economic life of land is not limited. The principle
in the said situation is predicated with reference to measuring the
economic life of an asset. More importantly, it speaks of the major part
of the economic life of the asset. Both these concepts are inapposite
and even inapplicable with regard to land. Land does not depreciate
with the passage of time. Ordinarily, the price of land would only increase, G
unlike other assets.
69. The argument of the appellant is that on the construction being
completed the lease land shall be of no value to the lessor and the third
party right being created, results in the economic life and the value of
the asset being exhausted. We find no merit in this argument having H
378 SUPREME COURT REPORTS [2022] 5 S.C.R.

A regard to the fact that the underlying asset is the land.There is another
important reason which we must set out here. A sub- lease has been
produced before this Court in C.A.No.2369 of 2021. Originally it was
referred to in the course of argument by Shri Devashish Bharuka.
However, it has subsequently been filed under an affidavit on behalf of
Respondent No..1 in C.A.No.2367-2369 of 2021. The sub-lease, no doubt,
B
is entered into between the appellant as Lessor and one M/s. Cloud 9
Projects Pvt. Ltd., the Lessee in the said lease and the sub-lessee. The
sub-lease dated 12.11.2018 would show that the land admeasuring 40087
sq.mtr. bearing Plot NO.GH-02 was the subject matter of the lease.
The lease was, as in the facts of this case, for a period of 90 years. The
C lease was entered into with the lessee in the said case on 17.06.2009.
70. It is indicated in the sub-lease that the lessee has the right to
allot to its applicants, the dwelling units including the undivided
proportionate share in the land, inter-alia. It is further provided that the
sub-lessee will observe the covenants, terms and conditions, laid down
D in the original lease. Thereafter, it is provided that in consideration of the
amount paid, which included the cost of super structure and the undivided
proportionate share in the land underneath the building paid by the sub-
lessee to the lessee the lessee sells, transfers, and conveys to the sub-
lessee the dwelling unit with proportionate right, inter-alia, in the land
underneath the building. It is next provided that the lessee simultaneously
E sub-leases to the sub-lessee for the unexpired period of ninety years
lease, the undivided unidentified title to the land proportionate to the area
allotted to the sub-lessee in relation to the total area subject to various
terms and conditions. In Condition 6, it is mentioned inter-alia that the
sub-lessee shall get exclusive possession of the built-up covered area of
F the dwelling unit, and is being transferred the title of the same along with
the right over the land, through the sub-lease. The lessee and the sub-
lessee are to perform the covenants and conditions in the lease deed
between the lessee and the lessor as applicable in relation to the land
and the unit being leased under these present. The sub-lessee cannot
mortgage the dwelling unit to secure ‘any loan’ at any stage except with
G the prior permission of the lessor. Sub lessee is to also obtain an
appropriate NOC from the lessee/lessor, in this regard. The sub-lessee
can use the dwelling unit only for residential purposes and for no other
purpose. The right of the sub-lessee is made subject to the provisions of
the UP Act of 2010. It is thereafter that condition 21 deals with what is
H to happen on the expiry of the lease of the land. It reads as follows:
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 379
ANAND SONBHADRA [K. M. JOSEPH, J.]

“21. That the Lessee /Sub-Lessee shall on the expiry of the lease A
of the land, peacefully hand over the said land unto the Lessor
after removing the superstructure, within the stipulated period.
The share in the undivided proportionate land hereby sub-leased,
shall always remain un-divisible and unidentified. Similarly, the
Sub-Lessee shall have the right of usage of common areas and
B
will not have any independent right of possession of the same.
It is further provided in condition 24 that the terms and conditions
of the parent lease deed, inter-alia, shall be binding on the parties after
execution of the sub-lease. Condition 27 provides that in case of any
breach of the terms and conditions of the sub-lease by the lessee/sub-
C
lessee, the lessor will have the right to re-enter the demised dwelling
unit, after determining the sub lease. It is further provided that at the
time of re-entry of demised dwelling unit, the lessor may re-allot the
same to any other person. All the clauses of the parent lease deed are
made applicable and they are to prevail in case of any repugnancy
between them and the sub-lease. D
71. A perusal of the same would reveal that in keeping with the
lease deed and the provisions of Section 9 of the U.P. Apartment Owners
Act, it is that the sub-lease deed is executed. The sub-lessee or the
allottee pays the cost of the structure and the undivided proportionate
interest in the land. The transfer to him is described as a sale and E
conveyance. There is simultaneous sub-lease also in regard to the
unidentified title to the proportionate land. The sub-lease appears to effect
a sale of the dwelling unit. However, certain conditions appear to militate
against an absolute transfer. They include the condition that the sub-
lessee cannot mortgage the dwelling unit for securing any loan at any
F
stage except with prior written permission of the lessor. The use of the
dwelling unit being limited to residential purpose is perhaps another feature
which is unique. The power of the lessor to re-enter the dwelling unit,
which is described in condition 27 as the ‘demised’ dwelling unit, after
determining the sub-lease and also the power to re-allot the same to any
person are clearly inconsistent with a completed sale. This is apart from G
condition 21 which we had extracted which obliges the sub-lessee on
the expiry of the lease of the land to deliver to the lessor the land, after
removing the super structure within the stipulated time. It will be noticed
further, that the rent and the premium which is the amount claimed by
the appellant has no relation with what the lessee would get from the
H
380 SUPREME COURT REPORTS [2022] 5 S.C.R.

A sub-lessee. There is no such case that the amount which is claimed
relates to any default by the sub-lessee.
72. The underlying asset in the lease is no doubt the plot of land.
The terms contemplate construction of residential flats over the plot by
the lessee. The lessee can subject to the lease transfer the built-up flats.
B The transfer is secured through a sub- lease. The transferor in the sub-
lease of the dwelling unit is the lessee in regard to which the sub-lease
appears to evidence the sale. We have noticed the features in terms of
the conditions. If the built-up area/flats is to be treated as part of the
underlying asset then the appellant would be the lessor of the flat.
However, going by the terms of the lease and the sub-lease, the flat is
C
entirely constructed by the lessee and it is the lessee who transfers the
same to the sub-lessee, and gets the entire consideration. The title flows
from the lessee to the sub-lessee. The subject matter of the sub-lease is
the dwelling unit as also the undivided right in the land. The question is
whether on the basis of Section 5(8)(d), under the lease, what is the
D underlying asset as between the appellant and the corporate debtor?
Though the flats to be constructed are contemplated in the lease, it is not
the same as understanding them as the subject matter of the lease. The
flats would be the subject matter of the sub-lease. No doubt, from the
lease and the sub-lease the right of the lessee or rather its obligation
under the lease is to put up the residential flats which he can transfer in
E
terms of the lease. It may be true that the terms of the lease are made
binding on the sub- lessee. However, as between the lessor and the
lessee, the underlying asset would be the plot of land. From the terms of
the sub lease which is as per the decision of the Lessor (appellant) goes
to show the extent of the control by the Lessor and consequent intrusion
F into the power of the lessee namely, despite power to effect an apparent
sale of the flat the term includes barring the purchaser from mortgaging
the dwelling unit for any loan except with the prior consent of the lessor,
the power of re-entry of the lessor and to re-allot the “sold dwelling
unit” to any other person and the obligation of the lessee/sub lessee to
G surrender the land after demolishing the super structure on the expiry of
the period of lease.
73. The lease before us is stated to be for a period of 90 years.
The lease is intended and structured to attain the objective of putting up
residential structures as part of the planned development of the area.The
constructed area or the flats can be transferred to the allottees by the
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 381
ANAND SONBHADRA [K. M. JOSEPH, J.]

Lessee on the strength of tripartite sub-leases. This is borne out by the A
terms of the sub-lease produced before this court. This is also clear
from the provisions of the clause before us which contemplate the
execution of a sub-lease. There is no provision for renewal. The parties
have clearly contemplated that the terms of the sub-lease will be in the
form and format as provided by the Lessor (appellant). It is accordingly
B
that the clause in the lease actually contemplates inter aliathat the
construction be completed within 7 years from the date of execution of
the lease deed with a maximum extension of another 3 years with penalty.
Ordinarily, there would be no further extension. Therefore, the
construction can be used till the expiry of the 90 years period by the sub-
lessee and the terms of the lease and sub-lease would clearly indicate C
that at the end of 90 years, far from any enlargement of the rights of the
sub-lessee, the sub-lessee is to deliver back the land directly to the Lessor
after removing the superstructure. It is another matter that with the
passage of a long period of time, the superstructure itself may be in
astate of disrepair. However, what is relevant is that the concept of
D
economic life is ill-suited to the facts as the lease is in respect of land
which is to be taken as the underlying asset. It may not be possible to
hold that the lease is for the major part of the economic life of land.It
cannot be said that at the expiry of 90 years the land will cease to be
economically usable. Therefore, we cannot accept the argument of the
appellant that after 90 years appellant would not getthe empty parcel of E
land and the land would not be of any commercial use to the appellant
after the expiry of the lease. The argument that the land will be of no
value to the lessor, has no force, having regard to the nature of underlying
asset, namely, land which indeed ordinarily would have perennial value.
In clause 12 under other clauses, it is provided that lessee shall not be
F
allowed to assign or change his role. Any breach would lead to
cancellation and entire money deposited will be forfeited. Though the
words used are the lessee cannot assign or change his ‘role’, it would in
substance mean that it is a contract to the contrary within the meaning
of Section 108 of the Transfer of Property Act. The position would indeed
be that the lessee cannot assign his right.We must at this juncture notice G
under the heading ‘Transfer of Plot” that the lease does contemplate
that upto 30.09.2010, the lessee has a right to sub-divide the allotted plot
into suitable smaller plots as per the planning norms and to transfer the
same to the interested parties with prior approval of the lessor on payment
of transfer charges. However, the area of the sub-divided plot cannot be
H
382 SUPREME COURT REPORTS [2022] 5 S.C.R.

A less than 20,000 sq. meters. We would notice that the leasehold plot in
the case is only 22565.77 sq.meters. We would understand the scope of
the said provision as right given to the lessee, no doubt, to transfer the
allotted plot after sub-division into smaller plots and to transfer the plots
so sub-divided.This is subject to two conditions. This is permitted only
for a period of two months from the date of execution of the agreement
B
namely till 30.09.2010. This can be only done if the lessor permits it by
prior approval. More importantly, the sub-plots which can be so
transferred, cannot be less than 20000 sq. meters. As we have noticed
this will appear to be a standard clause and we have noticed that the
lease in the case of M/s Cloud 9 which we have adverted to, consisted
C of about 40000 square meters. We do note that the lease deed in civil
appeal no. 2367-69 of 2021 is for a plot of 69998.73 square metres.
Also, therein the minimum size of the sub divided plot is not less than
10,000 square metres. But the other conditions including prior approval
remains the same.Further provisions under the heading ‘transfer of plot’
D deal with only cases of individual flat/plot being transferrable subject to
the various conditions, the most pertinent being that it contemplates
essentially a sub-lease. We do not think that we can permit the matter to
be appreciated on the basis of the situation contemplated in a case where
under the lease within 2 months on a sub-division of the plot assignment
takes place of the plot without the construction and without obtaining the
E completion certificate. In fact, no argument was advanced based on the
said provision. The claim relates to rental and premium on the basis that
the lease continued and the lessee (corporate debtor) persevered in the
lease.
74. The underlying principle appears to be that even if it is by way
F of a lease, the rights are vested with the lessee, for the lion’s share of
the economic life or the value of the underlying asset, then, substantially,
the lessee is enjoying the rights as an owner it is in this context that the
principle is laid down that the transfer of title is not necessary. In other
words, sans transfer of title, the lessee enjoys the asset for the fruitful
G period of the life of the asset. At the end of the major part of the economic
life of an underlying asset, the life of which is limited by time, the asset
would be mostly depreciated, if not, without any value. Such a situation
can never apply, in the case of land.
75. The fourth example of the situation, whereunder a lease is to
be classified as a financial lease, is, if at the inception date, the present
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 383
ANAND SONBHADRA [K. M. JOSEPH, J.]

value of the lease payments, amounts to at least substantially all of the A
fair value of the underlying asset. ‘Fair Value’ is defined in the IAS, as
follows:
“Fair value is the amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in an
arm’s length transaction.” B
76. Inception date is different from the commencement of lease
as ordinarily understood under the IAS. Inception date has been defined
in the IAS, as follows:
“The inception of the lease is the earlier of the date of the lease
agreement and the date of commitment by the parties to the C
principal provisions of the lease. As at this date: (a) a lease is
classified as either an operating or a finance lease; and (b) in the
case of a finance lease, the amounts to be recognised at the
commencement of the lease term are determined.”
77. In fact, there is no such classification done by the appellant. D
Even as on the commencement day, what is paid by the lessee, is only
ten percent of the total premium.There is neither a transfer of ownership,
at the end of the lease term. There is also no option to purchase with the
lessee.The payment of ten percent of the premium, in the first place,
does not represent substantially all of the fair value of the underlying E
asset. The lease is for a period of ninety years. At the end of ninety
years, there is, in fact, no provision for renewal of the lease. The amount
of the premium paid cannot be linked with the fair value of the land. The
relationship between the appellant and the lessee, was to remain
throughout as lessor and lessee. It may not be possible to even find that
the total premium and the rent would represent substantially all of fair F
value of the underlying asset.
78. The fifth example in Rule 63 is clearly inapplicable as it is not
the appellant’s case that the underlying asset is of such a specialised
nature that the lessee could only use it without major modification.
Therefore, as far as Rule 63 is concerned, to sum-up, none of the situations G
mentioned in Rule 63 are present in the instant lease.
79. Rule 64 continues with situations, which, individually or in
combination, would also lead to a lease being classified as a finance
lease. The first situation is power reserved with the lessee to cancel the
lease and the lessor’s losses associated with the cancellation being borne H
384 SUPREME COURT REPORTS [2022] 5 S.C.R.

A by the lessee. This example also does not apply for the simple reason
that lease does not confer even the power to cancel the lease on the
lessee. On the other hand, by stark contrast, the lessor is abundantly
clothed in various contexts to cancel the lease.
80. The second situation in Rule 64 is, when the gains or losses
B from the fluctuation in the fair value of the residual accrue to the lessee.
The specific example, which is given in the said situation is a case of a
rent rebate, equalling most of the sale proceeds at the end of the lease.
The example clearly has the underpinning of an ultimate sale at the end
of the lease. In other words, a finance lease posits ordinarily a lease to
begin with and a sale, when the curtains are finally wrung down. We
C have already noticed that no sale of the underlying asset is contemplated.
The lease is for a period of ninety years. The expression ‘residual value’
is also defined. It reads as follows:
“The residual value of an asset is the estimated amount that an
entity would currently obtain from disposal of the asset, after
D deducting the estimated costs of disposal, if the asset were already
of the age and in the condition expected at the end of its useful
life.”
Residual value is predicated with reference to the end of the useful
life of an asset. Useful life is, inter alia, the period over which an asset
E is expected to be available for use by an entity. The ‘end’ of useful life
is hard to conceive in respect of land. Also, nothing is shown to establish
how the ingredients are attracted.
81. The last example in Rule 64 is the ability of the lessee to
continue for a secondary period at a rent that is substantially lower than
F the market rent. As far the lease in question is concerned, the period of
the lease is ninety years. The lease, as such, does not contemplate a
renewal of the lease. No secondary period is contemplated.
82. Rule 65 goes on to declare that the examples and indicators in
Rules 63 and 64 are not always conclusive. Though the learned Solicitor
G General seized upon this enunciation, the very next sentence would belie
the possibility of any expectation on the basis of the aforesaid declaration.
What is stated is that even despite the presence of the examples and
indicators in Rules 63 and 64, if other features of the lease do not persuade
the Court to conclude that the lease transfers substantially all the risks
and rewards incidental to ownership, it is to be classified as an operating
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 385
ANAND SONBHADRA [K. M. JOSEPH, J.]

lease. It would not be a financial lease. In this case, the position obtaining A
is the converse situation. None of the features in Rules 63 and 64, advance
the case of the appellant that the lease in question is a financial lease.
No doubt, a perusal of Rule 65 does give an impression that the most
important criteria is that the lease must effect, substantially, the transfer
of all the risks and the rewards incidental to ownership. The example,
B
which is given in Rule 65, is based on transfer of ownership at the end of
the lease for a payment, which is equal to the fair value at the time of
transfer and which is variable. The other example furnished is variable
lease payment, as a result of which, the lessor does not substantially
transfer all the risks and the rewards.
83. Rule 66 provides that the classification of the lease must be C
made at the inception date, for which, there is no claim made by the
appellants. Reclassification is permitted only, if there is a modification of
the lease. Changes in estimates, which is again related to in the example
to the changes in the estimates of the economic life or the residual value
of the underlying asset, will not occasion a new classification of the D
lease for accounting purposes. So also, changes in circumstances, such
as default by the lessee would not warrant a new classification being
effected. The appellants have, admittedly, not classified the lease in
question at the inception date as a finance lease. This, undoubtedly, is a
circumstance, which would militate against the lease of the appellant
being treated as a finance lease. E

84. Rule 67 again provides that at the commencement date, which
means the date of commencement of the lease, the lessor should
recognise the assets under a finance lease in its balance sheet and the
asset so recognised must be presented as a receivable. The matter does
not end there. The asset must be presented as an amount equal to the F
net investment of the lease. There is nothing on record to establish that
the underlying asset has been dealt with in the aforesaid manner by the
appellants.
85. Having made a survey of the various situations and examples
under the Statutory Rules, which would persuade the Court to ‘deem’ a G
lease as a finance lease and, having found that none of the situations or
indicators suit the case of the appellant, the case should rest and the
point must be answered against the appellant. However, the time is now
ripe to examine the contents of Rule 62 and Rule 65. They declare as to
when a lease is to be classified as a financial lease. It provides that a H
386 SUPREME COURT REPORTS [2022] 5 S.C.R.

A lease may be so classified as a financial lease, if it transfers substantially
all the risks and rewards incidental to ownership of an underlying asset.
The converse position applies to an operating lease and a lease is to be
classified as an operating lease, if the lease does not substantially transfer
all the risks and the rewards incidental to the ownership of the underlying
asset.
B
86. The concept revolves around the transfer substantially of risks
and rewards incidental to the ownership of the leasehold property.
Therefore, we must deal with what constitutes ownership of an asset.
We may notice the following discussion regarding the ‘idea of ownership’
in Salmond on Jurisprudence, 12th Edition:
C
“Ownership denotes the relation between a person and an object
forming the subject matter of his ownership. It consists in a
complex of rights, all of which are rights in rem, being good against
all the world and not merely against specific person(a). Though in
certain situations some of these rights may be absent, the normal
D case of ownership can be expected to exhibit the following
incidents(b).”
87. Thereafter, the following are treated as the rights associated
with ownership. An owner of a property will have the right to possess
the thing which he owns, it is stated. Secondly, the second principle is
E described as follows: -
“Secondly, the owner normally has the right to use and enjoy the
thing owned: the right to manage it, i.e., the right to decide how it
shall be used; and the right to the income from it. Whereas the
right to possess is a right in the strict sense, these rights are in fact
F liberties: the owner has a liberty to use the thing, i.e., he is under
no duty not to use it, in contrast with others who are under a duty
not to use or interfere with it.”
88. The third right is described as follows: -
“Thirdly the owner has the right to consume, destroy or alienate
G
the thing. The rights to consume and destroy are straight-forward
liberties. The right to alienate, i.e., the right to transfer his rights
over the object to another, involves the existence of a power. A
non-owner even though he has possession, cannot normally
transfer the rights of ownership over a thing to another; for the
H law acts on the principle nemo dat quod habet. To this principle
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 387
ANAND SONBHADRA [K. M. JOSEPH, J.]

there are certain exceptions: for example, the Factors Acts enable A
non-owners in possession to transfer ownership in certain
circumstances.”
89. Fourthly, the right is one associated with the indeterminate
duration of the right. It is here that we find the following discussion in
this regard: - B
“Fourthly, ownership has the characteristic of being indeterminate
in duration. The position of an owner differs from that of a non-
owner in possession in that the latter’s interest is subject to be
determined at some future set point, whereas the interest of the
owner can endure theoretically for ever. The interest of a bailee C
or lessee comes to an end when the period of hire or of the lease
determines; the owner’s interest is perpetual, being determined
neither by any set point nor by the owner’s death, because the
property owned can descend to the owner’s heir or next-of-kin,
and if he had sold the property prior to his death, then the new
owner’s interest would continue unaffected by the previous D
owner’s death.”
90. Fifthly, there is a residual nature, in regard to the concept of
ownership, and it is described as follows: -
“If, for example, a landowner gives a lease of his property to A, E
an easement to B and some other right such as a profit to C, his
ownership now consists of the residual rights, i.e., the rights
remaining when all these lesser rights have been given away.
Moreover, in English law the general rule is that the extinction of
such lesser rights will revive in the owner all his original rights.”
F
91. A question may arise as to whether in approaching the subject,
we are to be guided by an examination of the question as to whether the
lessee in this case possesses the rights incidental to ownership or the
expression ‘rewards incidental to ownership’ is different from rights
incidental to ownership. Can there be rewards if the rights which we
have indicated herein before are not transferred? Can there be rewards G
which must be interpreted in a different manner from the idea of rights?
In this regard, we must also remind ourselves that to constitute a lease,
a financial lease, it is not indispensable that the ownership is in all cases
transferred from the lessor to the lessee. However, we have noticed the
example hereinbefore wherein the said concept is declared. That is, it is
H
388 SUPREME COURT REPORTS [2022] 5 S.C.R.

A relevant when the lease termis for the major part of the economic life.
Undoubtedly, ordinarily a financial lease would be a lease which is born
as a lease but ends as a sale. The lease does involve transfer of ownership
from the previous owner, namely the lessor to the lessee. In this context,
Parliament has defined financial lease in two enactments through
Amendment Act no. 44/2016 as hereinbefore noticed.
B
92. We may at once bear in mind two concepts, in the overarching
principle. The two concepts are “substantially” and “all”. In other words,
substantially all the risks and rewards incidental to ownership must be
transferred under the lease. While we do agree with the appellants that
an element of flexibility is allowed by the presence of the concept
C ‘substantially’, at the same time, it cannot be a case where predominantly
all the risks and rewards incidental to ownership are not transferred. In
other words, on a conspectus of all the terms of the lease and the
reference to the situations and examples which have already been set
out, if there is for the most part, a transfer of all the risks and rewards
D incidental to ownership, in effect, it can be treated as a finance lease.
93. In Black’s Law Dictionary 11th Edition the word “substance”
to begin with, is defined as follows:-
“(i) The essence of something; the essential quality of something,
as opposed to its mere form (ii) Any matter, esp. an addictive
E drug illegal.”
94. The word “substantial” is defined as follows:-
“(i) Of, relating to, or involving substance; material. (ii) Real and
not imaginary; having actual, not fictitious, existence. (iii) Important,
F essential, and material; of real worth and importance (iv) Strong,
solid, and firm; large and strongly constructed (v) At least
moderately wealthy; possessed of sufficient financial means (vi)
Considerable in extent, amount, or value; large in volume or number
(vii) Having permanence or near-permanence; long-lasting (viii)
Containing the essence of a thing; conveying the right idea even if
G not the exact details (ix) Nourishing; affording sufficient nutriment.”
95. We would find the word ‘substantially’ occurring in the
provision in question would mean that what matters is not the form but
the substance. In other words, largely and in substance all the risks and
rewards incidental to ownership is to be transferred in a lease to constitute
H it as a finance lease.
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 389
ANAND SONBHADRA [K. M. JOSEPH, J.]

96. In the context of the word ‘incidental’, the contention that A
with reference to the definition of the word incidental in Black’s Law
Dictionary which is referred by the appellant, namely that it is subordinate
to something of greater importance or having a minor role, and therefore
the interpretation must be that it can be less than the absolute, does not
appear to us to be correct. No doubt, the word incidental has been defined
B
as follows: -
“Subordinate to something of greater importance; having a minor
role”
97. In this case we may notice the definition of the word “incident
to employment” in Black’s Law Dictionary wherein it has been defined C
as follows: -
“A risk that is related to or connected with a worker’s job duties.”
98. The words “incident of ownership” itself has been defined as
follows: -
D
“Any right of control that may be exercised over a transferred
life-insurance policy so that the policy’s proceeds will be included
in a decedent’s gross estate for estate-tax purposes. The incidents
of ownership include the rights to change the policy’s beneficiaries
and to borrow against, assign, and cancel the policy.”
E
(Emphasis supplied)
99. In Stateof Orissaand Another V. M/S. Chakobhai Ghelabhai
and Company,7 one of the questions which arose was whether under
Section 29 of the Orissa Sales Tax Act, 1947, the State had power to
provide for fee on the memorandum of appeals and applications in revision.
F
Section 29 of the said Act inter alia provided for the power to make rules
providing for the procedure and other matters including fees incidental
to the disposal of appeals and applications for revision and for review
under Section 23. While dealing with the scope of the word “incidental”,
this Court held as follows: -
“The fees imposed are not taxes at all; they come within the G
expression “other matters (including fees) incidental to the disposal
of appeals and applications for revision etc. We are unable to
agree with the High Court that the word ‘incidental’ has reference

7
AIR 1961 SC 284 H
390 SUPREME COURT REPORTS [2022] 5 S.C.R.

A to a matter of casual nature only. The procedure for disposal of
an appeal includes as a necessary incidental matter the filing of
an appeal on a proper fee.”
(Emphasis supplied)

B 100. In State of Tamil Nadu V. Binny Ltd., Madras,8 the question
arose whether the sales of provisions effected by the assessee in a
workman store, was assessable to tax under a State law. Section 2(d)(ii)
defined business as including any transaction in connection with or
incidental or ancillary to the trade, commerce, manufacture, adventure
or concern which formed the subject matter of section 2(d)(i). The
C contention taken by the assessee was that it was necessary that the
connection between the sales of the provisions in the store and
manufacture of the goods in question must be direct and that direct
connection was missing. In other words, the assessee was carrying on
manufacture and sale of textiles. It was also running a store in question.
D The word “business” was defined as including trade and manufacture
inter alia in the first limb of Section(2)(d) and also any transaction incidental
to such trade and manufacture. This Court took the view that there is no
justification in the contention of the assessee. We notice the following
exposition: -
E “It is indeed difficult to see how it can at all be said that the
activity of selling provisions to the workmen in the Store was not
incidental to the business of manufacture of textiles in the factory.
The sales which were effected in the Store were to the workmen
employed in the factory where textiles were being manufactured
and the provision of this facility to the workmen was certainly
F
incidental to the carrying on the business of manufacture of textiles.
This view finds support from the decision of this Court in Royal
Talkies, Hyderabad v. Employees State Insurance Corporation
where the question was as to whether a canteen maintained by a
cinema owner in the premises of the cinema could be said to be
G incidental to the business of running the cinema. Krishna Iyer, J.,
speaking on behalf of the court, pointed out that (SCC p.212 :
SCC (L&S) p. 505) “a thing is incidental to another if it merely
appertains to something else as primary. Surely, such work should

8
H 1980 Supp SCC 686
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 391
ANAND SONBHADRA [K. M. JOSEPH, J.]

not be extraneous or contrary to the purpose of the establishment A
but need not be integral to it either.”
(Emphasis supplied)
101. The proper interpretation in the context of the word
“incidental” is not that it is subordinate to an absolute, as it is sought to B
be made out. In M/s. Shroff and Co. v. Municipal Corpn. of Greater
Bombay and Another,9 this Court reiterated the view that the expression
incidental means ‘necessary’ in certain contexts which does not mean a
matter of causal nature only.
102. In the context of the provision in question, the expression C
“incidental to” would mean arising out of or otherwise connected with.
In other words, the risks and rewards must flow out of ownership. The
rewards must be those arising out of ownership. This in fact is central to
understanding the concept of a finance lease.
103. An argument is raised that paragraphs 15A to 17 of the Indian D
Accounting Standards (in IND AS) 17, it becomes evident that finance
leases are contemplated in respect of lands. We may notice paragraphs
15A to 17, which read as follows: -
“15A. When a lease includes both land and buildings elements, an
entity assesses the classification of each element as a finance or E
an operating lease separately in accordance with paragraphs 7-
13. In determining whether the land element is an operating or a
finance lease, an important consideration is that land normally has
an indefinite economic life.
16. Whenever necessary in order to classify and account for a F
lease of land and buildings, the minimum lease payments (including
any lump-sum upfront payments) are allocated between the land
and the buildings elements in proportion to the relative fair values
of the leasehold interests in the land element and buildings element
of the lease at the inception of the lease. If the lease payments G
cannot be allocated reliably between these two elements, the entire
lease is classified as a finance lease, unless it is clear that both
elements are operating leases, in which case the entire lease is
classified as an operating lease.
9
1989 Supp 1 SCC 347 H
392 SUPREME COURT REPORTS [2022] 5 S.C.R.

A 17. For a lease of land and buildings in which the amount that
would initially be recognised for the land element, in accordance
with paragraph20, is immaterial, the land and buildings may be
treated as a single unit for the purpose of lease classification and
classified as a finance of operating lease in accordance with
paragraphs 7-13. In such a case, the economic life of the buildings
B
is regarded as the economic life of the entire leased asset.”
104. It is clear that the subject matter of the lease mentioned in
paragraphs 15A to 17 is not merely land alone. It contemplates a situation
where the lease relates to land and buildings. It is no doubt true that in
paragraph 15A it is stated that in determining whether the land element
C is an operating or finance lease, an important consideration is that the
land normally has an indefinite economic life. What is significant is that
what the provision contemplates is finding out whether the land element
in a composite lease can be treated as a finance lease or as an operating
lease. In a lease which has only a land element, the concept of a limited
D economic life, which is apposite in the context of assets which have a
life limited by time and which ordinarily depreciate over time, would not
be relevant. We need not deal with the case of the lease of land at the
end of which there is a sale. There may be instances of such leases
entered into by developmental authorities. It would then turn upon the
terms of the lease.
E
105. The lease in question, is a lease of the plot of land, as already
found by us. The underlying asset is the plot of land. Therefore, we
cannot treat the subject matter of the lease, as containing both land and
building elements. We have already noticed, while dealing with Rule
63(b) that the case of the appellant before the NCLAT, was only that,
F apart from the land, the right to develop or construct the building, is the
underlying asset. It is not the case of the appellant that the buildings,
which are to be put up by the lessee, are also the subject matter of the
lease. In fact, it is, no doubt, true that the lease actually contemplates
that, as regards the build-up area/plot or land, the transfer to the allottee
G is to be made only by way of a sub-lease. The sub-lease of the land in
favour of the apartment owners, is also contemplated under Section 9 of
the Uttar Pradesh Apartment Owners Act, 2010. The lease, indeed,
does contemplate the execution of a tripartite sub-lease. The form and
the format are to be dictated to by the lessor. The sub-lease can be
executed subject to the fulfilment of certain conditions, which we have
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 393
ANAND SONBHADRA [K. M. JOSEPH, J.]

already adverted to. This is, indeed, a case where the lease is of the plot A
and the interest or the right to enjoy the lease is by way of construction
of residential buildings only and the use, both by the lessor and lessee
and even the sub-lessee is regulated and circumscribed by the terms of
the lease and the sub-lease. Even, according to the appellant, it is the
lessee, who is to find out the allottees and to transfer the rights in the
B
building, also the land, only by way of a sub-lease. The consideration for
the transfer of apartments is subject to the transfer fee being paid, to be
appropriated by the lessee. The lease, therefore, contemplates a sub-
lease, whereunder, the rights over the apartments, are regulated. Not
unnaturally, therefore, the appellant cannot project the case that the flats/
apartments, would constitute part of the underlying asset. We notice C
this, as though it was not argued, we did toy with the idea that if the
lease is a composite lease of land and building, the Rules made under the
IAS, may have to be appreciated differently. However, we need not
explore that line of thought any further.
106. The NCLAT has found that while all risks are transferred, D
the rewards are not transferred, therefore, we need consider only whether
this is correct. While we are on the concept of the rewards incidental to
ownership, we must record the assistance which was provided by the
fairness of Shri Ritin Rai, learned Senior Counsel, who drew our attention
to the Clause B53 of IAS 116 which is as follows: -
E
“B53:”The classification of leases for lessors in this Standard is
based on the extent to which the lease transfers the risks and
rewards incidental toownership of an underlying asset. Risks
include the possibilities of losses from idle capacity or technological
obsolescence and of variations in return because of changing
economic conditions. Rewards may be represented by the F
expectation of profitable operation over the underlying asset’s
economic life and of gain from appreciation in value or realisation
of a residual value.”
107. There is reference to ‘idle capacity or technological
obsolescence’. In the context of risk, it appears to be irrelevant, in the G
context of land. Rewards are again predicated with reference to the
expectation of profitable operation over the underlying asset’s economic
life and the gain from appreciation in value or the realisation of a residual
value. The concept of ‘economic life’ in the first place is inapposite in
the case of lease of land alone. The residual value is predicated again H
394 SUPREME COURT REPORTS [2022] 5 S.C.R.

A with the expiry of the term of the lease which is predicated with reference
to the end of the lease. In other words, it would be the value of an asset
predicated with reference to the end of the useful life of the asset [see
in this regard definition of residual value in para 77] at the expiry of the
term of the lease. The lease in question contemplates a period of 90
years. The lease is only of the land.
B
108. We may now turn to the provisions of the lease and the
contentions in the context of Section(5)(8)(d). Undoubtedly, the lessee
is put in possession of the land. Call it a right or a reward incidental to
ownership, possession, or the right to possession has been transferred to
the lessee. The lessee is entitled to hold the plot. The lease further
C proclaims that the lessee shall use the allotted plot for the purpose
indicated. Possession being in the context of a lease does not partake of
a liberty to not use as would be the case of an owner. In fact, the manner
of the use is stipulated. Non-use even entails penalty and even cancellation.
In fact, things could not be clearer when Clause 13 under ‘other clauses’
D is borne in mind. The said clause unequivocablly declares that the lessor
in larger public interest may take back the possession of the land/ building
and making payment at the prevailing rate. This, no doubt, is subject to
what we will pronounce on its impact on the fate of this case.
109. Next, we may notice whether there is right with the lessee to
E transfer the leasehold property. In this regard, it is relevant to notice that
under the law which is as contained in the Transfer of Property Act,
1882, Section 108, thereof, provides for rights and liabilities of a lessor
and lessee. It declares that in the absence of the contract or local usage
to the contrary, the lessor and lessee of immovable property would possess
rights and be subject to liabilities as provided therein. Section 108(j) reads
F as follows: -
“(j) the lessee may transfer absolutely or by way of mortgage or
sub-lease the whole or any part of his interest in the property, and
any transferee of such interest or part may again transfer it. The
lessee shall not, by reason only of such transfer, cease to be subject
G to any of the liabilities attaching to the lease:
nothing in this clause shall be deemed to authorise a tenant having
an untransferable right of occupancy, the farmer of an estate in
respect of which default has been made in paying revenue, or the
lessee of an estate under the management of a Court of Wards,
H to assign his interest as such tenant, farmer or lessee:”
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 395
ANAND SONBHADRA [K. M. JOSEPH, J.]

110. Therefore, in the case of a lease where there is no contract A
placing restrictions on the right of the lessee, the lessee can transfer
absolutely or by way of mortgage or sub lease, the whole or any part of
his interest in the property and any transferee of such interest or part
may again transfer. This is no doubt subject to the clause which deals
with the category of untransferable right of occupancy and the other
B
categories mentioned therein. In this context the lease in question must
be probed in order to find out whether there is a contract placing
restrictions on the right of the lessee to transfer. As far as an absolute
assignment by the lessee,Clause 12 under ‘other clauses’, clearly prohibits
any assignment by the lessee. It declares that the lessee shall not be
allowed to assign or change his role. The lessee would be liable to be C
visited with the penalty of cancellation of the lease itself for breach. It
further provides that the entire money which the lessee would have
deposited would stand forfeited. Therefore, while it may be that this
clause is to enable the proper and successful implementation of the
objective of the appellant which is tasked with the planned development D
of the area and the use of the property for the laudable purpose of
construction of group housing, it cannot detract from our finding that
there is a prohibition on assignment of the right within the meaning of a
contract which is contrary under Section 108. Jurisprudentially, a right
which is the soul of ownership and which is clearly incidental or arising
out of ownership is denied to the lessee, that is, the right to transfer the E
leasehold right.
111. Undoubtedly, in law, generally the lessee can assign his rights
as a lessee which amounts to assignment of his right. A lessee may
create a sub-lease. A lessee can also create a mortgage. All of these
rights vest with a lessee, subject to a contract to the contrary. In the F
lease in question what is prohibited in Clause 12 under other clauses is
the right to assign his rights as lessee. Any reward which the lessee
could have obtained if it wished to absolutely assign its right, is clearly
denied by virtue of the provision in the lease which acts as a contract to
the contrary. G
112. No doubt, the lease deed would show that the subject matter
of the lease is Plot No.GH-05/B Sector-137, Noida. It is further shown
as measuring 22565.77 Sq. mts. The purpose of the lease is constructing
the residential flats. It is no doubt true that under the head ‘transfer of
plot’ it is indicated that without obtaining the completion certificate the
H
396 SUPREME COURT REPORTS [2022] 5 S.C.R.

A Lessee will have the right to sub-divide the allotted plot into suitable
smaller plots as per the planning norms and to transfer the same to
interested parties. This can be done upto 30.09.2010 with prior approval
of the appellant-Lessor on payment of transfer charges at the rate of
2% of the allotment rate. However we notice that there is a stipulation
that the area of each of the sub-divided plot should not be less than
B
20,000 sq.mtrs. We have already noticed that the total extent of the
lease property is only 22565.77 square mtrs. Thereafter, it is no doubt
mentioned that individual flat /plot will be transferrable with prior approval
of the Lessor, subject to various conditions which include execution of
the lease deed and the sub-lessee undertaking to put the premises for
C residential use only. Even though there is reference to transfer of plot
which is to consist of not less than 20,000 sq.meters with the prior approval
of the Lessor, it was to be done before 30.09.2010. It is difficult to
conceive how when the total extent is little over 20,000 sq. meter i.e.,
22565.77 sq. metres and when the condition for transfer of the plot is
D that the area of the sub divided plot should not be less than 20,000 sq.
meter and the construction has to be completed in the manner provided
and yet the transfer in the aforesaid manner is permitted only upto
30.09.2010. The parties contemplated transfer only if there is prior
approval of the plot of not less than 20,000 sq. metres before 30.09.2010.
At least it is not a case before us that this clause has been invoked or
E worked. The transfer of the first sale/transfer of a flat/ plot to an allottee
is to be done through sub-lease/ lease deed.No doubt, we have already
noticed the difference in area in the lease in the connected appeal and
the lease which is the subject matter of the sub-leaseprovided before us.
113. As far as the right to mortgage is concerned the lessee is
F indeed permitted to mortgage the land. However, the mortgage can be
effected only with prior permission of the lessor. The right to mortgage
which flows as an incident of ownership is one of the bundle of rights
which vests with an owner. It is undoubtedly a lesser right and the owner
would be possessed of the residual right. However, it is one of the many
G rights which is incidental to ownership but there is no absolute right to
create a mortgage.
114. The requirement of prior permission to create a mortgage
would mean that the permission may be forthcoming or it can be denied.
If there is a denial of the right to create a mortgage, then it would impliedly
mean that to the said extent the right to raise funds for the purpose of
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 397
ANAND SONBHADRA [K. M. JOSEPH, J.]

financing the investment is impaired. Depending on whether or not the A
right is permitted actually the rewards incidental to ownership is
transferred. In other words, if we were to imagine that the lessee stood
in the shoes of an owner of the property, he would be in a position to
create a mortgage, raise funds as he chose and deal with the property in
the manner, he felt advised to. The clause relating to mortgage, in fact,
B
indicates that the purpose contemplated,is that the mortgage can only be
for the purpose of raising loan or for the purpose of financing the lessee’s
investment in the project. This in turn is to be on receipt of the payment
by the allottee or on receipt of assurance of payment by the bank or
under any other suitable arrangement. In this regard, the lease
contemplated a mutual settlement amongst the lessor, the developer and C
the financial institution/bank. It clearly constitutes a foray into the right
of a person ‘if an owner’ to deal with the property including the right to
create a mortgage. The suitable arrangement in mutual settlement
contemplates the lessor giving its consent to the terms of the mortgage.
It includes the right of the lessor to prevail upon, in regard to the terms of D
the mortgage. Its object may be lofty and in keeping with its role as a
statutory authority but its impact on the true interpretation of the lease
and as to whether it involves transfer of rewards incidental to ownership
is another matter. The terms and conditions of the NOC which is
contemplated as necessary for mortgaging the land to facilitate housing
loans of final purchaserwill be as decided by the lessor. Still further we E
may notice that under the proviso if there is a sale or a foreclosure of the
mortgaged property, the lessor is given the right tosuch percentage of
the unearned increase in value as will be decided by the lessor.
115. Moving on to the transfer of the plot having regard to the
purpose of the lease it is as follows:- F
The lease contemplates the lessee is to put up construction of
group housing. The lessee is entitled to allot the dwelling units on sub-
lease basis to its allottee and shall provide space for facilities which are
indicated which include roads, parks, etc. It is further indicated that
however transfer/ sub lease shall be governed by the transfer policy of G
the lessor. No doubt, restrictions are put in regard to how allotment can
be made. Allotments can be made only to citizens of India competent to
contract. This means that if the law permits (Barring citizens of certain
countries, the law does permit citizens of other countries to acquire
property in India) the allotment of what is constructed by the lessee by
H
398 SUPREME COURT REPORTS [2022] 5 S.C.R.

A way of group housing to persons who are not citizens and make profits
on such transfer, this clause indeed impacts such right and also takes
away the profits which it could make thereunder. The lease further
indicates that there will be no permission to part transfer of plot. In this
regard, it must be noticed that what is permitted under the lease is the
creation of a sub-lease of the dwelling units to the allottee. No doubt
B
there would be a sub-lease over the plot as well. The lease goes on to
state that the lessee shall not be entitled to complete transaction for sale,
transfer, assign or otherwise part with the possession of whole or part of
any of the buildings constructed thereon, before making payment in terms
of the schedule under the lease. Though it is described as sale, transfer,
C assignment or otherwise as all of it relates to the building which is
constructed on the underlying leased property. We must not lose sight of
the fact that the subject matter of the lease is the plot described as plot
no. GH-05/B Sec.137, Noida consisting of22565.77 square metres. What
is essentially and in reality permitted apparently is the creation of only
D the sub-lease. Undoubtedly by the lessee the transfer of the built-up
area is permitted subject to payment of transfer charges in terms of the
policy. The lessor is given an absolute right to reject any application for
transfer. The lessee is to pay the transfer charges in terms of the policy
which is determined. The transfer of the built-up flats is to be premised
on a tripartite sub lease. The terms of such a sub-lease will be dictated
E to by the lessor. The sub-lease interchangeably is described as sale by
the lease. The sale in turn is to be captured in the terms of a sub-lease
for it is clear that the lessee is obliged to execute a sub-lease. We have
referred to the lease and the terms of a sample sub lease.The sub lessee
also can use the premises only for residential purposes. In this case it
F must be noticed that being a part of the fulfilment of its goal under the
act to transfer plots for residential purposes inter alia and the lease in
question being one for developing group housing, the lessee can transfer
the built-up flats only for residential purposes. The argument of the
appellant is that being a necessary corollary of the lease being one to
effectuate the appellants duty and being a reasonable restriction, it is
G undoubtedly the duty of the appellant in the context of the purpose that a
regulatory and the restrictive mechanism in question is put in place. As
to whether there is a substantial transfer of all the rewards incidental to
ownership as an owner or whether the lessee would stand in the shoes
of a person resembling an owner is another matter. Were the lessee to
H enjoy the right as owner, there would be liberty to transfer the premises
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 399
ANAND SONBHADRA [K. M. JOSEPH, J.]

subject to the law of the land for any purpose. Being limited to only A
residential purpose indeed robs the lessee of one of the cardinal rights of
a person who can be described as an owner. The lease, read as a whole,
contemplates the transfer to enjoy/use the leasehold property for the
period of 90 years for the purpose limited to the construction of the
residential complex only. This is apart from all the concomitant constraints
B
and restrictions which have been put in place to achieve the goal of the
appellant in its statutory role.
116. It is no doubt true that the appellants correctly point out that
the lessor does not purport to seek any sharing of the consideration
which may be received by the lessee from the allottees.In that sense
‘rewards’ are transferred. We have in this regard noticed the C
qualifications and conditions such as forbidding transfer to non-citizens
and the purpose for which the said property can be used.The other
aspects, which even limit the rights and therefore, dampen the prospect
of profit, have been adverted to.
117. Though the rules under the Uttar Pradesh Ownership of Flat D
Act, 1975 is referred to in the lease as noticed by us earlier, the Uttar
Pradesh Apartments (Promotion of Construction, Ownership and
Maintenance) Act, 2010 (hereinafter referred to as ‘the UP 2010 Act’,
for short) repealed the 1975 Act. The UP Act 2010 came into force on
21.07.2010. The lease deed, in this case, came to be executed on E
30.07.2010. We notice that in the UP 2010 Act, Section 2 provides that
the Act applies to all buildings having four or more apartments in any
building constructed or converted into apartment and land attached to
the apartment whether freehold or held on lease excluding shopping
malls and multiplexes. Section 3 defines common areas and facilities as
including the land on which the building is located and all easements, F
rights and appurtenances belonging to the land and building. Section 5(1)
declares that every person to whom any apartment is sold or otherwise
transferred by the promotor, shall, subject to the provisions of the Act,
be entitled to the exclusive ownership and possession of the apartment
so sold or otherwise transferred to him. The person, who is entitled to G
the exclusive ownership and possession of the apartment, is also declared
entitled to such percentage of the undivided interest in the common areas
and facilities as may be specified in the deed of apartment. The
percentage is to have a permanent character and cannot be altered except
with a written consent of all the apartment owners. Section 7 reads as
follows: H
400 SUPREME COURT REPORTS [2022] 5 S.C.R.

A “Section 7 - Apartment to be heritable and transferable
Each apartment, together with the undivided interest in the common
areas and facilities appurtenant to such apartment, shall, for all
purposes constitute a heritable and transferable immovable property
within the meaning of any law for the time being in force, and
B accordingly, an apartment owner may transfer his apartment and
the percentage of undivided interest in the common areas and
facilities appurtenant to such apartment by way of sale, mortgage,
lease, gift, exchange or in any other manner whatsoever in the
same manner, to the same extent and subject to the same rights,
privileges, obligations, liabilities investigations, legal proceedings,
C
remedies and to penalty, forfeiture or punishment as any other
immovable property or make a bequest of the same under the law
applicable to the transfer and succession of immovable property.
Provided that where the allotment, sale or other transfer of any
apartment has been made by any group housing cooperative society
D or association in favour of any member thereof, the transferability
of such apartment and all other matters shall be regulated by the
law, which may provide a transfer fee at a maximum rate of 2
percent but not less than 1 percent in any case of the sale value,
applicable to such group housing cooperative society or association
whosoever maintains the common areas and facilities. The transfer
E
fee shall no be leviable in case of heritability.”
118. The most crucial provision is Section 9. It reads as follows:
“Section 9 - Right of re-entry
(1) Where any land is given on lease by a person (hereafter in this
F section referred to as the lessor) to another person (hereafter in
this section referred to as the lessee, which term shall include a
person in whose favour a sublease of such land has been granted),
and any building has been constructed on such land by the lessee
or by any other person authorised by him or claiming through him,
G such lessee shall grant in respect of the land as many subleases
as there are apartments in such building and shall execute separate
deeds of sub lease in respect of such land in favour of each
apartment owner before handing over the possession of apartment
in such building to him. The lessor shall be duty bound to supply
the plans and other legal documents to the lessee. Provided that
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 401
ANAND SONBHADRA [K. M. JOSEPH, J.]

no sublease in respect of any land shall be granted except on the A
same terms and conditions on which the lease in respect of the
land has been granted by the lessor and no additional terms and
conditions shall be imposed by the lessee except with the previous
approval of the lessor.
(2) Where the lessee has any reason to suspect that there had B
been any breach of the terms and conditions of the sublease
referred to in subsection (1), he may himself inspect the land on
which the building containing the concerned apartment has been
constructed, or may authorise one or more persons to inspect
such land and make a report as to whether there had been any
breach of the terms and conditions of any sublease in respect of C
such land and, if so, the nature and extent of such breach, and for
this purpose, it shall be lawful for the lessee or any person
authorised by him to enter into, and to be in, the land in relation to
which such breach has been or is suspected to have been
committed. D
(3) Where the lessee or any person authorised by him makes
an inspection of the land referred to in subsection (1), he shall
record in writing his findings on such inspection [a true copy of
which shall be furnished to the apartment owner by whom such
breach of the terms and conditions of sublease in respect of the E
land appurtenant to the apartment owned by him has been
committed (hereinafter referred to as the defaulting apartment
owner)] and where such findings indicate that there had been any
breach of the terms and conditions of the sublease in respect of
such land, the lessee may, by a notice in writing, require the
defaulting apartment owner to refrain from committing any breach F
of the terms and conditions of the sublease in respect of such
land, or to pay in lieu thereof such composition fees as may be
specified in the notice in accordance with such scales of
composition fees as may be prescribed.
(4) The defaulting apartment owner who is aggrieved by any G
notice served on him by the lessee under subsection (3) may,
within thirty days from the date of service of such notice, prefer
an appeal to the Court of the District Judge having jurisdiction
(hereinafter referred to as the District Court), either challenging
the finding of the lessee or any person authorised by him or disputing H
402 SUPREME COURT REPORTS [2022] 5 S.C.R.

A the amount of composition fees as specified in the notice, and the
District Court may, after giving the parties a reasonable opportunity
of being heard, confirm, alter or reverse those finding or may
confirm, reduce or increase the amount of composition fees or
set aside the notice.
B (5) Where, on the breach of any terms and conditions of any
sublease in respect of any land, any composition fees become
payable, the defaulting apartment owner shall be deemed to have
been guilty of such breach and in default of payment thereof it
shall be lawful for the lessee to recover the amount of the
C composition fees from the defaulting apartment owner as arrears
of land revenue.
(6) Where any composition fees are paid whether in pursuance
of the notice served under subsection (3) or in accordance with
the decision of the District Court or a higher court on appeal, no
further action shall be taken by the lessee for the breach of the
D
terms and conditions of the sublease in respect of the land in
relation to which payment of such composition fees has been
realised.
(7) If the defaulting apartment owner omits or fails to refrain
from committing any breach of the terms and conditions of the
E
sublease in respect of the land or, as the case may be, omits or
fails to pay the composition fees in lieu thereof-
(i) in accordance with the notice issued by the lessee under
subsection (3); or
F (ii) where the finding of the lessee or the person authorised
to inspect the land about any breach of the terms and conditions
of any sublease in respect of the land or the amount of
composition fees specified in the notice issued by the lessee
are altered by the District Court on appeal or by any higher
court on further appeal, in accordance with the decision of the
G
District Court or such higher court, as the case may be; the
lessee shall be entitled,-
(a) where no appeal has been preferred under subsection
(4), within sixty days from the date of service of the notice
under subsection (3), or
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 403
ANAND SONBHADRA [K. M. JOSEPH, J.]

(b) where an appeal has been preferred under subsection A
(4), within sixty days from the date on which the appeal is
finally disposed of by the District Court or, where any further
appeal is preferred to a higher court, by such higher court,
to exercise the right of reentry in respect of the undivided
interest of the lessee in the land appurtenant to the apartment B
owned by the defaulting apartment owner, and where such
right of reentry cannot be exercised except by the ejectment
of the defaulting apartment owner from his apartment, such
right of reentry shall include a right to eject the defaulting
apartment owner from the concerned apartment: Provided
that no such ejectment shall be made unless the defaulting C
apartment owner has been paid by the lessee such amount
as compensation for such ejectment as may be determined
in accordance with the prescribed scales of compensation.
(8) No appeal preferred under subsection (4) shall be admitted,
unless twentyfive per cent of the composition fees specified in D
the notice served on the defaulting apartment owner has been
deposited to the credit of the District Court in savings bank account
to be opened by the District Court in any branch of an approved
bank:
Provided that the District Court may, on sufficient cause being E
shown, either remit or reduce the amount of such deposit, and the
interest accruing on such deposit, shall ensure to the credit of
defaulting apartment owner by whom such deposit has been made:
Provided further that the amount of such deposit together with
the interest due thereon shall be distributed by the District Court F
in accordance with the decision in such appeal, or where any
further appeal has been preferred against such decision, in
accordance with the decision in such further appeal.
(9) The defaulting apartment owner, who is aggrieved by the
amount offered to be paid to him under the proviso to subsection G
(7) as compensation for ejectment from his apartment may, within
thirty days from the date of such offer, prefer an appeal to the
District Court and the District Court may, after giving the parties
a reasonable opportunity of being heard, maintain, increase or
reduce the amount of compensation.
H
404 SUPREME COURT REPORTS [2022] 5 S.C.R.

A (10) On the ejectment of the defaulting apartment owner from
the apartment under subsection (7), the lessee by whom such
ejectment has been made may make a fresh allotment of the
concerned apartment to any other person on such terms and
conditions as he may think fit.
B (11) Where any lessee omits or fails to take any action either
in accordance with the provisions of subsection (2) or subsection
(3) or subsection (7) the lessor may, in the first instance, require
the lessee by a notice in writing to take action against the defaulting
apartment owner under subsection (2) or subsection (3) or, as the
case may be, under subsection (7), within a period of ninety days
C from the date of service of such notice, and in the event of the
omission or failure of the lessee to do so within such period, the
lessor may himself take action as contained in subsection (2) or
subsection (3) or subsection (7), and the provisions of subsection
(4) to subsection (6) and subsection (8) to subsection (10), shall,
D as far as may apply to any action taken by him as if such action
had been taken by the lessee.
(12) For the removal of doubts, it is hereby declared that no
work in any apartment by the owner thereof shall be deemed to
be a breach of the terms of the sublease in respect of the land on
E which the building containing such apartment has been constructed
unless the work is prohibited by subsection (2) of section 6.”
(Emphasis supplied)
119. Section 5 contemplates a sale or transfer otherwise of an
apartment by the promoter. Then subject to the other provisions of the
F Act, the buyer or transferee becomes entitled to exclusive ownership
and possession. He becomes entitled to a percentage of the undivided
interest in the common areas. Section 8 is a provision which conditions
ownership based on amounts remaining to be paid. Still further Section 9
is another provision which conditions Section 5.
G 120. The mere fact that Section 7 declares that each apartment,
together with the undivided interest in common areas, is to be heritable
and transferable, would not amount to creating a freehold right over the
land, which is the subject matter of the sub-lease, in favour of the
apartment owner, under Section 9 of the UP Act of 2010. In other words,
no enlargement of the rights of the sub-lessee into that of a freehold
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 405
ANAND SONBHADRA [K. M. JOSEPH, J.]

owner of the land is contemplated. The mere fact that an undivided A
interest in the common area, is created including the land (the definition
of ‘common area’ includes land) and is made heritable and transferable,
would only mean that the specific right, which the sub-lessee (apartment
owner) has under the sub-lease executed within meaning of Section 9,
both over the land and the apartment, will be heritable and transferable.
B
In fact, Section 10 of the UP Act of 2010 provides for a declaration to be
given by a promotor containing, inter alia, the statement as to whether,
land is freehold or leasehold. No doubt, the effect of Section 7 of the UP
Act is that the proviso in Section 7 does contemplate that in the case of
any allotment, sale or other transfer made by any group housing
cooperative society or association, the transferability of the apartment C
and all other matters, will be as regulated by the law and it may include
the transfer fee at the maximum rate of two per cent. Section 7, no
doubt, permits the apartment owner the right to transfer the apartment
with the common area including the right in the land by way of sale,
mortgage, lease, gift, in the same manner and to the same extent and
D
subject to the same rights, privileges, obligations and liabilities, inter alia,
under the law applicable to the transfer and succession of an immovable
property. Also since Section 9 contemplates sub-lease over the land,
there cannot be claims of enlargement overthe same vide either Section
5 or Section 7. The case of sale if it relates to landin the balance sheet
projected by the appellant represented by Ms. Madhavi Divan cannot E
but be rejected.
121. We have noticed that the lessee has no power to cancel the
lease. However, cancellation of lease deed under various contingencies
is permitted to the lessor. They include allotment obtained through
misrepresentation/ suppression of material facts inter alia violation of F
directions issued or rules and the regulations framed by the lessee or
any other statutory authority, default on the part of the lessee on the
terms and conditions of registration/ allotment lease. The provisions
provide for the extent to which the premium can be forfeited in the
event of cancellation among the other clauses. This is apart from the
earlier reference to the power to cancel in specified contingencies. It is G
relevant to notice that the lessor is clothed with an absolute power to
make additions/ alterations or modifications in the terms of the lease
deed inter alia apart from the sub lease. One clause which we have
already noticed is Clause 13 falling in other clauses. It empowers the
lessor to take back possession of the land/ building. The only limitation is H
406 SUPREME COURT REPORTS [2022] 5 S.C.R.

A that larger public interest must justify such taking back of the possession.
It also must be attended/ accompanied by the lessor becoming liable to
only make the payment at what is described as the ‘prevailing rate.’ It is
clear that it is incompatible with the lessee enjoying rights/rewards
incidental to ownership. The only requirement then being what the lessor
perceives as larger public interest, the overriding power constitutes a
B
shadow over the rights of the lessee which is clearly incompatible with
the rights and therefore even rewards which would follow the normal
exercise of rights as an owner. The right to possession and the rewards
associated with it can be extinguished upon the lessor invoking the said
power. Therefore, we would find on the whole that the appellant is not
C the financial lessor under section 5(8)(d) of the IBC. No doubt we would
observe that we have arrived at the findings based on the prevailing
statutory regime. Needless to say there is always power to amend the
provisions which essentially consist of the Indian Accounting Standards
in the absence of any rules prescribed under Section 5(8)(d) of the IBC
by the Central Government.
D
THE CASE UNDER SECTION 5(8)(f)
122. Section 5(8) defines ‘financial debt’ as meaning ‘a debt along
with interest, if any, which is disbursed against the consideration of time
value of money’. Thereafter, Clauses (a) to (i) deal with transactions
E which are included as financial debt. It is, thereafter, that Clause (f)
provides that a financial debt includes any amount raised under any other
transaction, including any forward sale or purchase agreement, having
the commercial effect of a borrowing. To further simplify the concept,
in Section 5(8)(f), we may eclipse the words ‘includes any forward sale
or purchase agreement’, and then, the provision would read as ‘any
F amount raised any other transaction having commercial effect of a
borrowing’. The word ‘transaction’ has been defined in Section 2(33) to
include ‘an agreement or arrangement in writing for the transfer of an
asset, or funds, goods or services from or to the corporate debtor. At this
very juncture, we may notice that ‘operational debt’ has been defined in
G Section 5(21), which means ‘a claim in respect of provision of goods or
services including employment’. Operational debt also means a debt in
respect of payment of dues arising under any law for the time being in
force and payable to any Local Authority, inter alia. ‘Operational
creditor’ is defined in Section 2(20) as meaning ‘a person to whom
operational debt is owed and includes any person to whom such debt
H has been legally assigned or transferred’.
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 407
ANAND SONBHADRA [K. M. JOSEPH, J.]

123. ‘Transaction’, as defined in Section 3(33), would, undoubtedly, A
include an agreement or arrangement in writing or the transfer of funds.
The transfer of funds may take place from a corporate debtor. A transfer
can also take place when there is transfer of funds to the debtor. A
transfer may include a transfer of assets in writing again from or to the
corporate debtor. The definition of the word ‘debt’ in Section 3(11) is
B
intertwined with the definition of the word ‘claim’ in Section 3(6). The
impact of these provisions has been considered by this Court in Pioneer
Urban Land and Infrastructure Limited and Another v. Union of
India and Others10. It may be profitable to advert to the same.
“68. Thus, in order to be a “debt”, there ought to be a liability or
obligation in respect of a “claim” which is due from any person. C
“Claim” then means either a right to payment or a right to payment
arising out of breach of contract, and this claim can be made
whether or not such right to payment is reduced to judgment.
Then comes “default”, which in turn refers to non-payment of
debt when whole or any part of the debt has become due and D
payable and is not paid by the corporate debtor. The learned counsel
for the petitioners relied upon the judgment in Union of
India v. Raman Iron Foundry [Union of India v. Raman Iron
Foundry, (1974) 2 SCC 231], and, in particular relied strongly
upon the sentence reading: (SCC p. 243, para 11)
E
“11. … Now the law is well settled that a claim for unliquidated
damages does not give rise to a debt until the liability is adjudicated
and damages assessed by a decree or order of a court or other
adjudicatory authority.”
69. It is precisely to do away with judgments such as Raman Iron F
Foundry [Union of India v. Raman Iron Foundry, (1974) 2 SCC
231] that “claim” is defined to mean a right to payment or a right
to remedy for breach of contract whether or not such right is
reduced to judgment. What is clear, therefore, is that a debt is a
liability or obligation in respect of a right to payment, even if it
arises out of breach of contract, which is due from any person, G
notwithstanding that there is no adjudication of the said breach,
followed by a judgment or decree or order. The expression
“payment” is again an expression which is elastic enough to include

10
(2019) 8 SCC 416 H
408 SUPREME COURT REPORTS [2022] 5 S.C.R.

A “recompense”, and includes repayment. For this purpose, see H.P.
Housing & Urban Development Authority v. Ranjit Singh
Rana [H.P. Housing & Urban Development Authority v. Ranjit
Singh Rana, (2012) 4 SCC 505 : (2012) 2 SCC (Civ) 639] (at
paras 13 and 14 therein), where Webster’s Comprehensive
Dictionary (International Edn.), Vol. 2 and Law Lexicon by P.
B
Ramanatha Aiyar (2nd Edn., Reprint) are quoted.”
124. The question, which fell for consideration in Pioneer(supra)
was whether a homebuyer, who made advances to the real estate
developer, utilising which, the real estate developer puts up the project
and what the homebuyer got in return or was expected to get in return
C was a developed flat or an apartment, would be covered as a financial
creditor. It would be apposite to refer to the following observations:
“75. And now to the precise language of Section 5(8)(f). First
and foremost, the sub-clause does appear to be a residuary provision
which is “catch all” in nature. This is clear from the words “any
D amount” and “any other transaction” which means that amounts
that are “raised” under “transactions” not covered by any of the
other clauses, would amount to a financial debt if they had the
commercial effect of a borrowing. The expression “transaction”
is defined by Section 3(33) of the Code as follows:
E 3. (33) ”transaction” includes an agreement or arrangement in
writing for the transfer of assets, or funds, goods or services,
from or to the corporate debtor;
As correctly argued by the learned Additional Solicitor General,
the expression “any other transaction” would include an
F arrangement in writing for the transfer of funds to the corporate
debtor and would thus clearly include the kind of financing
arrangement by allottees to real estate developers when they pay
instalments at various stages of construction, so that they
themselves then fund the project either partially or completely.
G 76. Sub-clause (f) Section 5(8) thus read would subsume within it
amounts raised under transactions which are not necessarily loan
transactions, so long as they have the commercial effect of a
borrowing. We were referred to Collins English Dictionary &
Thesaurus (2nd Edn., 2000) for the meaning of the expression
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 409
ANAND SONBHADRA [K. M. JOSEPH, J.]

“borrow” and the meaning of the expression “commercial”. They A
are set out hereinbelow:
“borrow.—vb 1. to obtain or receive (something, such as money)
on loan for temporary use, intending to give it, or something
equivalent back to the lender. 2. to adopt (ideas, words, etc.) from
another source; appropriate. 3. Not standard. to lend. 4. (intr) B
Golf. To putt the ball uphill of the direct path to the hole: make
sure you borrow enough.”
***
“commercial.—adj. 1. of or engaged in commerce. 2. sponsored
or paid for by an advertiser: commercial television. 3. having C
profit as the main aim: commercial music. 4. (of chemicals, etc.)
unrefined and produced in bulk for use in industry. 5. a commercially
sponsored advertisement on radio or television.””
125. In the said example, therefore, the homebuyer, by providing
amounts to the real estate developer, was found to be entitled to be D
treated as a financial creditor on the basis that the real estate developer
must be treated as having raised money under the transaction in question.
In other words, it was a case of a transaction by reason of the fact that
there was transfer of funds to the corporate debtor. The transfer of
funds was in the form of the advance payments and the installments E
payable by the homebuyer under the agreement to the developer. Thus,
this Court concluded that it must be treated as a case falling under Section
5(8)(f), even without the aid of the Explanation added by an amendment,
which was challenged in the said case. The real estate developer, in
other words, raised amounts within the meaning of Section 5(8)(f) under
the transfer of funds by the homebuyer to the developer and it was F
found to possess a commercial effect. In this regard, the discussion is as
follows:
“77. A perusal of these definitions would show that even though
the petitioners may be right in stating that a “borrowing” is a loan
of money for temporary use, they are not necessarily right in G
stating that the transaction must culminate in money being given
back to the lender. The expression “borrow” is wide enough to
include an advance given by the homebuyers to a real estate
developer for “temporary use” i.e. for use in the construction
project so long as it is intended by the agreement to give “something
H
410 SUPREME COURT REPORTS [2022] 5 S.C.R.

A equivalent” to money back to the homebuyers. The “something
equivalent” in these matters is obviously the flat/apartment. Also
of importance is the expression “commercial effect”.
“Commercial” would generally involve transactions having profit
as their main aim. Piecing the threads together, therefore, so long
as an amount is “raised” under a real estate agreement, which is
B
done with profit as the main aim, such amount would be subsumed
within Section 5(8)(f) as the sale agreement between developer
and home buyer would have the “commercial effect” of a
borrowing, in that, money is paid in advance for temporary use so
that a flat/apartment is given back to the lender. Both parties have
C “commercial” interests in the same—the real estate developer
seeking to make a profit on the sale of the apartment, and the flat/
apartment purchaser profiting by the sale of the apartment. Thus
construed, there can be no difficulty in stating that the amounts
raised from allottees under real estate projects would, in fact, be
D subsumed within Section 5(8)(f) even without adverting to the
Explanation introduced by the Amendment Act.”
126. It is, therefore, the appellants case that if the home buyer
could be treated as covered under Section 5(8)(f), and therefore, a
financial creditor, the appellant also should be treated as a financial creditor
under the lease. Instead of approaching a bank or a financial institution,
E
the lessee is facilitated to pay the consideration for the lease in the
following manner:
The lessee would pay ten percent of the total premium upfront.
The balance of the premium is to be paid in sixteen half-yearly
installments with interest falling due after the expiry of the period
F
of moratorium, which consisted of two years from the date of the
commencement of the lease. During the moratorium, the lessee,
would, no doubt, have to pay the lease amount and the interest
which is not to be confused with the premium. In other words, the
lease contemplated payment of the named sum of premium and
G also lease rent. The rent could be paid on an annual basis or it
could be paid at one go as provided in the agreement. There was,
thus, amount raised by the lessee in the manner in that, while no
amount was paid or disbursed in the conventional sense by the
appellant-lessor to the lessee, by permitting the lessee under the
lease to effect the payments due from it under the lease after the
H
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 411
ANAND SONBHADRA [K. M. JOSEPH, J.]

moratorium was over in a staggered manner, viz., by payment of A
sixteen half-yearly installments with interest, it had the effect of
raising of funds in the sense that it operated as a tool for raising
finance. The expression ‘raising funds’ employed in Section 5(8)(f),
it is the case of the appellant, must receive an expansive
interpretation. In the modern world myriad manifestations not to
B
be pigeonholed to any set or finite number of transactions, may be
contemplated. The legislative intention is to provide a catch-all or
residuary provision. It is emphasised, in this context, before us
that the Court must adopt a purposive interpretation. The concept
of a financial creditor is that of a person who is not merely
interested in recovery of the money, which perhaps characterises C
an operational creditor. The appellant, being an Authority under
the UPIAD Act, charged with the duty of developing the land for
various purposes, including residential purposes, has a long-term
perspective and interest in the lease property like a conventional
financial creditor who would do deep and due diligence and
D
undertake careful and elaborate study before entering into a
transaction. The appellant also has a binding stake or interest in
the transaction. What is involved is public money. The land, which
is subject matter of the lease, came to vest with the appellant on
the strength of acquisition of land after payment of huge amounts
as compensation. The said amount would represent the cost of E
the land. It is such land, which is the subject matter of the lease.
When the appellants have such an interest, as described earlier,
excluding the appellant from the decision-making process itself
by not including it in the Committee of Creditors, is described as
illegal and a manifest absurdity.
F
127. Per contra, apart from pointing out that this Court is being
asked to overturn the concurrent findings rendered by the NCLT and
NCLAT, the prevarication in the stand of the appellant is emphasised.
Apart from the fact that originally appellant claimed as operational creditor
in Form B and filed the Form-C later, declaring it as a financial creditor,
it is pointed out that the appellant has attempted to shift its stand at G
different stages. Initially, the stand was that appellant fell under Section
5(8)(d) on the basis that what was involved was a finance lease. Finding
itself unable to fulfil the requirement of being a financial lessor before
the NCLAT, the focus shifted to Section 5(8)(f). Since, the case was
initially set up under Section 5(8)(d), the case of the appellant involved H
412 SUPREME COURT REPORTS [2022] 5 S.C.R.

A reliance being placed on a specific provision, and simultaneously, on a
general provision. In other words, resort to Section 5(8)(d) would preclude
invoking of Section 5(8)(f). It is pointed out that there is no disbursement
under the lease deed. With reference to the Judgment of this Court in
Anuj Jain, Interim Resolution Professional forJaypee Infratech
Limited v. Axis Bank Limited and Others11, it is contended that there is
B
no disbursement by the appellant, an indispensable element under the
main provisions of Section 5(8) without which the appellant could not
rely upon Section 5(8)(f).On facts, it is pointed out that the treatment
given to the appellant under the Resolution Plan dated 30.10.2019, is
better than that of a financial creditor, i.e., forty-one percent of the amount
C claimed.
128. In the context of the Explanation to Section 5(8)(f), inter
alia, by which, homebuyers were expressly brought within the scope of
Section 5(8)(f), this Court in Pioneer (supra), inter alia, laid down as
follows:
D “70. The definition of “financial debt” in Section 5(8) then goes
on to state that a “debt” must be “disbursed” against the
consideration for time value of money. “Disbursement” is defined
in Black’s Law Dictionary (10th Edn.) to mean:
“1. The act of paying out money, commonly from a fund or in
E settlement of a debt or account payable. 2. The money so paid;
an amount of money given for a particular purpose.”
71. In the present context, it is clear that the expression “disburse”
would refer to the payment of instalments by the allottee to the
real estate developer for the particular purpose of funding the
F real estate project in which the allottee is to be allotted a flat/
apartment. The expression “disbursed” refers to money which
has been paid against consideration for the “time value of money”.
In short, the “disbursal” must be money and must be against
consideration for the “time value of money”, meaning thereby,
G the fact that such money is now no longer with the lender, but is
with the borrower, who then utilises the money. Thus far, it is
clear that an allottee “disburses” money in the form of advance
payments made towards construction of the real estate project.
We were shown the Dictionary of Banking Terms (2nd Edn.)
11
H (2020) 8 SCC 401
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 413
ANAND SONBHADRA [K. M. JOSEPH, J.]

by Thomas P. Fitch in which “time value for money” was defined A
thus:
“present value: today’s value of a payment or a stream of payment
amount due and payable at some specified future date, discounted
by a compound interest rate of discount rate. Also called the time
value of money. Today’s value of a stream of cash flows is worth B
less than the sum of the cash flows to be received or saved over
time. Present value accounting is widely used in discounted cash
flow analysis.”
(Emphasis supplied)
That this is against consideration for the time value of money is C
also clear as the money that is “disbursed” is no longer with the
allottee, but, as has just been stated, is with the real estate developer
who is legally obliged to give money’s equivalent back to the
allottee, having used it in the construction of the project, and being
at a discounted value so far as the allottee is concerned (in the D
sense of the allottee having to pay less by way of instalments than
he would if he were to pay for the ultimate price of the flat/
apartment).
72. Shri Krishnan Venugopal took us to ACT Borrower’s Guide
to the LMA’s Investment Grade Agreements by Slaughter and E
May (5th Edn., 2017). In this book “financial indebtedness” is
defined thus:
“Definition of Financial Indebtedness (Investment Grade
Agreements)
“Financial indebtedness” means any indebtedness for or in F
respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit
facility or dematerialised equivalent; G
(c) any amount raised pursuant to any note purchase facility or
the issue of bonds, notes, debentures, loan stock or any similar
instrument;
(d) the amount of any liability in respect of any lease or hire
purchase contract which would, in accordance with GAAP, be H
414 SUPREME COURT REPORTS [2022] 5 S.C.R.

A treated as a balance sheet liability [(other than any liability in respect
of a lease or hire purchase contract which would, in accordance
with GAAP in force [prior to 1-1-2019]/[prior to []]/[] have been
treated as an operating lease)];
(e) receivables sold or discounted (other than any receivables to
B the extent they are sold on a non-recourse basis);
(f) any amount raised under any other transaction (including any
forward sale or purchase agreement) of a type not referred to in
any other paragraph of this definition having the commercial effect
of a borrowing;
C (g) any derivative transaction entered into in connection with
protection against or benefit from fluctuation in any rate or price
[and, when calculating the value of any derivative transaction,
only the marked to market value (or, if any actual amount is due
as a result of the termination or close-out of that derivative
transaction, that amount) shall be taken into account];
D
(h) any counter-indemnity obligation in respect of a guarantee,
indemnity, bond, standby or documentary letter of credit or any
other instrument issued by a bank or financial institution; and
(i) the amount of any liability in respect of any guarantee or
indemnity for any of the items referred to in Paras (a) to (h)
E
above.”
73. When compared with Section 5(8), it is clear that Section 5(8)
seems to owe its genesis to the definition of “financial
indebtedness” that is contained for the purposes of investment
grade agreements. Shri Venugopal argued that even insofar as
F derivative transactions are concerned, it is clear that money alone
is given against consideration for time value of money and a
transaction which is a pure sale agreement between “borrowers”
and “lender” cannot possibly be said to fit within any of the
categories mentioned in Section 5(8). He relied strongly on the
G passage in Slaughter and May’s book which is extracted
hereinbelow:
“Any amount raised having the “commercial effect of a
borrowing”
A wide range of transactions can be caught by Para (f), including
H for example forward purchases and sales of currency and repo
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 415
ANAND SONBHADRA [K. M. JOSEPH, J.]

agreements. Conditional and credit sale arrangements could also A
be covered here as could certain redeemable shares.
The precise scope of this limb can be uncertain. Ideally, from the
borrower’s perspective, if there are additional categories of debt
which should be included in “financial indebtedness”, these should
be described specifically and this catch-all paragraph, deleted. A B
few strong borrowers do achieve that position. Most, however
are required to accept the “catch all” and will therefore need to
consider which of their liabilities might be caught by it, and whether
specific exclusions might be required.”
We have already referred to paragraphs 75 and 76 above and C
hence do not refer to it.
129. It is thereafter, while dealing with the impact of the
employment of the word ‘means’ followed by certain words and finally
followed by the word ‘includes’, be found in Section 5(8), this Court in
Pioneer(supra), inter alia, held as follows: D
“82. This statement of the law, as can be seen from the quotation
hereinabove, is without citation of any authority. In fact, in Jagir
Singh v. State of Bihar [Jagir Singh v. State of Bihar, (1976) 2
SCC 942 : 1976 SCC (Tax) 204] , SCC paras 11 and 19 to 21
and Mahalakshmi Oil Mills v. State of A.P. [Mahalakshmi Oil
E
Mills v. State of A.P., (1989) 1 SCC 164 : 1989 SCC (Tax) 56] ,
SCC paras 8 and 11 (which has been cited in P. Kasilingam [P.
Kasilingam v. PSG College of Technology, 1995 Supp (2) SCC
348] ), this Court set out definition sections where the expression
“means” was followed by some words, after which came the
expression “and includes” followed by other words, just as in Krishi F
Utpadan Mandi Samiti case [Krishi Utpadan Mandi
Samiti v. Shankar Industries, 1993 Supp (3) SCC 361 (2)] . In
two other recent judgments, Bharat Coop. Bank (Mumbai)
Ltd. v. Employees Union [Bharat Coop. Bank (Mumbai)
Ltd. v. Employees Union, (2007) 4 SCC 685 : (2007) 2 SCC (L&S)
G
82], SCC paras 12 and 23 and State of W.B. v. Associated
Contractors [State of W.B. v. Associated Contractors, (2015)
1 SCC 32 : (2015) 1 SCC (Civ) 1] , SCC para 14, this Court has
held that wherever the expression “means” is followed by the
expression “and includes” whether with or without additional words
separating “means” from “includes”, these expressions indicate H
416 SUPREME COURT REPORTS [2022] 5 S.C.R.

A that the definition provision is exhaustive as a matter of statutory
interpretation. It has also been held that the expression “and
includes” is an expression which extends the definition contained
in words which follow the expression “means”. From this
discussion, two things follow. Krishi Utpadan Mandi
Samiti [Krishi Utpadan Mandi Samiti v. Shankar Industries,
B
1993 Supp (3) SCC 361 (2)] cannot be said to be good law insofar
as its exposition on “means” and “includes” is concerned, as it
ignores earlier precedents of larger and coordinate Benches and
is out of sync with later decisions on the same point. Equally, Dr
Singhvi’s argument that clauses (a) to (i) of Section 5(8) of the
C Code must all necessarily reflect the fact that a financial debt can
only be a debt which is disbursed against the consideration for the
time value of money, and which permeates clauses (a) to (i), cannot
be accepted as a matter of statutory interpretation, as the
expression “and includes” speaks of subject-matters which may
not necessarily be reflected in the main part of the definition.”
D
130. It is, therefore, the case of the appellant that it is not the law
that in order that a creditor is found entitled to be treated as a financial
creditor under any of the inclusionary clauses, he must also satisfy the
requirements in the main provision. In other words, the concept of
disbursement of the debt to be found in Section 5(8), is not to be rigorously
E insisted upon in appreciating the scope of Section5(8)(f).
131. The stand of the respondents, on the other hand, is the decision
of this Court in Anuj Jain, Interim Resolution Professional for Jaypee
Infratech Limited v. Axis Bank Limited and Others12, wherein a Bench
of two learned Judges of this Court, inter alia, held as follows:
F “46. Applying the aforementioned fundamental principles to the
definition occurring in Section 5(8) of the Code, we have not an
iota of doubt that for a debt to become “financial debt” for the
purpose of Part II of the Code, the basic elements are that it
ought to be a disbursal against the consideration for time value of
G money. It may include any of the methods for raising money or
incurring liability by the modes prescribed in clauses (a) to (f) of
Section 5(8); it may also include any derivative transaction or
counter-indemnity obligation as per clauses (g) and (h) of Section
5(8); and it may also be the amount of any liability in respect of
12
H (2020) 8 SCC 401
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 417
ANAND SONBHADRA [K. M. JOSEPH, J.]

any of the guarantee or indemnity for any of the items referred to A
in clauses (a) to (h). The requirement of existence of a debt,
which is disbursed against the consideration for the time value of
money, in our view, remains an essential part even in respect of
any of the transactions/dealings stated in clauses (a) to (i) of
Section 5(8), even if it is not necessarily stated therein. In any
B
case, the definition, by its very frame, cannot be read so expansive,
rather infinitely wide, that the root requirements of “disbursement”
against “the consideration for the time value of money” could be
forsaken in the manner that any transaction could stand alone to
become a financial debt. In other words, any of the transactions
stated in the said clauses (a) to (i) of Section 5(8) would be falling C
within the ambit of “financial debt” only if it carries the essential
elements stated in the principal clause or at least has the features
which could be traced to such essential elements in the principal
clause. In yet other words, the essential element of disbursal, and
that too against the consideration for time value of money, needs
D
to be found in the genesis of any debt before it may be treated as
“financial debt” within the meaning of Section 5(8) of the Code.
This debt may be of any nature but a part of it is always required
to be carrying, or corresponding to, or at least having some traces
of disbursal against consideration for the time value of money.”
132. Under Section 5(8)(f), the words used, inter alia, are ‘any E
amount raised under any other transaction’. In our quest for similar words,
namely, any amount raised, we discover that similar words are used
namely ‘any amount raised’ specifically in clauses 5(8)(b) and 5(8)(c).
We may notice that, in fact, Section 5(8)(a) specifically deals with money
borrowed against the payment of interest. We have already found that F
under the main provision an interest free loan has been held by this
Court to entitle the unpaid creditor to describe himself as a financial
creditor. The words ‘any amount raised pursuing to any note purchase
facility or issue of bonds, notes, debentures, loans stocks’ are followed
by the words or by any similar instrument. Since, Part II of the IBC
deals with resolution and liquidation for corporate persons and the G
definition of financial debt is found in Section 5(8) falling under Part II,
we may bear in mind that Section 3(8) defines corporate debtor as a
corporate person who owes a debt to any person. The word corporate
person has in turn been defined under Section 3(7) as a company under
the Companies Act as defined in Section 2(20) of the Companies Act, H
418 SUPREME COURT REPORTS [2022] 5 S.C.R.

A 2013, a limited liability partnership as defined in the Limited Liability
Partnership Act, 2008 or any other person incorporated with limited liability
but under any law for the time being in force but will not include any
financial service provider. In fact, a perusal of Part III of IBC which
deals with Insolvency Resolution for individuals and partnership firms
will show that it does not contain the concept of financial debt as indicated
B
in Section 5(8). Section 5(8)(c) comprehensively refers to raising of any
amount based on note purchase facility, issue of bonds, notes, debentures,
loan stock or any similar instrument. Thus, what is contemplated is
ordinarily the corporate debtor raises funds by issuing bonds, notes,
debentures or loan stock which are well known instruments usually used
C by corporate bodies to generate funds for its needs. These instruments
are ordinarily transferable. It is after enumeration of such instruments
specifically that the words ‘similar instrument’ are employed. The
expression ‘similar instrument’ came to be considered by this Court in
the decision reported in State of Orissa v. State of A.P.13. Therein the
question related to the jurisdiction of the Supreme Court under Article
D
131 of the Constitution. The proviso to Article 131 operates to oust the
jurisdiction of this Court. It reads as follows:
“Provided that the said jurisdiction shall not extend to a dispute
arising out of any treaty, agreement, covenant, engagement,
sanador other similar instrument which, having been entered into
E or executed before the commencement of this Constitution,
continues in operation after such commencement, or which
provides that the said jurisdiction shall not extend to such a
dispute.”
(Emphasis supplied)
F In the context of the said provision, we notice the following
discussion.
“15. The word “or” indicates that the succeeding phrase “other
similar instrument” is to be read disjunctively. At the same time
the word “similar” means that the instrument must be of the same
G nature as those preceding. An instrument, to fall within this phrase
would, in the context, have to be a formal writing by which a right
or liability, is or purports to be, created, transferred, limited,
extended, extinguished, or recorded. Thus a document

13
H (2006) 9 SCC 591
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 419
ANAND SONBHADRA [K. M. JOSEPH, J.]

acknowledging title in a third person has been held to be an A
instrument in Biswambhar Singh v. State of Orissa [1954 SCR
842 : AIR 1954 SC 139] .”
(Emphasis supplied)
133. We need not further explore the scope of the said clause
5(8)(c) except to notice that the word similar instrument would indicate B
instruments similar to the instruments which are specifically enumerated.
It is unnecessary for us to expound the different types of instruments
which answer the description of similar instruments and we need only
notice that the golden thread that runs through the specific instruments
is that they all contain an acknowledgement of debt. They are debt
instruments ordinarily issued by corporate bodies. They also are C
transferable in the market and the holder can indeed bring an action on
the same even if he is not the person who has made the initial disbursement
of funds to the corporate debtor. A glance at another immediate neighbour
which is the immediate predecessor of Section 5(8)(f), throws some
light on the mind of the Law-Giver. Section 5(8)(e) deals with receivables D
sold or discounted other than any receivable sold on non-recourse basis.
It will be noted that the receivables are treated as current assets.
Ordinarily, they represent the value of goods or services for which the
creditor can expect payment within a short time, ordinarily,during the
balance period of the financial year. If it were mere receivables, then it
would rightly belong to the fold of an operational debt as such debt includes E
a claim in respect of the provision of goods or services including
employment. However, what legitimises its presence as a financial debt
is the sale or assignment of the receivables or its discounting. In other
words, when amounts are due to the seller of goods or services which
represent receivables in his accounts, should he need payment immediately, F
it is open to such a creditor to assign the right to recover the amount to
a third party. The third party can recover it from the debtor.He can also
have recourse from the assignor of the receivables. When there is a
non-recourse clause, it is taken outside the category of financial debt. It
is also after providing explicitly for raising of funds under clause (b)
which deals with acceptance of or under any acceptance credit facility G
and through the issuance of various instruments and further providing
for a residuary clause through the medium of similar instruments in
Section 5(8)(c), seemingly exhaustive transactions, and further including
the category of financial debt in section 5(8)(e) that the legislature has
thought it fit to provide for the catch-all or residuary provision in section
H
420 SUPREME COURT REPORTS [2022] 5 S.C.R.

A 5(8)(f). In section 5(8)(g), the legislature has included any derivative
transaction entered into or in connection with protection against or benefit
from fluctuation in any rate or price as also a financial debt. Derivative
transactions are essentially instruments which involve the deriving of
the value of the instrument with respect to and in relation to an underlying
asset. It could be a commodity or a shareor any other asset having a
B
value.Ordinarily derivatives comprehend within its scope forward
contracts, futures, options and swaps and an instance of a swap would
be an interest rate swap (IRS). The derivative market is a gigantic
financial market. They also share the quality of marketability not unlike
instruments which are specifically dealt with in Section 5(8)(c). While
C on any derivative transaction, a derivative transaction is ordinarily intended
to hedge risk. This means it is intended to potentially protect the person
from the ill-effects of the fluctuation in the price or the rate of an
underlying asset. A resort is also made to derivatives as a matter of
speculation in which case it partakes of a benefit. The words used in
Section 5(8)(g) appear to suggest that the law giver has contemplated
D any derivative transaction, in connection with the protection of the benefit
from fluctuation in the rate or price. There appears to be an intricate and
complex web of transactions which can take place under a derivative
transaction. The important aspect is, however, a debt in the context of
its mention as a financial debt.
E 134. While there may be again a brooding omnipresence of a
disbursement at some level as between the parties very often in such
transactions referred to as counter parties, there may not be a
disbursement. It is clear that the law-giver has provided for calculation
purposes, the market value of the transaction for determining the value
of the derivative transaction. We are making these observations only to
F
indicate that the device of the definition of the clause which employs the
word ‘means’, followed by certain elements, and thereafter, ending with
an inclusionary clause, providing for various distinct categories would
indicate that for invoking the specified categories, there may not be a
need for the presence of all the elements included in the main provision.
G 135. However, this is different from holding that the conditions in
section 5(8)(f) would stand fulfilled even without a person falling within
its four walls by satisfying even the requirements indicatedtherein. In
other words, as we have indicated the raising of any amount under any
other transaction having the commercial effect of a borrowing is
H indispensable to apply Section 5(8)(f).
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 421
ANAND SONBHADRA [K. M. JOSEPH, J.]

136. The contention of the appellant on the one hand is that the A
terms of the lease under which as far as it provides for a moratorium for
two years after the initial upfront payment and facility of payment of the
balance amount of the premium with interest and spread over 16 half-
yearly instalments, amounts to raising funds by the lessee from the
appellant and it has the commercial effect of a borrowing from the
B
perspective of the lessee. This is to counter the case of the respondents
that having regard to itsposition as a statutory authority and a public
authority under the UPIAD, the transaction does not have the commercial
effect of borrowing. In other words, the case of the respondent is being
indispensable requirement under Section 5(8)(f) that the amount raised
under any other transaction referred to must have a commercial effect C
of a borrowing, it would bring in its train a profit motive which is
incompatible with the position of the appellant as a public authority
charged with the sublime duty it claims of planned development of the
area. Shri Madhavi diwan would apparently point out along with the
learned solicitor general that from the point of view of the lessee, there
is a commercial effect. She also submits that the appellant hasalso D
charged interest.
137. We have already noticed the view expressed by this Court in
Pioneer (supra). The view propounded is that the presence of profit as
the main aim is essential for the commercial effect of a borrowing. This
Court found that both the real estate developer and the homebuyer are E
actuated by profit motive as underlying the transaction.
138. We are of the view that in the facts of the appeals before us,
we are unable to hold that the lessee has raised any amounts from the
appellant. The question, therefore,of considering the last limb of Section
5(8)(f), namely, whether it has commercial effect of a borrowing could F
not arise. But we can safely say that the obligation incurred by the lessee
to pay the rental and the premium cannot be treated as an amount raised
by the lessee from the appellant. It may be noticed that it is reasonably
possible to find that the lessee has raised this amount which it had to pay
to the appellant from some other sources. The reliance on the concept
G
of ‘a tool of raising finance’canvassed by the appellants would be carrying
things too far and to allow them to invoke it carries with-it far-reaching
implications and bears dangerous portent for the purpose of Section
5(8)(f). We would think that the concept of disbursement as present in
the main provision appears to be mandatory in Section 5(8)(f). The purport
of Section 5(8)(f) is to provide for an exhaustive catch-all provision. H
422 SUPREME COURT REPORTS [2022] 5 S.C.R.

A 139. One of the contentions raised on behalf of the respondent
that, since the Law Giver has referred to lease in Section 5(8)(d) of the
IBC and defined ‘financial lease’, as limited only to finance lease and
capital lease, deemed, as such, under the Indian Accounting Standards,
no recourse can be made by the appellants to Section 5(8)(f), which is a
residuary provision. On the other hand, the appellant, while agreeing
B
that all cases of financial or capital lease, covered by Section 5(8)(d),
cannot be considered under Section 5(8)(f) contends thatthere can be
no embargo on the Court, considering whether, in the lease in question,
any amount is raised, having the commercial effect of a borrowing. The
case of the respondent can be understood differently by applying the
C principle that, when there is a special provision, no light must be allowed
to emanate from the general provision. Another allied issue, which, at
this juncture, we must address is, whether the words, ‘any amount raised
under any other transaction, in Section 5(8)(f), would involve attributing
the presence of a transaction on the preceding provisions of Section
5(8). To put it differently, the use of the word, ‘any other’, before the
D
word, ‘transaction’, would involve the presumption that the preceding
sub-clauses of Section 5(8), embodied specific transactions. Going by
the wide definition of the word ‘transaction’ in Section 2(33), we find
that there is merit in the argument of the appellant. Section 5(8)(a) to
Section 5(8)(e) proceed on the basis that there is a transaction, as
E conceived by the Law Giver. As far as the contention that, since the
words, ‘lease or hire-purchase contract’, is specifically confined to, what
is deemed as finance or capital lease, falling under the Indian Accounting
Standards, and, therefore, any liability under such a lease, is not falling
under Section 5(8)(f).
F 140. It is, no doubt, true that in Section 2(33), a transaction can be
an arrangement in writing, under which, there is transfer of assets, funds,
goods and services, from or to the corporate debtor. A perusal of the
terms of lease contemplate that the appellant must not make available
financial facility to the lessee. The appellant has, admittedly, not made
available any loan to the lessee. No advance payment is made by the
G appellant. It is for the lessee to fund the project and make the payment
from its own sources. It is entirely for the lessee to finance the payment
of the rent, premium and interest due to the appellant under the lease.
The claim of the appellant, it must be noticed, is for the amount due by
way of premium and interest, besides the lease amount due as on the
H date of the claim. As far as these amounts are concerned, they are not
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 423
ANAND SONBHADRA [K. M. JOSEPH, J.]

amounts, which have been raised by the lessee from the appellant. They A
would have been either from its own sources or by availing financial
facilities from others. It is vital to notice that as far as the amount saved
by the corporate debtor, to pay the amounts to the appellant, there would
be a financial debt incurred by the lessor to its lender. The acceptance
of the appellants argument would involve that for the said amount the
B
possibility of two financial creditors being present. This is unacceptable.
In fact, the provision relating to limited power of mortgaging, available to
the lessee, is for the purpose of financing the construction of the flats
over the leasehold property. While, under the lease, the lessee may have
incurred debt towards third party, which may be a financial debt. We are
of the view that we would be placing a wholly strained and unreasonable C
interpretation on Section 5(8)(f), if we were to hold that lessee has raised
funds from the lessor (appellant) under the lease in question. Merely
granting a moratorium, followed by the staggered payment in sixteen
half-yearly installments of the balance of premium, cannot possibly lead
to the conclusion that the respondent has raised the funds, under the
D
lease, from the appellant.
141. We may notice that what Section 5(8)(d) of the IBC provides
for is, any liability in respect of any lease, inter alia, which is, however,
confined to a finance or capital lease. We are not ruling out the possibility
that, in a lease, not a finance or a capital lease, falling under Section
5(8)(d), if it otherwise fulfils the requirements of Section 5(8)(f), it would E
not fall under the definition of the word ‘financial debt’. In other words,
Section 5(8)(d) includes only a finance or a capital lease, which is deemed,
as such, under the Indian Accounting Standards. Section 5(8)(f) is a
residuary and catch all provision. A lease, which is not a finance or a
capital lease under Section 5(8)(d), may create a financial debt within F
the meaning of Section 5(8)(f), if, on its terms, the Court concludes that
it is a transaction, under which, any amount is raised, having the
commercial effect of the borrowing. All that we are finding, in the facts
of this case, is that the lease in question does not fall within the ambit of
Section 5(8)(f). This is for the reason that the lessee has not raised any
amount from the appellant under the lease, which is a transaction. The G
raising of the amount, which, according to the appellant, constitutes the
financial debt, has not taken place in the form of any flow of funds from
the appellant/lessor, in any manner, to the lessee. The mere permission
or facility of moratorium, followed by staggered payment in easy
installments, cannot lead us to the conclusion that any amount has been H
424 SUPREME COURT REPORTS [2022] 5 S.C.R.

A raised, under the lease, from the appellant, which is the most important
consideration.
WHETHER THE APPELLANT IS AN OPERATIONAL
CREDITOR?
142. As far as the case of the respondents that the appellant is a
B Local Authority goes, the case of the respondent was largely premised
on the Judgment of this Court in Union of India and Others v. R.C.
Jain and Others14. In short, the case of the respondent was that the
appellant is a Local Authority and the rental and premium in question,
claimed by the appellant, constitutes amount due to the appellant under a
C law, viz., the UPIAD, read with Section 40 of the UP Act of 1973, made
applicable to the UPIAD. Upon this Court pointing out the decision of
this Court reported in New Okhla Industrial Development Authority
v. Chief Commissioner of Income Tax and others15, wherein this Court
has taken the view in the case of the appellant itself, that it is not a Local
Authority. The parties would point out that the said Judgment, may not
D apply, as it was rendered in the context of the Income Tax Act. It is also
pointed out that Judgments, which have been rendered after R.C. Jain
(supra), which includes HousingBoard of Haryana v. Haryana
Housing Board Employees’ Union and Others16 and Commissioner
of Income Tax, Lucknow v. U.P. Forest Corporation 17, are also
E distinguishable. It is contended that of the five tests propounded in R.C.
Jain (supra), there is substantial fulfilment of the same qua the appellant.
143. It was pointed out that under Section 3(r) of the UP Act of
2010, a cognate law, the appellant is treated as a Local Authority. It is
also pointed out that the appellant does provide civic amenities to the
F local inhabitants and, for the purpose of the IBC, it is, indeed, a Local
Authority. It is also pointed out that the appellant is treated as a Local
Authority under the Goods and Services Act. Prima facie the decision in
Noida (supra) may not detract from the appellant being found to be a
local authority for the purpose at hand. No doubt, we do notice that in
the context of the proviso to Article 131 of the Constitution of India, this
G Court did notice the distinction between the words ‘arising out of’ and
the words ‘arising under’ and held that the words ‘arising under’ bears
14
(1981) 2 SCC 308
15
(2018) 9 SCC 351
16
(1996) 1 SC 95
17
H (1998) 3 SCC 530
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. 425
ANAND SONBHADRA [K. M. JOSEPH, J.]

a narrower meaning (See also the discussion of the meaning of the word A
‘arises’ as meaning ‘coming into existence’, in a Judgment of this Court
by Justice Mukherji in Re: Rogers Pyatt Shellac Co. v. The Secretary
of State for India in Council 18 , which stands approved in The
Commissioner of Income Tax, Bombay v. Ahmedbhai Umarbhai and
Co., Bombay 19.
B
144. The appellant would, in fact, point out that it is not necessary
to probe the matter further, in view of the concurrent findings that the
appellant is an operational creditor. No doubt, Smt. Madhavi Divan does
point out that the words ‘arising under any law’, may not be the same as
amounts being made recoverable under a law. Of course, she would
point out that as far as the rental part of the claim, it may be relatable to C
the first limb of an operational debt. When questioned further, as to what
her position is, if this Court found that the appellant is not a financial
creditor,the appellant may be entitled, at least, to be treated as an
operational creditor. We would think that, having regard to the fact that
both the NCLT and NCLAT have proceeded on the basis that the appellant D
is an operational creditor, we need not stretch the exploration further
and pronounce on the questions, which may otherwise arise. We must
not be oblivious to the following prospect, should we find that the appellant
is not an operational creditor, even under the IBC Regulations apart
fromclaims by financial creditors and operational creditors, claims can
be made by other creditors. However, there are, undoubtedly, certain E
advantages, which an operational creditor enjoys over the other creditors.
We would proceed on the basis that, while the appellant is not a financial
creditor, it would constitute an operational creditor.
145. The upshot of the above discussion is that the appeals must
fail. The appeals are, accordingly, dismissed. Parties to bear their own F
costs.

Devika Gujral Appeals dismissed.
(Assisted by : Mahendra Yadav, LCRA)
G

18
AIR 1925 Calcutta 34
19
AIR 1950 SC 134 H