TMI Blog2022 (5) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 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. 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). Whether appellant is a Financial Lessor? - HELD THAT:- In Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India and Others [ 2004 (10) TMI 325 - SUPREME COURT] the appellant entered into a lease and finance agreement with the third respondent therein under which the subject matter of the lease was 57 cars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade only by way of a sub-lease - 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. Therefore, we would find on the whole that the appellant is not 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. Scope of Section 5(8)(f) of IBC - HELD THAT:- 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. Thus, what is contemplated is ordinarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise. 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 from claims by financial creditors and operational creditors, claims can be made by other creditors. However, there are, undoubtedly, certain 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. Appeal dismissed. - CIVIL APPEAL NO. 2222 OF 2021 CIVIL APPEAL NO. 2367-2369 OF 2021 - - - Dated:- 17-5-2022 - K. M. JOSEPH And HRISHIKESH ROY , JJ. For the Appellant : Mr. Sudhir Naagar, AOR Mr. Sourav Roy, AOR For the Respondent : Mr. Pulkit Srivastava, AOR Ms. Kriti Ranjan, Adv. Mr. Ritin Rai, Sr. Adv. Mr. Ninad Dogra, AOR Mr. Nipun Gautam, Adv. Ms. Ritika Sinha, Adv. Ms. Gunjan Mathur, Adv. Mr. Parth Maniktala, Adv. Mr. Prateek, Adv. Mr. Krishna Dev Jagarlamudi, AOR Mr. Devashish Bharuka, Adv. Mr. Rajiv Shankar Dwivedi, Adv. Mr. Justine George, Adv. Ms. Sarvshree, Adv. Mr. Anil Kumar Sharma, Adv. Mr. Abhishek Agarwal, AOR Mr. Som Raj Choudhury, AOR Ms. Shrutee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n CA 2222/2021. Besides 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. 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 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 two bid tender system in favour of a consortium of which it is a member. The lease deed provides that the shareholding of the lessor shall remain unchanged till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. (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 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 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 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 made the payment according to the schedule specified in the lease 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 7. Norms of development are specifically set out as maximum permissible FAR, maximum ground coverage and maximum height. The 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 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: 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 of payment by allottee or on receipt of assurance of paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall be through a Sub-lease/ Lease Deed to be executed on the request of the Lessee to the LESSOR in writing. (vii) No transfer charges will be payable in case of first sale, 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. 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 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 The lessor reserves the right to all mines, minerals, coals, washing gold earth s olls, quarries on or under the plot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 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 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/ alternations or modifications in the terms and conditions of allotment/lease deed/sub lease deed from time to time, as may be 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 the lessor s control, the lessor is unable to make allotment or facilitate the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d conditions of brochure and its corrigendum, allotment, building bye-laws and as amended from time to time shall be binding on the Lessee. For and on behalf of LESSOR ` (Emphasis supplied) FINDINGS OF THE NCLAT 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 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 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 cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 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 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. V. Next, reliance is placed on the clause relating to mortgage, which required permission of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in question can be said to be a 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 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 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 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);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatsoever, under this act and includes his successors and assigns, 21. Section 3 deals with the Constitution of the authority and reads 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. (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 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 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) The Managing Director, U.P. State Industrial Development Member Corporation-ex official. (f) Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontage of any building, the alignment of building on any site, the number of residential buildings that 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 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial development area or part thereof, if included in a Panchayat area, shall, with effect 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, 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.] 12-B.-(1) The Governor may, by notification, specify under 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 development area or any part thereof is specified to be an Industrial Township under the proviso to clause (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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) 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. (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. (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 terms and conditions as the State Government may determine. (5) The Authority shall maintain a sinking fund for the repaymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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: 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 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 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. This is crucial in appreciating whether the rewards incidental to ownership has been transferred to the lessee. He h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, including a bank, it would have had to receive financial accommodation in some form or the other, under which, the respondent would become 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, 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 IBC. He would point out that the main provision, i.e., as contained in Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a 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 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 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 it plainly has the effect of borrowing and bringing into play the statutory mantra also, of commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification 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 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, 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. 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 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 is vital, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated and therefore, the court should not hesitate to 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 to deflect us from 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? 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. 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lost opportunity in developing the land. The word claim includes a right to remedy for breach of contract, it is pointed out. 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): 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 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. Housing Urban Development Authority v. Ran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table. 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 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 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 what is expressly provided. It is unnecessary to bring in the concept of transaction, as defined in Section 2(33), for appreciating its scope. A perusal of definition of the word debt , no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally 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 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 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 which we will recapitulate here Section 5(8)(d)- the amount of any liability in respect of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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. (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 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 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-canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Aneeta Hada v. Godfather Travels and Tours Private Limited 2012 (5) SCC 661: 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) 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 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 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 logica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 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 rent. 65 The examples and indicators in paragraphs 63 64 are not always 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 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 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 classi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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, 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. 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 distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not depreciate with the passage of time. Ordinarily, the price of land would only increase, 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 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, 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 lease was entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areas and 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-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. 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 conveyance. There is simultaneous sub-lease also in regard to the unidentified title to the proportio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 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 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 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. 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. 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 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 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 lease. It would not be a financial lease. In this case, the position obtaining 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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: 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 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 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 relevant when the lease term is 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 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: - 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. (Emphasis supplied) 99. In State of Orissa and Another V. M/S. Chakobhai Ghelabhai and Company, AIR 1961 SC 284 one of the questions which arose was whether under Section 29 of the Oris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying 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 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 not be extraneous or contrary to the purpose of the establishment 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 be made out. In M/s. Shroff and Co. v. Municipal Corpn. of Greater Bombay and Another, 1989 Supp 1 SCC 347 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 incidental to would mean arising out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding 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 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. 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, 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Rewards may be represented by the 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 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 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. 108. We may now turn to the provisions of the lease and the contentions in the context of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer. This is no doubt subject to the clause which deals with the category of untransferable right of occupancy and the other 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 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 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 rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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-lease provided before us. 113. As far as the right to mortgage is concerned the lessee 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 ownership but there is no absolute right to create a mortgage. 114. The requirement of prior permission to create a mortgage would mean th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are indicated which include roads, parks, etc. It is further indicated that however transfer/ sub lease shall be governed by the transfer policy of 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 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 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 constructe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer 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 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 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aximum 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 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 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, 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 no sublease in respect of any la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable 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. (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 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 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 sublease in respect of the land or, as the case may be, omits or fails to pay the composition fees in lieu there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 (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. (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. (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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any allotment, sale or other transfer made by any group housing cooperative society or association, the transferability of the apartment 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 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 over the same vide either Section 5 or Section 7. The case of sale if it relates to land in the balance sheet projected by the appellant represented by Ms. Madhavi Divan cannot 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding 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 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 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 has been legally assigned or transferred . 123. Transaction , as defined in Section 3(33), would, undoubtedly, include an agreement or arrangement in writing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jit 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. 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 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 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: 3. (33) transaction includes an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenged 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 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 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 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 done with profit as the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions not to 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 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 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 the land. It is such land, which is the subject matter of the lease. When the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable. 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 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, 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.) by Thomas P. Fitch in which time value for money was defined 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of the termination or close-out of that derivative transaction, that amount) shall be taken into account]; (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) 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 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 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 transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , these expressions indicate 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, 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 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. 130. It is, therefore, the case of the appellant that it is not the law that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for time value of money, needs 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 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 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 corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be of the same 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 acknowledging title in a third person has been held to be an 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 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et 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 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 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. 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 purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt found that both the real estate developer and the home buyer are 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 date of the claim. As far as these amounts are concerned, they are not amounts, which have been raised by the lessee from the appellant. They 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent 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 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 others (2018) 9 SCC 351, 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 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 Housing Board of Haryana v. Haryana Housing Board Employees Union and Others (1996) 1 SC 95 and Commissioner of Income Tax, Lucknow v. U.P. Forest Corporation 1998) 3 SCC 530, are also 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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