In Brief
NOIDA, a public authority, leased a 22,565 sq.m. plot for 90 years to a developer for constructing residential flats and claimed payment of premium and rent during insolvency proceedings. NOIDA sought to be classified as a financial creditor to participate in the Committee of Creditors, arguing the lease constituted either a finance lease under accounting standards or a transaction having the commercial effect of borrowing. The Supreme Court rejected both arguments. Under accounting standards, the lease failed every test for finance classification: ownership was not transferred; the lessee had no purchase option; 90-year lease does not comprise the major part of economic life for land (which has indefinite economic life); and substantially all risks and rewards remained with NOIDA through retained control, cancellation rights, and restrictions on mortgaging and end-use. No financial debt existed under the borrowing provision either, as NOIDA disbursed no funds to the lessee—it merely accepted staggered payments of amounts the lessee financed from its own sources. The Court upheld NOIDA's classification as an operational creditor.
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