Supreme Court Pulls Up GNIDA For 'Persistent Inaction' In Monitoring Projects, Restores Earth Towne Resolution Plans

The Supreme Court of India on Tuesday observed that the Greater Noida Industrial Development Authority (GNIDA) was largely responsible for the situation surrounding stalled projects of Earth Infrastructures Ltd., including the Earth Towne project in Greater Noida, faulting it for failing to monitor development and allowing the situation to worsen.

“We are, therefore, of the opinion that GNIDA contributed greatly to the present imbroglio by its persistent inaction and ineptitude all through. Having executed lease deeds for development of the lands, it failed to keep track of and monitor the development being undertaken on such lands to ensure timely completion thereof within the stipulated period of seven years. We may also note that long prior to initiation of the CIRP proceedings against EIL, the CD, GNIDA was informed by the aggrieved home/office space buyers of the tardy progress in the construction of the projects but failed to take necessary coercive steps against the lessees and/or the developer, EIL”

The court also set aside the January 30, 2023 judgment of the National Company Law Appellate Tribunal (NCLAT) and restored the resolution plans approved by the National Company Law Tribunal (NCLT) for the Earth Towne project.

A Bench of Justice Sanjay Kumar and Justice Alok Aradhe directed continuation of the corporate insolvency resolution process with GNIDA's participation, including determination of its dues.

The case arose from insolvency proceedings initiated against Earth Infrastructures Ltd, the corporate debtor behind several projects, including Earth Towne.

The process was triggered by a financial creditor, and a committee of creditors comprising banks and over 4,000 homebuyers was constituted. Resolution plans submitted by Roma Unicon Designex Consortium and Alpha Corp Development Pvt Ltd were approved by the committee and later by the NCLT in 2021.

However, GNIDA challenged these approvals before the NCLAT, arguing that the project land, leased to a subsidiary entity, could not be dealt with without its consent.

Accepting this contention, the appellate tribunal had set aside the plans and directed a fresh process.

The Supreme Court set aside this view and lifted the corporate veil between Earth Infrastructures and its subsidiary Earth Towne Infrastructures Pvt Ltd, which formally held the lease.

“Given the facts obtaining presently, we are of the firm view that this was an eminently fit case for lifting the corporate veil, as EIL was the main driving force in the development of the projects and in payment of GNIDA's dues. The subsidiary companies were only a front. ”

The court noted that Earth Infrastructures held a dominant stake in the special purpose vehicle, increasing its shareholding from 78% to about 98% and retaining control as the lead member.

It entered into agreements that transferred development rights to itself, undertook construction and made substantial payments towards lease obligations.

Rejecting GNIDA's claim that it was unaware of the parent company's role, the court pointed to its own correspondence acknowledging construction activity by Earth Infrastructures on the leased land.

“Having addressed a letter to the police authorities in relation to EIL's construction on the land leased out to ETIPL, GNIDA cannot now seek to claim ignorance of the reality that it was EIL that was undertaking the construction of the projects on all three leased lands.”

The court found that GNIDA did not take timely steps despite defaults in payments beginning as early as 2010–2013. It noted that only sporadic notices were issued and no effective steps were taken to recover dues or monitor completion of the projects.

Even after being informed of the insolvency proceedings, GNIDA did not file its claims in time and later filed a claim before the interim resolution professional instead of the resolution professional.

Highlighting its inconsistent stand, the court said GNIDA could not, on the one hand, claim that the land did not belong to the corporate debtor, and on the other, seek to press its claims within the insolvency process.

The Bench also noted that homebuyers had been raising concerns over delays and stalled construction since 2016, but GNIDA failed to take effective steps despite its obligation under the lease agreements to monitor the development.

While restoring the resolution plans, the court declined to allow GNIDA to recover penal interest and related charges for the relevant period, holding that its own conduct had materially contributed to the situation.

The court said the objective of ensuring completion of stalled projects must guide the process.

“Though, the aforestated policy/package would have application only to Earth Towne, being a residential project, and may not apply stricto sensu to the other two projects, which are commercial in nature, we may note the higher objective underlying this policy, i.e., to secure completion of stalled development projects. As that was the very aim of the CIRP proceedings initiated against EIL, the CD, we are of the opinion that by adopting the policy to some extent to suit the present situation, the successful resolution applicants, Alpha and Roma, can be permitted to proceed with their resolution plans to complete the projects, viz., Earth Towne, Earth Sapphire Court and Earth TechOne, while protecting the interests of GNIDA also.”

The ruling restores the resolution framework for the project.