Homebuyers Cannot Be Made To Bear Penal Charges For Project Delays As CIRP Costs: Supreme Court
Kirit Singhania
3 Sept 2026 6:47 PM IST
The Supreme Court has ruled in a case that time extension charges imposed for delays caused by a defaulting developer are penal in nature. They cannot be passed on to homebuyers as costs of the Corporate Insolvency Resolution Process (CIRP), observing that the default was that of the developer and homebuyers could not be made to bear that liability.
"The time extension charges in any event are penal in nature and the developer who has caused the default having ended up in a CIRP, the inclusion as CIRP costs would be unjust and misconceived. The default was of the developer and homebuyers cannot be mulcted with that liability," the court observed.
A Division Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran set aside a National Company Law Appellate Tribunal direction.
The direction had treated the charges as CIRP costs for the maximum three-year period after the expiry of the time allowed for completing the projects under the lease deeds.
The court also dismissed the New Okhla Industrial Development Authority's (NOIDA) appeal. NOIDA had sought to recover such charges beyond three years and up to the tenth year.
The case concerns the Lotus Boulevard and Lotus Panache housing projects of Granite Gate Properties Private Limited. The projects are located in NOIDA's Sectors 100 and 110.
NOIDA had leased the two plots to the developer on December 30, 2008, and December 29, 2009, respectively.
The developer later entered the Corporate Insolvency Resolution Process. This is the insolvency process through which the affairs of a financially distressed company are resolved.
In this case, the Committee of Creditors consisted entirely of homebuyers. A resolution plan to take the projects forward had also been approved.
The dispute centred on time extension charges imposed because the projects had not been completed within the stipulated period. In July 2024, the National Company Law Tribunal issued directions concerning the treatment of these charges as CIRP costs. The National Company Law Appellate Tribunal later modified those directions.
The National Company Law Appellate Tribunal treated the charges as CIRP costs only for the maximum three-year period after the expiry of the time allowed for completing the projects under the lease deeds. NOIDA, however, sought charges for a longer period.
It relied on a later policy under which such charges could continue up to the tenth year.
Before the top court, the authorised representative of the homebuyers argued that the charges arose from the developer's own default. During the insolvency process, the homebuyers had pooled their resources and carried out construction under a mechanism approved by the Committee of Creditors.
They could not be made to bear a penalty for delays for which they were not responsible, it was argued.
NOIDA argued that without payment of the time extension charges, the projects could not continue. It therefore maintained that the charges had to be included as CIRP costs.
The successful resolution applicant also supported the homebuyers' stand. This is the entity selected to implement the resolution plan.
It pointed to provisions in the resolution plan dealing with the recovery of any additional liability. Such liability could arise if the charges were held to form part of the CIRP costs.
Examining NOIDA's role, the court observed that the authority engages in commercial activity. Its essential purpose as a local authority, however, also includes the welfare and development of the area.
Revenue generated through development helps meet infrastructure needs. It also funds further development.
"The authority surely is involved in a commercial venture, but it cannot be divorced from the essential purpose which every local authority pursues and advances, i.e.: welfare measures without a mere profit motive," the court observed.
The project was to be completed in 2016. Another decade had passed, yet the homebuyers were still waiting for their homes.
The court observed that the essential purpose of development would fail if NOIDA insisted on payment of the default charges.
The charges were intended to penalise a defaulting developer, the court noted. They were also meant to encourage timely completion and deter delays.
Here, however, the developer responsible for the delay was out of the picture. The incomplete project could be completed only if the resolution plan was put into operation.
Neither the homebuyers nor the successful resolution applicant had caused the delay, the court noted. Making them pay charges imposed for the corporate debtor's past defaults would amount to penalising them for failures that were not theirs.
In the peculiar circumstances of the case, the court held that NOIDA should waive the penalty charges. It set aside the direction of treating the time extension charges as CIRP costs.
The court also dismissed NOIDA's appeal seeking such charges beyond the three-year period and up to the tenth year.
For Appellant: Senior Advocate Dhruv Mehta, Advocate-on-Record Rachit Mittal, Advocate Yashraj Singh, Advocate Parish Mishra, Advocate Kanishk Raj, Advocate Srishti Agrawaal, Advocate Aayushi Kiran, Advocate Shivansh Bansal, Advocate Ravinder Singh, Advocate Ritvik Bharadwaj, Advocate Nishita Kushwaha, Advocate Nishi, Advocate-on-Record Garima Jain.
For Respondent: Advocate-on-Record Som Raj Choudhury, Advocate Sumant Batra, Advocate Sanyam Saxena, Advocate Sahil Sethi, Advocate Shrutee Aradhana, Advocate Samridh Bindal, Advocate Devika Tiwari, Advocate Aditi Bhushan, Advocate-on-Record Prashant Kumar Nair.