Contingent Charges under Lease Deeds: Their Character as a Security Interest under the IBC
The recent decision of the National Company Law Appellate Tribunal (NCLAT) in Greater Noida Industrial Development Authority v. Anand Sonbhadra, RP of Shubhkamna Buildtech Pvt. Ltd. examines an important question under the Insolvency and Bankruptcy Code, 2016 (IBC): whether GNIDA and NOIDA Lease Deeds create, or evidence, a security interest within the meaning of section 3(31) of IBC such that their claims fall to be classified as secured debt u/s. 53(1)(b) rather than as unsecured statutory/operational dues u/s. 53(1)(e)/(f) of IBC?
The insolvency of Shubhkamna Buildtech Pvt. Ltd. was largely driven by homebuyers. GNIDA and NOIDA, both statutory authorities, challenged the treatment of their claims under the resolution plan and asserted that they were secured creditors.
GNIDA had leased land to the Corporate Debtor for development of residential flats. The premium was payable partly upfront and partly in 16 half-yearly instalments, with interest applicable on defaults. The Corporate Debtor defaulted, resulting in substantial outstanding dues. NOIDA, similarly, had granted a 90-year lease of land to the Corporate Debtor and had its claim reduced from approximately ₹41.40 crore under the original resolution plan to ₹25 crore under the revised plan.
The central issue was whether the relevant lease deeds created a “security interest” under Section 3(31) of the IBC, thereby giving GNIDA and NOIDA the status of secured creditors.
The lease deeds contained a clause referring to a first charge on the lessor’s share of unearned increase arising upon mortgage/foreclosure. NCLAT held that this did not create a present and subsisting charge securing the lease dues. It was merely a contingent right, dependent upon a mortgage-foreclosure event, which had not occurred in the present case.
Another provision permitted the authorities’ arrears to be recovered as arrears of land revenue. NCLAT distinguished this from a contractual security interest: the recovery mechanism arose by operation of law, rather than from an agreement between the parties.
This distinction became decisive following the Insolvency and Bankruptcy Code (Amendment) Act, 2026. The Explanation inserted into Section 3(31) clarifies that a security interest must arise from an agreement or arrangement between two or more parties and does not include an interest created merely by operation of law. The amendment was brought into force from June 2026. NCLAT treated the amendment as clarificatory and therefore having retrospective application.
Conclusion / Takeaway
First ask: What creates the security?
- If it is a specific contractual arrangement between the parties that secures payment or performance of an obligation, it may constitute a security interest.
- If the right arises merely because a statute creates a charge or recovery mechanism, it does not qualify as a security interest under the amended Section 3(31).
- A conditional or contingent charge does not, by itself, constitute a present security interest; however, if the contingency had occurred and was evidenced by the records, the authorities could potentially have claimed a security interest and consequent classification as secured creditors.
Thus, the mere fact that a lease deed is executed by a statutory authority, or that statutory dues enjoy recovery rights, does not by itself make the authority a secured creditor under the IBC. The precise language and legal source of the alleged security interest remain critical.
