A Supreme Court of India ruling has protected homebuyers from real estate developers passing on their time-extension penalties involving the Lotus projects in Noida, Uttar Pradesh state.
The court heard a case concerning real estate developer Granite Gate Properties undergoing a corporate insolvency resolution process (CIRP), which wanted to include the penalties as costs in the CIRP.
Granite Gate had taken two plots of land on perpetual lease to build high-rise apartment complexes.
The New Okhla Industrial Development Authority (NOIDA) advertised theLotus Boulevard and Lotus Panache projects, in Noida, Uttar Pradesh state. During construction, however, Granite was declared a corporate debtor. NOIDA is the civic planning and municipal body responsible for managing developments in Noida.
In the CIRP, the committee of creditors constituted the projects’ homebuyers as a class of financial creditors.
Granite Gate filed multiple applications before the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). The homebuyers’ collective and NOIDA also filed appeals. The NCLAT directed that time-extension penalties levied on Granite Gate be treated as CIRP costs for up to three years.
This led to the present appeal, The Authorised Representative for Granite Gate Properties Private Limited, Ms Rakesh Verma v New Okhla Industrial Development Authority & Ors (2026).
Senior advocate Dhruv Mehta, who appeared for the homebuyers, argued that levying the timeextension charges were penal in nature due to the developer’s actions. Hence, including such penal charges as part of the CIRP costs would be “unjust and misconceived”. The developer’s fault should not be borne by the homebuyers, he added.
NOIDA argued that construction on the projects had ceased since the CIRP began, which could not resume unless the penalties were paid and hence must be included as CIRP costs.
In support, NOIDA cited that under the lease agreement, the matter was governed by the UP Industrial Area Development Act, 1976 and its rules. NOIDA released office orders that included time extensions beyond three years and up to a decade. NOIDA argued that all of this would be included in the CIRP costs.
The successful resolution applicant (SRA) in the CIRP, represented by senior advocate Krishnendu Datta, supported the arguments of the homebuyers’ collective.
The SRA also argued that under the approved resolution plan, any cost above INR30 million (USD313,156) should be first recovered from the allottees of towers 17, 18 and 19 of the Lotus Panache project. This was based on a super-area charge, which includes the actual apartment and a portion of the shared facilities.
In its deliberations, the court said NOIDA was constituted as an authority entrusted with overseeing and ensuring the development of the area.
NOIDA’s involvement in a commercial venture is how the authority generates capital that it can use to fund more development. However, the authority’s essential purpose cannot be overlooked, i.e. “welfare measures without a mere profit motive”.
The court said the finish date for the Lotus projects initially were advertised as 2016, but a decade later, homebuyers were still waiting. Hence, if the default charges were included in the CIRP costs, it would defeat the essential purpose of the NOIDA development.
Granite Gate was out of the picture and, under the circumstances of the case, the project would only be completed after successful execution of the resolution plan approved by the committee of creditors, the court said. As Granite was undergoing the CIRP, it could no longer be part of the Lotus projects’ completion.
The court said the penalties were levied due to Granite Gate’s actions, and the homebuyers and the SRA could not be penalised for the development company’s sins.
The court rejected NOIDA’s application to include penalty charges up to 10 years in the CIRP. The court then modified the NCLAT’s order that “the penalty imposed by NOIDA on delay, now mulcted on the SRA and the homebuyers cannot be so validly imposed”.
