CIRP Costs Under IBC | Time Extension Charges Imposed By Local Authority Cannot Be Mulcted Upon Homebuyers Or SRA: Supreme Court

"The homebuyers and the SRA are sought to be penalised for past sins of the Corporate Debtor, which cannot be allowed, especially in the context of the authority imposing penalty" Supreme Court of India, in a judgment dated September 3, 2026, held that penal charges such as time extension fees levied by a local development authority cannot be treated as Corporate Insolvency Resolution Process (CIRP) costs or recovered from homebuyers and the Successful Resolution Applicant (SRA).

A bench comprising Justice J. B. Pardiwala and Justice K. Vinod Chandran observed that such liability cannot be imposed on stakeholders who were not responsible for the developer's initial default.

The dispute arose from two real estate projects, 'Lotus Boulevard' and 'Lotus Panache', promoted by M/s Granite Gate Properties Private Limited, which was later admitted into the CIRP. While the homebuyers pooled their resources under a 'Pool and Build' mechanism to continue the project, the New Okhla Industrial Development Authority (NOIDA) sealed towers at the site, demanding payment of time extension charges as CIRP costs.

The primary question before the court was whether time extension charges, levied by a development authority under a lease deed, qualify as CIRP costs under the Insolvency and Bankruptcy Code (IBC). The court further examined whether such penalties, arising from the default of the corporate debtor, could be legally imposed upon the homebuyers or the SRA who are attempting to revive the project.

Developmental Purpose vs. Penal Liability

The court noted that NOIDA, as a local authority, holds land for the development of urban and industrial townships to promote welfare. While the authority is involved in commercial ventures, it cannot be entirely divorced from its essential purpose of providing housing as a welfare measure. The court observed that the intention of the lease deed was to provide infrastructure and housing, and the imposition of massive default charges acts as a deterrent to the project's completion.

Court Rejects Inclusion As CIRP Costs

Regarding the status of these charges, the bench clarified that they do not fall under Section 5(13)(c) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The court reasoned that these charges are not incurred by the Resolution Professional nor are they necessary for the continuation of the project; rather, they are historical penalties meant to punish the defaulting developer.

"The default was of the developer and homebuyers cannot be mulcted with that liability."

No Penalty For Past Sins

The judgment strongly emphasized that the delay in project completion was caused by the corporate debtor, not the current stakeholders. Holding that it is neither the default of the homebuyers nor the SRA, the court ruled that the authority cannot validly impose these penalties on them. The bench further rejected NOIDA's plea to extend these charges beyond the original three-year period up to the tenth year, terming it an attempt to penalize parties for the "past sins" of the corporate debtor.

"We set aside the directions to consider the time extension charges as CIRP costs and modify the impugned order to that extent."

The Supreme Court allowed the appeal filed by the Authorized Representative of the homebuyers and dismissed the appeal filed by NOIDA. The bench set aside the earlier NCLAT directions that had categorized the time extension charges as CIRP costs, effectively granting relief to the homebuyers and the SRA from the burden of these penal levies.

Date of Decision: 03 September 2026