A National Company Law Appellate Tribunal (NCLAT) bench of Justices Mohammad Faiz Alam Khan and Naresh Salecha on Wednesday (September 16) dismissed appeals filed by the civic planning bodies Greater Noida Industrial Development Authority (GNIDA) and the New Okhla Industrial Development Authority (NOIDA), holding that they cannot be treated as “secured” creditors in the insolvency proceedings of real estate developer Shubhkamna Buildtech Pvt Ltd. Insolvency refers to a situation where individuals or companies are unable to repay their outstanding debt.The case arose from the Corporate Insolvency Resolution Process (CIRP) of Shubhkamna Buildtech, a developer that had obtained leasehold rights over land from GNIDA and NOIDA for housing projects. CIRP is a structured, time-bound legal procedure under the Insolvency and Bankruptcy Code (IBC), 2016, to help revive financially distressed companies.Here’s what to know about the case, how a creditor is classified as “secured”, and how Shubhkamna’s insolvency proceedings panned out.The caseGNIDA had leased land in Greater Noida to Shubhkamna in 2011, while NOIDA had leased a plot in Section 137 in 2010. The developer defaulted on its payment obligations, after which GNIDA claimed that it was owed about Rs 60.6 crore, while NOIDA claimed about Rs 99.3 crore.After the company entered insolvency proceedings, a resolution plan was approved by the Committee of Creditors (CoC) in 2019 under which GNIDA was allocated Rs 18.5 crore and NOIDA Rs 25 crore. Under the IBC, a CoC comprises financial creditors and is constituted for taking decisions regarding insolvency resolution. The CoC may either decide to restructure the debtor’s debt by preparing a resolution plan or liquidate the debtor’s assets.Also read | IBC resolution process: House panel raises concerns over ‘haircuts’, asset valuation; encourage global biddingThis eventually moved into a challenge, as both GNIDA and NOIDA had been treated as operational creditors, whereas they contended they ought to be recognised as secured creditors instead.The dispute turned on the meaning of a “security interest” under the IBC.Story continues below this adUnder Section 3(30), a secured creditor is a creditor in whose favour a security interest has been created. A security interest, as defined under Section 3(31), is a right, title, interest, or claim over property created in favour of a creditor to secure payment or performance of an obligation.The distinction becomes important at the stage of distribution. For payment of creditors, Section 53 of the IBC lays the waterfall mechanism — this is the legal, cascading order of priority used to distribute proceeds from the sale of a company’s liquidated assets.Also in Explained | Can being under the insolvency process prevent ED action against a company? Why NCLAT says noUnder Section 53(1)(b), secured creditors who have relinquished their security interests rank near the top of the distribution hierarchy. By contrast, government dues and other unsecured operational claims fall much lower in the order of priority under Section 53(1)(e) and Section 53(1)(f). Moving from (e) or (f) to (b) is what the authorities were really arguing for, so that they are paid ahead of most other creditors.The lawThe authorities relied on the Supreme Court’s 2023 decision in State Tax Officer v. Rainbow Papers. The case pertained to Section 48 of the Gujarat Value Added Tax Act, which says unpaid VAT dues become a “first charge” on the defaulting dealer’s property, that is, if that property is ever sold, the tax department gets paid out of the proceeds before anyone else with a claim on it, including banks. Story continues below this adThe Supreme Court held that this first charge counted as a “security interest” under Section 3(31) of the IBC, making the State Tax Department a secured creditor under the Code and held that a security interest didn’t need to come from a contract at all, it could simply be created by a law.In 2024, the court applied that same logic to GNIDA itself, in GNIDA v. Prabhjit Singh Soni. GNIDA’s argument rested on Sections 13 and 13A of the Uttar Pradesh Industrial Area Development Act, 1976, which let the authority recover unpaid dues “as arrears of land revenue” — essentially the same fast-track recovery machinery the government uses to collect unpaid property tax, letting it attach and sell the land without going through a civil suit. GNIDA argued that this recovery power amounted to a charge on the property, and the court agreed, treating GNIDA as a secured creditor even though nothing in its lease deed said so.More in Explained | Vedanta vs Adani: How NCLAT ruled on Jaypee flagship company’s insolvency proceedingsThis position was undone by the IBC Amendment Act, 2026. Under Section 3(31), the amendment inserted an explanation which clarifies that a security interest exists only “if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties” and does not include an interest created merely by operation of law. Parliament created a distinction between a charge that arises because of a contract and one that arises solely because the law provides for it.The NCLAT held that this amendment applies retrospectively. So, the authorities could no longer rely solely on statutory provisions to establish secured creditor status.What the NCLAT saidStory continues below this adWith the statutory route gone, the authorities pointed to two clauses within the lease deeds. The first clause allowed the developer to mortgage the land to a bank or a financial institution, saying that in the event of a sale or a foreclosure of the mortgaged property, the authority would enjoy a “first charge” over the “unearned increase in values of properties” but only “in the event of sale or foreclosure of the mortgaged/charged property”.The NCLAT held that this clause did not create a present security interest in favour of authorities. It said that the clause operated only in specific situations, where a mortgage had been created and was subsequently enforced. It also applied only to the authority’s share in the unearned increase in the land value. Since no mortgage foreclosure event had even occurred, the clause created only “a contingent right of priority in a hypothetical future scenario and it does not, constitute a present, subsisting charge securing the premium, interest and lease rent arrears that in fact make up GNIDA’s and NOIDA’s claims as secured creditors in these proceedings”.NewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.SubscribeThe authorities also relied on a clause that said dues were “recoverable as arrears of land revenue”, a standard state recovery tool, which the tribunal read as a method of collection rather than an agreement to create a charge over the property. Accordingly, the lease deeds did not establish the kind of contractual security interest now required under Section 3(31) of the IBC.They also relied on the NCLAT’s earlier decision in Assets Care & Reconstruction Enterprise Ltd. v. Viswanadha Sarma, where NOIDA had succeeded in claiming secured creditor status. The tribunal said that Assets Care was different, as in that case, the relevant sub-lease deed provided that the lessor would have a first charge on the plot towards payment of dues owed to it and thus created a clear and unconditional contractual charge. The lease deeds in Shubhkamna did not contain a similar provision.Story continues below this adThe insolvency process in Shubhkamna Buildtech was largely driven by homebuyers who constituted the majority class of financial creditors. The tribunal had asked them to vote on whether GNIDA and NOIDA should be treated as secured creditors. “An overwhelming 95.6% of the homebuyers who participated in the voting rejected the proposal,” the tribunal noted. The bench also noted that the buyers themselves took a bigger “haircut” — the amount of debt that they agreed to forgo when Shubhkamna couldn’t repay its dues — and put in more money to finish the project, which weighed in its finding that the plan wasn’t unfair to the authorities. The tribunal held that the treatment of GNIDA and NOIDA under the resolution plan could not be said to be arbitrary or discriminatory.