NCLAT Delhi Upholds Dismissal Of Wave Megacity’s Section 10 Application By AA

Background Facts

In 2011, Wave Megacity Centre Private Limited (“Corporate Debtor/Wave”) was allotted land by NOIDA on lease. Wave developed various residential and commercial projects on the said Land under the name “Wave Mega City Centre”. The homebuyers of the residential project were promised possession by 2016. Despite receiving 90% of the consideration amount, Wave could not complete the construction and from 2017 onwards the Projects were stalled.

Thereafter, Wave filed an application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking initiation of Corporate Insolvency Resolution Process against itself. The allottees of residential and commercial projects of Wave filed objections under Section 65 of IBC to the application under Section 10. The Allottees argued that the application under Section 10 of IBC was filed fraudulently and for purpose other than resolution. It was alleged that Wave had siphoned off around 90% of the consideration received from 2300 Homebuyers and the Application was filed to save itself from different liabilities. Hence, the Application deserves to be rejected.

The Adjudicating Authority vide its Order dated 06.06.2022 allowed the objections filed by the allottees and rejected the Section 10 application of the Corporate Debtor. Wave filed an appeal before the NCLAT assailing the Order dated 06.06.2022 of the NCLT.

Contentions Of Corporate Debtor

Wave argued that the Adjudicating Authority failed to examine the existence of debt and default. The pendency of any criminal investigation and pending litigations before consumer forum and NCLAT against the Corporate Debtor has no bearing on Section 10 application. Further, objections were filed to the Section 10 application merely by handful of allottees. Whereas, majority of homebuyers would benefit from the CIRP. Wave submitted that the purpose of IBC is to protect and preserve the valuation/assets of the Corporate Debtor, hence, CIRP must be initiated.

NCLAT Verdict

The Bench observed that as per the Ministry of Corporate Affairs (MCA) records, the Directors of the Corporate Debtor had resigned few months before filing of Section 10 application. Further, the Directors who have resigned have portrayed themselves to be Financial Creditors of Corporate Debtor in the Section 10 application. The conduct of Directors proves malicious intention of Corporate Debtor.

“There is no doubt that 90% amount from the Homebuyers were received, which is claimed to be Rs.1400 crores and the Appellant has left most of the Project unfinished, depriving possession thereof to Homebuyers speaks for itself.”

The Bench held that the existence of debt and default does not obligate the Adjudicating Authority to admit Section 10 application, if findings of fraud and malicious intent have been recorded. The Bench upheld the dismissal of Section 10 of IBC application by the Adjudicating Authority and dismissed the appeal.

Case Title: Wave Megacity Centre Private Limited v Rakesh Taneja & Ors

Case No.: Company Appeal (AT) (Insolvency) No. 918 of 2022

Counsel For Appellants: Mr. ANS Nadkarni, Sr. Advocate, Mr. Hardeep Sachdeva, Mr. Sameer Sodhi, Mr. Abhyudai Singh, Ms. Kanika Singhal, Mr. Mukund, Mr. Dhruv Wadhwa, Ms. Deepty Arya, Mr. S S Rebello, Ms. Arzu Paul, Ms. Manisha Gupta, Mr. Rahul Singh, Mr. Nishant Shokeen, Ms. Sumita Singh and Mr. Altamash Rashid, Advocates.

Counsel for Respondents: Mr. Sanjiv Sen, Sr. Advocate with Mr. Sourav Roy, Mr. Kaushal Sharma, Mr. Prabudh Singh, Advocates for Noida Authority. Mr. Ratnesh Sharma, Mr. Rahul Raman, Advocates for R-16,31,32. Mr. ML Lahoty, Sr. Advocate with Dania Nayyar and Mr. Bhanu Tejaswi, Advocates for Homebuyer Association. Mr. Krishna Mohan K, Mr. Dania Nayyar, Advocates for Wave Homebuyers Association. Mr. Rakesh Taneja, Advocate

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