Wave Megacity Projects, NCLT Dismisses Wave's Insolvency Plea With A Cost Of One Crore

The Bench also imposed a cost of INR One Crore on Wave for filing the insolvency petition against itself for malicious or fraudulent intent and also directed the Central Government to make necessary investigation into the affairs of Wave.

Brief Background

Wave filed petition before the NCLT under Section 10 of IBC for initiation of insolvency process against itself on the account of default. However, various homebuyers filed objection to the initiation of insolvency process by Wave on the ground the same is fraudulent and petition filed by wave is not for the purpose of resolution.

Contentions of Homebuyers

It was contended on behalf of the Applicant homebuyers before NCLT that;

• Wave have received an amount of INR 1400 Crores over a period of 10 years from 2300 homebuyers but still unable to develop the project which was ought to be delivered in 2016
• Almost all homebuyers are before various judicial forums for redressal of their grievances and the present petition filed by Wave is aimed at usurping their lifetime savings.
• An FIR is also registered against Wave with Economics Offence Wing, New Delhi on 13.04.2021
• Wave has siphoned off huge amounts of money to its various other associates prior to the filing of the present petition.
• Three main directors of Wave have been changed prior to the filing of the petition under Section 10 of IBC.

Contentions Of Wave

It was contended on behalf of Wave that;

• Wave has completed the substantial part of the project and has also received completion/occupancy certificate for the completed buildings.
• Corporate Insolvency Resolution Process is a statutory process under the code to protect the interest of creditors, stakeholders including the intervenors.
• FIR dated 13.04.2021 filed with EOW was filed after the filing of the petition under Section 10 by Wave
• The applicants failed to establish as to how the initiation of CIRP will benefit Wave as its promoters would lose the control of the project as well as their investment after initiation of CIRP.

Analysis/Decision by NCLT

After hearing the parties, NCLT observed that Section 65 of the Code provided that penalty can be imposed on a person who initiates CIRP fraudulently or with a malicious intent for anu purpose other than for the resolution of insolvency. NCLT further held that although, Section 65 only provides for imposition of penalty but the same is also a ground for dismissal of the petition.

The bench held that the removal of the directors of Wave just before filing of the Section 10 Petition is an indicator that the management who was running the Wave wants to hide from the reasons of default and wants to immunize itself from the rigors of the Code.

NCLT noted that there are around 285 cases pending against Wave and therefore the possibility of filing the Section 10 Petition to escape the potential liability arising out of this pending litigation cannot be overlooked. NCLT also observed that though the FIR with EOW was registered in April, 2021 but the applicants were pro-actively pursuing the same from March, 2020.

The Bench further took note of the fact that Wave accepted payment in cash from many homebuyers and issued them plain paper receipts and induced them to accept reduced price on paper which causes serious loss to the state exchequer.

On the basis of the above facts, NCLT ruled that Wave under the garb of IBC proceedings has attempted to play fraud on the stakeholders and IBC proceedings cannot be used to make illegal acts as legal.

"We have concluded that the application filed under Section 10 of IBC, 2016 was an attempt on the part of the Corporate Debtor to play fraud on thousands of homebuyers, Noida Authority, Government etc. Further greater prejudice must have caused to them if CIRP was triggered. Therefore, we are imposing a cost of Rs. 1 Crore penalty on the Corporate Debtor which shall be deposited in Prime Minister's Relief Fund within 15 days from today"

NCLT dismissed the petition filed by Wave under Section 10 of IBC also directed the central government to make necessary investigation into the affairs of Wave as it has collected huge amount in cash and siphoned off the same.

Case Details: In the Matter of Wave Megacity Centre Private Limited dated 06.06.2022

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