NCLAT Dismisses Wave Megacity's Plea To Initiate Insolvency Proceedings

The tribunal observed that company's plea to initiate insolvency proceedings against itself under Section 10 of IBC was with ‘malicious purpose’. It added that it ‘was to save the Corporate Debtor from liabilities, responsibilities and prosecution.’

In June last year, the Delhi-based Principal bench of the National Company Law Tribunal (NCLT) rejected the plea filed by Wave Megacity Centre, which is developing commercial and residential projects in sectors 25A and 32 of Noida, Uttar Pradesh.

NCLT had also allowed the plea filed by 33 homebuyers under Section 65 of the Insolvency and Bankruptcy Code (IBC) to reject the company's application filed under Section 10 of the Code.

Section 10 of IBC allows a debtor to initiate an insolvency resolution process against itself if it has committed any default. Section 65 deals with fraudulent or malicious initiation of voluntary insolvency proceedings and grants power to NCLT to impose a fine of up to ₹1 crore.

The NCLT order was challenged by Wave Megacity Centre before the National Company Law Appellate Tribunal (NCLAT), which also rejected it.

A two-member bench headed by Chairperson Justice Ashok Bhushan said: "When the finding recorded by the NCLT is that Section 10 Application has been initiated fraudulently and maliciously, even if there is debt and default, the Adjudicating Authority is not obliged to admit Section 10 Application."

The NCLAT, in its 27-page order, also observed that Manpreet Singh Chaddha, director, has been transposed as a Financial Creditor of the company.

"The resignation of Directors few months before the filing of Section 10 Application especially Manpreet Singh Chaddha, who was Director from day 1 and claiming dues as Financial Creditor in Section 10 Application fully proves the malicious intention of the Corporate Debtor," it said.

It further said there is no doubt that 90 per cent of amount from the homebuyers was received, which is claimed to be ₹1,400 crore, but Wave Megacity Centre has left most of the project unfinished, depriving buyers of possession.

"The allegations made by the Homebuyers that amount has been siphoned by the Appellant finds credence by the sequence of events, which took place in the present case," the NCLAT order noted.