Section 10 IBC Application Dismissed as Malicious: Key Takeaways from NCLAT Delhi in Wave Megacity Centre Private Limited Vs Rakesh Taneja & Ors.

Background and Context

The National Company Law Appellate Tribunal (NCLAT), Delhi, in Wave Megacity Centre Private Limited Vs Rakesh Taneja & Ors., upheld an order of the National Company Law Tribunal (NCLT), New Delhi, Principal Bench, dated 06.06.2022. The NCLT had:

  • Allowed two applications filed under Section 65 of the Insolvency and Bankruptcy Code, 2016 (IBC); and
  • Dismissed the corporate debtor’s own application for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 10 of the Code.

The Appellate Tribunal confirmed that where the initiation of proceedings is found to be fraudulent or malicious within the meaning of Section 65, the Adjudicating Authority is not bound to admit a Section 10 application, even if debt and default otherwise stand established.

Factual Matrix

Lease and Project Development

  1. Long-term lease with Noida Authority

    • A Lease Deed dated 02.09.2011 was executed between Noida Authority and Wave Megacity Centre Private Limited in respect of Plot No. CC-001, measuring 618,952.75 sq. mtrs. in Sector 25A and Sector 32, NOIDA.
    • The lease period was 90 years.
    • Wave Megacity paid 10% of the total premium, amounting to Rs.662.29 crores, with the balance 90% to be paid in instalments as specified in the Lease Deed.
    • The corporate debtor failed both to complete the project and to pay the remaining 90% premium.

  2. Launch of multiple residential and commercial projects
    After allotment, the corporate debtor launched a series of projects under the umbrella name “Wave Mega City Centre” around 2011–2012, including:

    • Residential projects:

      • Amore (Land Parcel 2B)
      • Eminence (Land Parcel 2C)
      • Trucia, Irenia & Vasilia (Land Parcel 2D)

    • Commercial projects:

      • High Street Shopping Complex (Land Parcels 3D, 3F & 3H)
      • Livork Studios (Land Parcel 3E)
      • Elegantia (Land Parcel 3G)
      • Edenia (Land Parcel 3J)
      • Metromart (Land Parcel 3L)

  3. Collections from homebuyers and failure to deliver

    • Possession in the residential projects was committed to be handed over by 2016.
    • By 2016, around 90% of the consideration from the majority of homebuyers and allottees had been collected.
    • Despite this, construction remained incomplete and possession was not given.
    • From 2017 onwards, work on the projects was effectively stopped.

Project Settlement Policy and Revised Demands

  1. Surrender and reallocation under State’s Project Settlement Policy

    • The Government of Uttar Pradesh issued the Project Settlement Policy (PSP) via Government Order dated 15.12.2016, allowing developers to surrender land if they were unable to complete projects.
    • Wave Megacity opted for relief under the PSP and surrendered 454,131.62 sq. mtrs. of the originally leased land.
    • A balance area of 164,821.13 sq. mtrs. remained with the corporate debtor, under revised terms:
      • 56,400 sq. mtrs. treated as fully paid for premium, in view of payments made till 2017; and
      • 1,08,421.13 sq. mtrs. charged at the 2017 circle rate of Rs.1,60,000/- per sq. mtr.

  2. Subsequent demands raised by Noida Authority

    • On 26.02.2020, Noida Authority demanded Rs.2717,53,65,192/-, including balance premium, ground rent and other dues.
    • A detailed calculation sheet was shared on 18.03.2020.
    • On 17.07.2020, Noida Authority further called upon the corporate debtor to pay various amounts, including Rs.32,47,09,936/- towards ground rent for 56,000 sq. mtrs. of land.

  3. Challenges before authorities and revised final demand

    • Wave Megacity approached the Principal Secretary, Infrastructure and Industrial Development, Government of Uttar Pradesh on 31.07.2020, contesting the demand.
    • By order dated 17.11.2020 under the Uttar Pradesh Urban Planning and Development Act, 1973, the State Government directed Noida Authority to reconsider and determine its dues.
    • Pursuant to this, Noida Authority issued a fresh demand notice dated 24.12.2020 demanding Rs.2519,33,47,546/-.
    • A writ petition was filed by Wave Megacity Centre Homebuyers Association before Allahabad High Court, challenging the demand and related actions. That writ petition remains pending.

Section 10 Application and Objections

  1. Filing of Section 10 IBC petition

    • On 25.03.2021, the corporate debtor moved an application under Section 10 of the IBC seeking initiation of CIRP on account of default in payment of Noida Authority’s dues.
    • On 05.04.2021, the NCLT directed service of the petition on financial creditors, homebuyers’ associations, other creditors, ROC and Income Tax Department, and listed the matter for 03.05.2021.

  2. Interventions and Section 65 applications by homebuyers

    • Several intervention applications were filed by homebuyers and Noida Authority in CP (IB) No.197(PB)/2021, opposing the admission of the Section 10 petition.
    • NCLT allowed time to intervenors to file objections.

    Two distinct applications under Section 65 were subsequently filed by homebuyers:

    1. IA No.2026 of 2021 by Rakesh Taneja & 32 Ors.
      • Alleged that the Section 10 petition had been filed fraudulently and with malicious intent, not for genuine insolvency resolution.