NCLT rejects Wave Megacity's plea

NCLT rejects Wave Megacity's plea

Provides relief to home buyers, banks, and Noida Authority

The real estate giant Wave Megacity Centre Private Limited (controlled by the Ponty Chadha family) has received a massive blow, as the Delhi bench of the National Company Law Tribunal dismissed its petition filed a year ago.

Wave had pleaded to declare it insolvent on the ground that it was unable to clear the dues of the Noida Authority, the home buyers, and the banks.

In its plea, Wave had submitted, "At the time of the filing of the present petition, the total liabilities of the Corporate Applicant are to the tune of Rs.5,910 crores approximately (Rs.1,222 crores owed to the Noida Authority, Rs.1,398 crores paid by the allottees, Rs.200 crores owed to Yes Bank, Rs.875 crores as carried forward losses up to 31 March 2020. Rs.1,900 crores have been invested in the Corporate Applicant's Promoters and related parties, Rs.315 crores for unrelated third parties, as detailed on Page 22 to 24 of the Petition."

Since the tribunal has refused to declare the company insolvent, it does not get immunity against recovery proceedings that could be initiated against it. This means it is liable to pay the amount it owes to the homebuyers, the banks, and the Noida authority.

But if Wave had been declared insolvent, under Section 14 of the Insolvency and Bankruptcy Code (IBC), it would have won immunity against the recovery proceedings.

The judgment highlights the tribunal imposing a fine of Rs.1 crore on Wave, the highest permitted under IBC for a fraudulent application to circumvent the Noida authority, the banks, and the homebuyers after siphoning of the money.

Meanwhile, the Central government has also been directed to investigate the affairs of Wave. (Interestingly, in March 2021, Wave had filed an unusual petition to initiate insolvency proceedings against it. Normally, the financial creditors or operational creditors move against a company so that insolvency proceedings can be initiated).    

Appearing on behalf of the Noida authority, Senior Supreme Court advocate Sanjiv Sen informed, "Rs.1 crore is the maximum fine that can be imposed by NCLT. This is one of the very rare cases that NCLT has imposed a fine of this magnitude and asked the government to investigate into the affairs of Wave."

Wave was represented by Senior Supreme Court advocate Kapil Sibal.

In its petition seeking insolvency proceedings, Wave had said that it was the failure of the corporate debtor (Wave Megacity Centre) to pay dues to the Noida authority and the shortage of adequate cash flow to meet its obligation to the customers and financial lenders.

It added that the board of directors of the corporate debtor had examined the financial situation. In order to keep the corporate debtor as a going concern, they have approved/resolved to file the application to protect the interests of its creditors and stakeholders.

The company alleged that the Noida Authority was refusing to execute the sub-lease deed for even the completed units in the fully paid-up land parcel measuring 56,400 sq metres on the grounds of non-payment of the outstanding dues.

Meanwhile, the spokesperson for Wave said, "The tribunal has pronounced the order. We evaluate the order and will approach the appropriate court for the next course of action. Our utmost priorities remain to protect the homebuyers' interest, which we will continue to endeavor."

Wave was developing a mega commercial–cum–residential project in Noida Sectors 25A and 32. It applied to NCLT in March 2021 to initiate a voluntary resolution process.

It had invested over Rs.3,800 crore in the project, including Rs.2,223 crores, by its promoters and their associates. In addition, it borrowed around Rs.190 crores from commercial banks. The homebuyers had paid the balance amount of around Rs.1,400 crores. Of this, more than Rs.2,000 crores were paid to various government agencies, including around Rs.1,600 crores to the Noida authority.

Wave Mega City Center (WMCC) is a Special Purpose Vehicle (SPV) for this project, and it does not have any investment in any other group company.

Wave had acquired 6.18 lakh sq. meters of land on a leasehold basis in 2011, spread between Sectors 25A and 32 in Noida, for around Rs.6,622 crores at Rs. 1.07 lakh per sq. meter. As per the original scheme, the repayment schedule was spread over 16 half-yearly instalments after a moratorium of two years. Each instalment included principal and scheduled interest.