Application Filed u/s 10 by CD with Fraudulent Intent was Rightly Rejected by NCLT

Case Details: Wave Megacity Centre (P.) Ltd. v. Rakesh Taneja - [2023] 148 taxmann.com 402 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson & Barun Mitra, Technical Member
  • A.N.S. Nadkarni, Sr. Adv., Hardeep Sachdeva, Sameer Sodhi, Abhyudai Singh, Kanika Singhal, Mukund, Dhruv Wadhwa, Ms Deepty Arya, S.S. Rebello, Ms Arzu Paul, Ms Manisha Gupta, Rahul Singh, Nishant Shokeen, Ms Sumita Singh & Altamash Rashid, Advs for the Appellant.
  • Sanjiv Sen, Sr. Adv. Sourav Roy, Kaushal Sharma, Prabudh Singh, Ratnesh Sharma, Rahul Raman, Advs. M.L Lahoty, Sr. Adv. Dania Nayyar, Bhanu Tejaswi, Krishna Mohan K. & Rakesh Taneja, Advs. for the Respondent.

Facts of the Case

In the instant case, a lease deed was signed between NOIDA Authority and the appellant (i.e. corporate debtor) for a period of 90 years and, the appellant paid 10% of the total consideration amount. The appellant launched residential and commercial project, the possession of which was to be handed over to homebuyers before 2016 and for which the appellant had taken 90% consideration from the majority of homebuyers.

However, the appellant neither completed construction nor handed over possession and also stopped constructing the project altogether from 2017 onwards. Thereafter, the Noida Authority called upon the appellant to make the due payment, including balance premium and ground rent. Meanwhile, the appellant filed an application u/s 10 of the IBC to initiate the corporate insolvency resolution process (CIRP) against itself.

In response, the respondent along with others who were allottees of residential/commercial units in the project filed an application u/s 65 before the National Company Law Tribunal (NCLT), on the ground that the appellant had filed the section 10 application fraudulently with malicious intent for a purpose other than for the resolution of insolvency.

The NCLT by an impugned order allowed the application filed under section 65 and dismissed the application filed by the appellant u/s 10 of the IBC. Then, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

NCLAT Held

The NCLAT noted that the directors of the corporate debtor, before filing the section 10 application had resigned and transposed as financial creditors in the said application.

The NCLAT, further observed that the appellant had initiated the CIRP with a fraudulent or malicious intent for a purpose other than for the resolution of insolvency and which would be contrary to the statutory scheme under section 65 of the IBC.

The NCLAT held that the rejection of the section 10 application by the NCLT was consequent and inescapable, and therefore, the NCLT had not committed any error in allowing the application filed u/s 65 and rejecting the section 10 application.

The NCLAT, further held that since section 10A shall not apply to any default committed before 25-3-2020 and the default committed by the appellant was much before 25-3-2020, the application filed by the appellant u/s 10 of the IBC was not barred by limitation in terms of section 10A of the IBC. Accordingly, the appeal was to be dismissed.

List of Cases Reviewed

• • Wave Megacity Centre (P.) Ltd., In re [2023] 148 taxmann.com 401 (NCLT – New Delhi) (para 21) affirmed [See Annex].
  • Ramjas foundation v. Union of India [2010] 14 SCC 38 (para 15) followed.

List of Cases Referred to

• • Unigreen Global (P.) Ltd. v. Punjab National Bank [2018] 89 taxmann.com 17/145 SCL 272 (NCL-AT) (para 13)
  • Ramjas foundation v. Union of India [2010] 14 SCC 38 (para 15).