The NCLAT found that more than 99 percent of the sanctioned amount – Rs 147.6 crore by Yes Bank in Mack Star’s name – was returned to the bank on the same day or within a short period of time.
New Delhi: Yes Bank suffered a major setback on Thursday when the National Company Law Appellate Tribunal (NCLAT) dismissed insolvency proceedings against Mack Star Marketing. The National Company Law Tribunal (NCLT) Mumbai initiated insolvency proceedings against the firm in October 2021.
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The tribunal in its order observed that the term-loan provided by Yes Bank to Mack Star was an ‘eye-wash’ and ‘collusive in nature’. A two-member bench quashed the proceedings, stating that such collusive transactions do not fall within the definition of Financial Debt as defined under Section 5(8) of the Insolvency & Bankruptcy Code, and thus Suraksha Asset Reconstruction cannot be referred to as a Financial Creditor.
The NCLAT found that more than 99 percent of the sanctioned amount – Rs 147.6 crore by Yes Bank in Mack Star’s name – was returned to the bank on the same day or within a short period of time. The funds will be used to renovate ‘Kaledonia,’ a two-year-old building constructed at a cost of Rs 100 crore.
“The chequered history of the loan transactions and collusive arrangements indulged by Yes Bank demonstrates that the Term Loans disbursed in the name of Mack Star is an ‘eye-wash’ and Yes Bank has disbursed these loans with an ulterior motive,” said the National Company Law Appellate Tribunal (NCLAT).
It also overturned the orders of the NCLT’s Mumbai bench, which had directed on October 27, 2021, to initiate insolvency proceedings against Mack Star Marketing in response to a petition from Suraksha Asset Reconstruction, the assignee of the loans given by Yes Bank.
“We allow this Appeal and set aside the Impugned Order passed by the Learned Adjudicating Authority (NCLT, Mumbai Bench, Court III), on 20.09.2021,” said the NCLAT.
The appellate tribunal said that orders passed by the NCLT appointing an interim resolution professional, declaring a moratorium, freezing accounts, and all other orders passed in response to the impugned order are effectively set aside.
“The proceedings will now be closed by the Adjudicating Authority. With immediate effect, the “Corporate Debtor” is free of all legal obligations and is permitted to operate independently through its Board of Directors “it was added
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The appellate tribunal decision followed a petition filed by Ocean Deity Investment Holdings, which owns 82.17 percent of Mack Star, challenging the NCLT order.
However, Ocean Deity Investment Holdings argued before the NCLAT that the CBI had filed a FIR on September 23, 2020, against Yes Bank officials, Housing Development Infrastructure Ltd (HDIL), its Promoters, Wadhawans, and other individuals, who were collectively accused of defrauding Mack Star and the appellant through these collusive transactions.
The NCLT issued the order on September 20, 2021, after the Enforcement Directorate arrested Rana Kapoor, the Promoter of Yes Bank, for conspiring with HDIL Promoter to defraud Mack Star.
Suraksha’s Section 7 application under the Insolvency and Bankruptcy Code, 2016, claiming defaults in payment of four Term Loans out of six Term Loan transactions executed between Mack Star and Yes Bank totaling Rs 159.67 crore, was admitted by the NCLT.
“Both CBI and ED have independently concluded that there was a criminal conspiracy, pursuant to which act, there was three steps circular flow of funds from Yes Bank, whereby Rs 147 crores have fraudulently been disbursed in the name of Mack Star; the amount was disbursed to Yes Bank accounts of HDIL Group Companies,” it said.
These loan amounts of Rs 146 crore from HDIL Group Companies’ Yes Bank accounts were used to repay earlier loans obtained from Yes Bank by the financially stressed HDIL Group Companies.
“These findings were completely ignored by the Adjudicating Authority while passing the Impugned Order,” the holding company stated in its application to the NCLAT.
Yes Bank sanctioned Rs 140 crore- of these Rs 147.6 crore term loans in Mack Star’s name for the purpose of renovating and refurbishing ‘Kaledonia,’ a brand new building that was barely two years old and was constructed at a total cost of Rs 140 crore.
Furthermore, Rs 100 crore was disbursed by Yes Bank to Mack Star prior to the signing of any Related Loan Agreements, and a term loan of Rs 40 crore disbursed by Yes Bank in Mack Star’s name was credited directly to HDIL’s Yes Bank account rather than Mack Star’s account, according to the holding company.
Yes Bank continued to make these term loans in Mack Star’s name despite being notified in writing by the appellant that their HDIL affiliate company was not authorised to make loans on Mack Star’s behalf.
Suraksha Asset Reconstruction also filed a petition to initiate insolvency proceedings against Mack Star on April 22, a month after Ocean filed a criminal complaint with the Economic Offences Department of Mumbai Police against Yes Bank, Suraksha, and HDIL Promoters in relation to the illegal term loans on March 5, 2019.
However, counsel for Suraksha argued that Ocean Deity was fully aware of the borrowings and authorised the Board of Directors to carry them out at the Mack Star Annual General Meeting on May 29, 2014.
