New Delhi- Yes Bank suffered a major setback on Thursday when the National Corporate Law Appeals Tribunal (NCLAT) rejected insolvency proceedings against Mack Star Marketing. The National Corporations Law Tribunal (NCLT) in Mumbai commenced bankruptcy proceedings against the company in October 2021.
The court noted in its order that the term loan provided by Yes Bank to Mack Star was “eye-washing” and “collusive in nature”. The two-member seat canceled the proceedings, stating that such collusive transactions did not fall within the definition of financial debt as defined in Section 5(8) of the Insolvency and Bankruptcy Act, and thus the Suraksha Asset reconstruction could not be referred to as the creditor’s finances.
NCLAT found that more than 99 per cent 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 Caledonia, a two-year-old building that was constructed at a cost of Rs 100 crore.
“The volatile history of loan transactions and collusive arrangements in which Yes Bank has indulged shows that the term loans disbursed in the Mack Star name are an ‘eyewash’ and that Yes Bank disbursed these loans with an ulterior motive,” The National said. The Company Law Appeals Tribunal (NCLAT).
It also canceled the orders of the NCLT Board in Mumbai, which had been directed on October 27, 2021, to initiate bankruptcy proceedings against Mack Star Marketing in response to a petition from Suraksha Asset Reconstruction, transferred from loans from Yes Bank.
“We allow this appeal and set aside the contested order of the Judicial Tribunal (NCLT, Mumbai Bench, Court III), on 20.09.2021,” NCLAT said.
The Court of Appeals said that orders by the NCLT to appoint a temporary decision professional, to declare a moratorium, to freeze accounts, and all other orders issued in response to the contested order, are effectively overturned.
“Proceedings will now be closed by the judiciary. With immediate effect, the ‘Institutional Debtor’ is free of all legal obligations and allowed to operate independently through its Board of Directors.”
The appeals court’s decision followed a petition by Ocean Deity Investment Holdings, which owns 82.17% of Mack Star, to challenge the NCLT order.
However, Ocean Deity Investment Holdings argued before NCLAT that the CBI filed a FIR report on September 23, 2020, against officials of Yes Bank, Housing Development Infrastructure Ltd (HDIL), its promoters, Wadhawans, and other individuals, who were charged collectively committing crimes. Defrauding Mac Star and Appellant through these collusive transactions.
The NCLT issued the order on September 20, 2021, after the Directorate of Enforcement arrested Rana Kapoor, a Yes Bank promoter, for conspiring with the HDIL Promoter to defraud the Mack Star.
Suraksha’s application under Section 7 under the Insolvency and Bankruptcy Act, 2016, alleging default of four term loans out of six term loan transactions carried out between Mack Star and Yes Bank totaling Rs 159.67 crore, was accepted by NCLT.
“The CBI and ED independently concluded that there was a criminal conspiracy and under this Act there was a three step circular flow of funds from Yes Bank, where Rs 147 crore was fraudulently disbursed in the name of Mack Star; the amount was on the Yes Bank accounts of HDIL Group of Companies. “.
These loan amounts of Rs 146 crore from HDIL Group’s Yes Bank accounts were used to repay the previous loans taken from Yes Bank by the financially burdensome HDIL Group companies.
“These findings were completely ignored by the judiciary while the impugned order was passed,” the holding company stated in its application to NCLAT.
Yes, the bank has sanctioned Rs 140 crore – of these Rs 147.6 crore term loans in Mac Star name for the purpose of renovation and renovation of “Caledonia”, a brand new building less than two years old and constructed at a total cost of Rs 140 crore.
Furthermore, Rs 100 crore disbursed by Yes Bank to Mack Star prior to the signing of any related loan agreements, and Rs 40 crore term loan disbursed by Yes Bank in Mack Star’s name directly credited to HDIL’s Yes Bank account Instead of Mack Starr’s account, according to the holding company.
Yes Bank continued to provide these term loans in the name of Mack Star despite notifying the appellant in writing that the HDIL affiliate is not authorized to provide loans on behalf of Mack Star.
Suraksha Asset Reconstruction also filed a petition to start bankruptcy proceedings against Mack Star on April 22, a month after Ocean filed a criminal complaint with the Mumbai Police’s Economic Crimes Department against Yes Bank, Suraksha and HDIL promoters in connection with illegal term loans. On March 5, 2019.
However, Suraksha’s attorney argued that Ocean Deity was fully aware of the borrowings and authorized the Board of Directors to implement them at the Mack Star’s annual general meeting on May 29, 2014.