The NCLAT stops the bankruptcy procedures against Mack Star, and Yes Bank will face significant legal punishment for its fraudulent lending dealings.

When the National Company Law Appellate Tribunal (NCLAT) rejected the bankruptcy case against Mack Star Marketing on Thursday, Yes Bank experienced a significant setback. Insolvency proceedings against the company were started in October 2021 by the National Company Law Tribunal (NCLT) in Mumbai.


In its ruling, the tribunal noted that the term loan that Yes Bank gave to Mack Star was a “eye-wash” and “collusive in nature.” The proceedings were halted by a two-member bench on the grounds that Suraksha Asset Reconstruction could not be referred to as a financial creditor since such collusive transactions do not meet the criteria for financial debt as outlined in Section 5(8) of the Insolvency & Bankruptcy Code.

More than 99 percent of the sanctioned amount—Rs 147.6 crore by Yes Bank in Mack Star’s name—was, according to the NCLAT, returned to the bank either that same day or shortly thereafter. The money will be utilised to refurbish “Kaledonia,” a structure that has been standing for two years and cost Rs 100 crore to erect.

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The National Company Law Appellate Tribunal stated that the Term Loans disbursed under the name of Mack Star are a “eye-wash” and that Yes Bank has distributed these loans with an ulterior motive due to the tumultuous history of the loan transactions and collusive arrangements adopted by the bank (NCLAT).

As a result of a plea by Suraksha Asset Reconstruction, the assignee of the debts provided by Yes Bank, the NCLT’s Mumbai bench’s orders to begin bankruptcy proceedings against Mack Star Marketing on October 27, 2021 were also overruled.


The Learned Adjudicating Authority (NCLT, Mumbai Bench, Court III), according to the NCLAT, “issued the impugned Order on September 20, 2021, and we approve this Appeal and set aside that Order.”


According to the appellate tribunal, all NCLT orders that were issued in response to the challenged order—including those that declared a moratorium, frozen accounts, and appointed an interim resolution professional—are effectively revoked.

The “Corporate Debtor” is released from all legal duties with immediate effect and is authorised to conduct independent business through its Board of Directors, the adjudicating authority added.


The NCLT order had been contested in a petition submitted by Ocean Deity Investment Holdings, which owns 82.17 percent of Mack Star.


The Housing Development Infrastructure Ltd. (HDIL), its Promoters, Wadhawans, and other people were accused of conspiring to defraud Mack Star and the appellant through these collusive transactions, but Ocean Deity Investment Holdings contended before the NCLAT that the CBI had filed a FIR against these parties on September 23, 2020.

On September 20, 2021, the NCLT granted the decree following Rana Kapoor’s arrest by the Enforcement Directorate for colluding with HDIL Promoter to defraud Mack Star.


The NCLT accepted Suraksha’s Section 7 petition under the Insolvency and Bankruptcy Code, 2016, which claimed that four of the six Term Loan transactions between Mack Star and Yes Bank, totaling Rs 159.67 crore, had payment failures.

According to a criminal conspiracy, “Rs 147 crores have been fraudulently disbursed in the name of Mack Star; the amount was disbursed to Yes Bank accounts of HDIL Group Companies,” the statement read. “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.”


The 146 crore rupees in loans taken out of the Yes Bank accounts of HDIL Group Companies were applied to the repayment of prior loans taken out by the financially troubled HDIL Group Companies from Yes Bank.

The holding firm claimed in its complaint to the NCLAT that “These facts were entirely overlooked by the Adjudicating Authority when passing the Impugned Order.”

For the purpose of remodelling and restoring “Kaledonia,” a brand-new building that was just two years old and was erected at a total cost of Rs 140 crore, Yes Bank approved Rs 140 crore of these Rs 147.6 crore term loans in Mack Star’s name.

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In addition, Yes Bank paid Mack Star Rs 100 crore before any Related Loan Agreements were signed, and the holding company claims that a Rs 40 crore term loan given in Mack Star’s name by Yes Bank was credited to HDIL’s Yes Bank account rather than Mack Star’s account.

Despite receiving written notice from the appellant that their HDIL subsidiary firm was not authorised to make loans on Mack Star’s behalf, Yes Bank continued to make these term loans in that company’s name.

On April 22, a month after Ocean reported Yes Bank, Suraksha, and HDIL Promoters to the Economic Offences Department of Mumbai Police for the unauthorised term loans, Suraksha Asset Reconstruction filed a petition to start bankruptcy proceedings against Mack Star.


At the Mack Star Annual General Meeting on May 29, 2014, Ocean Deity authorised the Board of Directors to execute the borrowings, according to the Suraksha attorney. Ocean Deity was fully informed of the borrowings.

 

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