TaxTMI 
TaxTMI 
2022 (9) TMI 631
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....Merla ] Member ( Technical ) For the Appellant : Mr. Krishnendu Datta, Sr. Advocate with Mr. Vividh Tandon, Mr. Prakshal Jain, Ms. Angelika Awasthi, Mr. Dhruv Dewan and Mr. Nitesh Jain, Advocates. For Respondent No. 1: Mr. Abhinav Vasisht, Sr. Advocate with Mr. Chitranshul A. Sinha, Mr. Jaskaran S. Bhatia and Ms. Priya, Advocates for R-1. For the Appellant : Mr. Krishnendu Datta, Sr. Advocate with Mr. Vividh Tandon, Mr. Prakshal Jain, Ms. Angelika Awasthi, Mr. Dhruv Dewan and Mr. Nitesh Jain, Advocates. For the Respondent No. 1 : Mr. Abhinav Vasisht, Sr. Advocate with Mr. Chitranshul A. Sinha, Mr. Jaskaran S. Bhatia and Ms. Priya, Advocates for R-1. For the Appellant : Mr. Krishnendu Datta, Sr. Advocate with Mr. Vividh Tandon, Mr. Prakshal Jain, Ms. Angelika Awasthi, Mr. Dhruv Dewan and Mr. Nitesh Jain, Advocates. For the Respondent No. 1 : Mr. Abhinav Vasisht, Sr. Advocate with Mr. Chitranshul A. Sinha, Mr. Jaskaran S. Bhatia and Ms. Namrata Mohapatra, Advocates for R-1. For the IRP: Ms. Meghna Rao, Advocate for IRP - Avinash Shukla JUDGEMENT [ Per ; Shreesha Merla , Member ( T ) ] 1. Challenge in Comp. App. (AT) (Ins.) No. 795 of 2021 is to the Impug....
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....ng the Petition under Section 7 of the IBC." 2. In the Impugned Order, the Adjudicating Authority has also given its findings in I.A. 1740/2020, wherein the 'Corporate Debtor' has raised the question of maintainability on the ground that the Term Loans extended by M/s. Yes Bank Limited ('Yes Bank') is vitiated with fraud. For the same reasons, as specified in the Petition CP 1621/2019, the Adjudicating Authority dismissed this Application also. 3. Briefly put, M/s. Suraksha Asset Reconstruction Private Limited ('Suraksha') the Assignee of the loans given by Yes Bank preferred Section 7 Application under the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The Code') against Mack Star, on the ground that there were defaults in payment of four Term Loans, out of the six Term Loan transactions executed between Mack Star and Yes Bank. The details of these four Term Loans are as follows: I. Term Loan III was a sum of Rs.7,60,00,000/- and was disbursed on 12.11.2012. II. Term Loan IV was for a sum of Rs.40,00,00,000/- and was disbursed in 5 tranches on 29.03.2014, 30.04.2014, 29.05.2014, 28.06.2014 and 26.07.2014. III. Term Loan V was fo....
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....brand-new building that was barely two years old and has been constructed at a total cost of Rs.140 Crores/-. It is contended that Rs.100 Crores/- was disbursed by Yes Bank to Mack Star, even before any of the Related Loan Agreements were signed; that a Term Loan of Rs.40 Crores/- disbursed by Yes Bank in Mack Star's name was credited directly to HDILs Yes Bank Account instead of being credited to Mack Star's Account. Yes Bank continued disbursing these term-loans in Mack Star's name despite being notified by the Appellant in writing that their HDIL Affiliate Company Wadhawans were not authroised to avail any loans on Mack Star's behalf. * It is strenuously argued that 99.18% of the amounts disbursed by Yes Bank in Mack Star's name was routed back to Yes Bank, within a few minutes of their disbursal, by Yes Bank Officials. * Suraksha filed the Section 7 Petition on 22.04.2019, a month after the Appellant had lodged a Criminal Complaint dated 05.03.2019 with the Economic Offences Department being Mumbai Police, against Yes Bank, Suraksha and HDIL Promoters in relation to the illegal term-loans. Mack Star repeatedly issued letters to Yes Bank and Suraksha requesting copies of t....
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....ional Attachment Orders dated 08.02.2021 wherein it was held that the Senior Management of the Yes Bank was already to this fraud. * Learned Sr. Counsel placed reliance on the Written Submissions filed by Mr. Venkatavarthan Iyengar, a former Director on the Board of Mack Star (appointed by the Wadhawans), filed in Comm. Suit No. 298 of 2020 preferred by Mack Star and the Appellant before the Hon'ble High Court of Bombay, seeking a declaration that the loans were 'void ab initio'. The Learned Sr. Counsel relied on the following paragraphs of the said Written Statement: "6. The HDIL Group had over time availed of loans amounting to several thousand crores from Yes Bank for land acquisition and real estate development. Yes Bank was the primary banker and lender to the HDIL Group and in such capacity, wielded a significant amount of influence over the HDIL Promoters. Due to deterioration of market conditions.. the HDIL Group was under severe financial stress and found itself unable to make repayments of loans to lenders. 7. Due to defaults in repayment of loans availed by various HDIL Group Companies, some of the other lenders to these companies classified their ac....
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....ions erroneously applied the dictum of the Hon'ble Supreme Court in 'Innoventive Industries Limited' Vs. 'ICICI Bank & Anr.', (2018) 1 SCC 407. * The Deputy Director of ED had addressed a letter dated 20.12.2021 to the IRP of Mack Star about the ED investigations into these loans and sought information about the status of proceedings relating to these loans. In this letter ED stated that the loans were sanctioned illegally in the name of Mack Star but were actually of HDIL Group Companies. * The loans were never used for the sanctioned purpose as Yes bank diverted the funds from the sanctioned end-use. This is evidenced in the end-use Certificate dated 16.10.2015 procured by Yes Bank for Rs.40 Crores/- loan sanctioned by Yes Bank for renovation of a building owned by Mack Star. Instead of disbursing this loan of Rs.40 Crores/- to Mack Star for the sanctioned end-use of renovation, Yes bank had actually credited this amount directly to HDIL's Yes Bank Account and within a few months debited Rs.39.7Crores/- towards payments of HDIL's prior debts to Yes Bank. Therefore, the issue in the present case is whether a 'legally valid debt' is owed to Yes Bank. * The Annual Reports f....
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....en to the Directors. * The AGM Resolution dated 29.05.2014 and the Form MGT - 7 were signed by Mr. Iyengar, the Wadhawan Director who has already admitted to the fraud played by Yes Bank on Mack Star in his statement filed in the Suit before the Hon'ble High Court of Bombay. The Adjudicating Authority has relied on the fact that the Appellant had 82.17% common shares of Mack Star during the relevant period and therefore must have attended the AGM dated 29.05.2014 for the shareholder participation to reach 99.96%. It is contended by the Learned Counsel that this is completely false and misleading, as at the time of the AGM on 29.05.2014, the Appellant had only 1000 common shares of Mack Star and was primarily holding preference shares of Mack Star. It was only in September 2014, subsequent to this Meeting, that the preference shares held by the Appellant were converted into common shares. Therefore, any inference drawn from the Appellant holding common shares of Mack Star to the attendance of 99.96% in the AGM, implying that the Appellant had voted, is only intended to mislead the Tribunal. * Learned Sr. Counsel contended that the extracts of the Board Resolutions relied upon ....
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.... on 29.05.2014, approved the Resolution of borrowing limits of Mack Star and was passed by 99.6% of the Members; the Appellant being the majority shareholder had clearly participated and approved the Resolution giving consent to the Board of Directors of Mack Star to borrow sums of money as deemed necessary up to Rs.1000 Crores/-. * The Appellant was fully aware of the borrowings and also authorised the Board of Directors to give effect to such borrowings by way of the 12th AGM. Hence there was no requirement to go behind the Resolutions passed as the same was believed to be true by virtue of doctrine of 'indoor management'. * The footnote of the Balance Sheet of Mack Star for the Financial Year 2020 reflecting an amount of Rs.1,27,53,55,000/- admits that the said amount was obtained from Yes Bank. It is an admitted fact from the Balance Sheet that the money was advanced by Yes Bank to Mack Star and the loans have not yet been repaid. The Learned Counsel placed reliance on the ratio of the Judgements of the Hon'ble Supreme Court in 'Innoventive Industries Limited' Vs. 'ICICI Bank & Anr.' (2018) 1 SCC 407, in E.S. Krishnamurthy & Ors.' Vs. 'Bharath Hitich Builders Pvt. Ltd.', ....
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....s in the ratio 85:15. Yes Bank has no stake in Suraksha and the shareholding structure of Suraksha shows that 92% of the equity shares were held by one Mr. Sudhir Walia and the remaining 8% are held by Lakshadweep Investment and Private Limited and therefore Suraksha cannot be said to be the alter ego of Yes Bank. * Suraksha is not concerned with the ongoing investment by ED, CBI, EOW and also with the confirmation of POA. The Appellant cannot place reliance on the ongoing investigations. * Section 65 of the Code cannot be invoked in the present case as the Financial Creditor is mandated to nominate a Resolution Professional in Form-1. It is denied that Suraksha initiated CIRP with any fraudulent intent and therefore Section 65 of the Code cannot be attracted. * The Hon'ble Supreme Court in 'Orator Marketing Private Limited' Vs. 'Samtex Designz Private Limited', 2021 SCC OnLine SC 513, has clearly reiterated that the trigger of initiation of CIRP under Section 7 of Code is the occurrence of the default by the 'Corporate Debtor' * Having filed the written submissions on 30.08.2021, Mack Star cannot be allowed to take plea that they were not given a reasonable opportunity....
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.... V 23.09.15 40,000 40,000 HDIL 39,700 VI 07.01.16 27,000 26,050 Sapphire 25,919 VI 29.01.16 6,000 6,100 Privilege Power 6,100 VI 26.02.16 7,100 6,500 Privilege Power 6,500 VI 29.02.16 0,000 0,300 HDIL 0,293 VI 23.03.16 6,500 6,500 Privilege Power 6,500 VI 23.03.16 3,500 4,000 HDIL 4,136 VI 26.04.16 6,600 6,000 Privilege Power 6,600 VI 25.05.16 3,000 3,000 Privilege Power 3,000 Total 147,300 146,033 146,091 9. It is significant to mention that the aforestated table is not disputed by the Respondent. Interestingly Rs.40 Crores/- was disbursed by Yes Bank directly to the Bank Account of Wadhawans HDIL instead of Mack Stars Bank Account and this fact too is not disputed. We find force in the submissions of the Learned Sr. Counsel Dr. Singhvi that out of the total loans of Rs.147 Crores/-, 140 Crores/- relating to Term Loans IV V & VI were sanctioned for the purpose of renovating Kaledonia which is a brand new building and barely two years old, constructed at a cost of Rs.100 Crores/-. The mater....
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....informed, Yes Bank Ltd. disbursed 3 installments of loan amounting to Rs.19.60 Crore to Mack Star's account...... Three of such loans amounting to Rs.140 Crore had been sanctioned to the Mack Star for the purpose of expenditure for modification, renovation & refurbishment of 'Kaledonia Property and other Capex in Company. The purpose assigned for these loans was fictitious because Kaledonia was a newly constructed building and that total cost of construction was only Rs.100 Crore. The actual purpose for sanctioning and disbursement of loans was to.... Evergreen the accounts of HDIL with Yes bank to save them from becoming NPA. The entire circulation of funds was happening within the Yes Bank System (i.e. loans disbursed by Yes Bank into Mack Star's Yes Bank account were immediately diverted to Yes bank accounts of HDIL group companies, which used these funds on the same day to discharge liabilities owed by these HDIL group companies to Yes Bank) and therefore, higher management of Yes Bank was very much aware about the illegal dealings and was party to the whole scheme." (Emphasis Supplied) 12. It is also material to examine the submissions of Mr. Venkatavarthan N. Iyen....
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....HDIL Group companies, such transfers were often initiated by Yes Bank using instructions obtained by them before disbursal of the loans...." (Emphasis Supplied) 13. From the results of the investigations by ED, the 'Attachment Order' passed by PMLA Adjudicating Authority and also the FIR lodged by CBI read together with the material on record establishes that Yes Bank disbursed these loans to Mack Star ignoring the terms of Mack Star's Articles of Association which expressly prohibit Mack Star from availing any loans without the approval of its majority shareholders. The investigation reveals that more than 99% of the loan amount disbursed was used in order to discharge the liabilities owned by Wadhawans HDIL Group to Yes Bank and was never put to use by Mack Star. 14. At this juncture, we address to the contention of the Learned Sr. Counsel Mr. Ramji Srinivasan that the Appellant being the majority shareholder had clearly participated and approved the Resolution, giving consent to the Board of Directors of Mack Star to borrow sums of money as deemed necessary and therefore now cannot turn around and say that the Appellant was unaware of these financial transactions.....
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....y Yes Bank, the Company has filed a civil suit before the Hon'ble High Court of Bombay (Commercial Suit (L) No. 1233 of 2019) on 16the November, 2019, against Yes Bank and certain other parties. The Company has made detailed submissions before the Hon'ble Court with evidence alleging fraud on the part of Yes Bank in disbursing the said loans. To that extent, the liability of the Company to repay this Indebtedness is uncertain." 16. Learned Sr. Counsel Mr. Krishnendu Datta drew our attention to these references in Mack Star's Annual Report for Financial Year 2019-20 wherein it was clear that Mack Star has denied the existence of any such debt. Merely because the amounts are reflected in the Balance Sheet it cannot be directly construed as an acknowledgement of debt if there is a note in the Balance Sheet which states otherwise indicating that there is a caveat/footnote that such an entry would not amount to any 'acknowledgement of debt'. We place reliance on the observations made by the Hon'ble Supreme Court in 'Asset Reconstruction Company India Ltd.' Vs. 'Bishal Jaswal & Ors.', (2020) 16 SCC 366, in which the Hon'ble Apex Court has observed as follows: "21... In fact, ....
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....lding that the AGM was attended and the Resolution approved by the Appellant herein, cannot be sustained. Be that as it may, the record shows that two of the directors Mr. Amanpreet Singh and Mr. Iyengar have admitted in the statements recorded under Section 50(2) & 50(3) of the PMLA that they have never attended any of these Board Meetings of Mack Star. The same is also reflected in the final Order of the PMLA Adjudicating Authority dated 10.09.2021. Keeping in view the documentary evidence on record, read with the findings of the Statutory Bodies and the observations made by CBI, we are of the earnest view that the loans were sanctioned in the name of Mack Star by Yes Bank; the said loan amounts were diverted to HDIL which in turn used those amounts to pay back Yes Bank for the loans taken by them. The circular movement of funds shows that most of the loan amount was used in order to discharge liabilities owned by HDIL Group and the Wadhawans to Yes Bank. It is also not understood as to how without any instruction from Mack Star, Rs.40 Crores/- which was disbursed in the name of Mack Star on 23.09.2015 was diverted on the same day to HDIL. 18. The aforenoted conclusions by the....
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.... if any, which is disbursed against the consideration for the time value of money. The two vital requisites from this definition are that firstly, there has to be debt that is disbursed and secondly, consideration for time value of money. According to Black's Law Dictionary, disbursement is defined as: 1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money paid; an amount of money given for a particular purpose. 20. It is apposite to refer to the judgment of the Hon'ble Supreme Court in the case of 'Phoenix Arc Pvt. Ltd.' Vs. 'Spade Financial Services Ltd. & Ors.', (2021) 3 SCC 475, decided on 01st February, 2021 wherein it was held as under: "G.3.2 Financial Creditor and Financial Debt 43. Under Section 5(7) of the IBC, a person can be categorised as a financial creditor if a financial debt is owed to it. Section 5(8) of the IBC stipulates that the essential ingredient of a financial debt is disbursal against consideration for the time value of money. This Court, speaking through Justice Rohinton F Nariman, in Swiss Ribbons Pvt. Ltd. v. Union of India10 has held: "42. A per....
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......The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of 'disbursement' against 'the consideration for the time value of money' could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said subclauses (a) to (i) of Section 5(8) would be falling within the ambit of 'financial debt' only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as 'financial debt' within the meaning of Section 5(8) of the Code. This debt m....
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.... the observations made by the Hon'ble Apex Court in 'Phoenix ARC Pvt. Ltd.' (Supra). As we hold that these transactions were collusive in nature, they do not fall within the ambit of the definition of 'Financial Debt' as defined under Section 5(8) of the Code and therefore Suraksha, the Assignee, cannot be termed as a 'Financial Creditor' as defined under Section 5(7) of the Code. We are also conscious of the fact that the loan was assigned to Suraksha on 29.09.2017, and almost a year later during June 2018, Yes Bank was engaging in settlement talks with Mack Star and further merely two weeks after the Criminal Complaint was lodged, Suraksha issued a Demand Notice under IBC to Mack Star. 25. Lastly, we address to the argument of the Learned Sr. Counsel Mr. Srinivasan that the Adjudicating Authority was right in concluding that as far as there is a 'debt' and a 'default' and amount is 'due and payable', the Section 7 'Admission' is inevitable and the scope of the Code is very limited. The Hon'ble Supreme Court in 'Vidarbha Industries Power Ltd.' Vs. 'Axis Bank Ltd'. 2022 SCC Online SC 841 has observed as follows: "88. Ordinarily, the Adjudicating Authority (NCLT) would h....
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....these financial transactions' having regard to the Investigation Reports which were filed by the Appellant herein, the violation of the Articles of Association and assessed whether the transactions were collusive in nature or not and used its discretion whether to admit such an Application or not, keeping in view the scope and objective of the Code. It is appropriate at this juncture, to rely on the Judgement of the Hon'ble Supreme Court in 'Embassy Property Development Pvt. Ltd.' Vs. 'State of Karnataka' (2020) 13 SCC 308, in which the Hon'ble Apex Court has clearly noted that the Adjudicating Authority has the jurisdiction to enquire into allegations of fraud when there is a prima facie case of fraudulent initiation of CIRP. 28. The chequered history of the loan transactions and collusive arrangements indulged by Yes Bank demonstrate 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. Having observed so, we hold that the Assignment to Suraksha is not a bona fide one, peculiar to the facts of the attendant case and the loan amounts do not satisfy the essential requisites of a 'Financial Debt' as....
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....Law, Tribunal, Mumbai Bench, Court-III) in IA 2290/2021, IA 2292/2021 and IA 2396/2021 in C.P. (IB) No.- 1621/IBC/MB/2019 filed by Mr. Tikmani/IRP on 05.10.2021, seeking to be replaced as IRP; by Suraksha seeking replacement of Mr. Tikamani and appointment of Mr. Avinash Shukla as IRP respectively. IA 2396/2021 was disposed of as infructuous in view of the Orders passed in IA 2292/2021 & IA 2290/2021. 35. It is the main case of the Appellant that the Section 7 Application is defective with respect to nomination of the IRP as the nominated IRP Mr. Shailen Shah resigned on 01.09.2021 after the Adjudicating Authority has reserved the Judgement on 24.08.2021 and thereafter Suraksha had secured the consent of the new IRP, Mr. Avinash Shukla and sought his appointment as IRP from the Adjudicating Authority which was allowed on 27.10.2021. It was strenuously argued by Dr. Singhvi that no explanation has come forthwith from Suraksha justifying the misrepresentation that Mr. Tikmani has withdrawn his consent on 30.09.2021 and that Suraksha falsely stated that Mr. Tikmani has withdrawn his consent after the Admission Order was passed. It is argued that Mr. Tikmani had withdrawn his consen....
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....f India Mumbai Zonal Office-I, Kaiser--Hind Building, Fourth Floor, Currimbhay Road, Ballard Estate, Mumbai-400 001 Phone: 22622040, Fax: 22622284 F No. ECIR/MBZO-1/39/2021/Misc-3 - मà¥à¤‚बई आंचलिक कारà¥à¤¯à¤¾à¤²à¤¯, कैसर-à¤-हिनà¥à¤¦à¤¬à¤¿à¤²à¥à¤¡à¤¿à¤‚ग 4th Floor करीम à¤à¤¾à¤ˆà¤°à¥‹à¤¡ बलà¥à¤²à¤¾à¤°à¥à¤¡à¤à¤¸à¥à¤Ÿà¥‡à¤Ÿ, मà¥à¤‚बई- ४००००१ दूरà¤à¤¾à¤· : 22622040, फैकà¥à¤¸ : २२६२२२८४ Dated 20 12 2021 To. Shri Saurabh Kumar Tikmani, Interim Resolution Professional, C/o Mack Star Marketing Pv. Lld., 1102, 11" Floor, Peninsula Business Park, Lower Parel, Mumbai-400013. Sir. Sub:- Investigation under PMLA, 2002 in the case of M/s Mack Star Marketing Pvt. Ltd.,.-reg. Please refer to the investigation being conducted by the Dir....