Supreme Court stays insolvency proceedings against Mack Soft

By: | Published: September 22, 2018 1:58 AM

The Supreme Court has stayed the insolvency proceedings against Mack Soft Tech by its holding company Quinn Logistics India (QLI) for recovery of dues of around Rs 63 crore from the IT park developer.

Supreme Court stays insolvency proceedings against Mack Soft

The Supreme Court has stayed the insolvency proceedings against Mack Soft Tech by its holding company Quinn Logistics India (QLI) for recovery of dues of around Rs 63 crore from the IT park developer.

A bench led by Justice RF Nariman stayed the insolvency proceedings initiated against Mack Soft Tech, an Indian subsidiary of Irish business group Quinn that owns Q-City, a multi-tenanted IT park in Hyderabad that houses various big companies like Amazon, Mytrah Energy, Adarsh Power and TCS, among others. The stay came on an appeal by UAE-based Mecon FZE, a shareholder of Mack Soft Tech, against the National Company Law Appellate Tribunal’s May order that held that QLI is a financial creditor of Mack Soft Tech.

Quinn Logistics is part of the Quinn group owned by Irish businessman John Sean Ignatius Quinn, who had defaulted €2.8 billion to Anglo Irish Bank, now known as Irish Bank Resolution Corporation (IBRC).

While contesting QLI’s liability claims, Mecon FZE said that the money given to Mack Soft for construction of the IT park was not a financial debt and it cited various documents including the auditors’ report for the FY 2010-2011 to show that there was no repayment schedule for the interest free unsecured loan advanced by QLI.

Countering the NCLAT’s findings that QLI had advanced money to the embattled firm with the intent to derive benefit of development of a property, Mecon FZE stated that the alleged transfer of money cannot be considered to be commercial as it did not have prior permission of their board of directors and the alleged transaction was silent on any rate of interest, tenure or a schedule of repayment, etc.

It said that QLI, which had paid money to a former shareholder (Indu Projects) of Mack Soft Tech for construction of Q-City, had later treated the alleged entries as intercompany balances and as a result of this the entries came to be reflected as unsecured loan in the financial statements of its then wholly-owned subsidiary Mack Soft Tech. QLI being the holding company had full control over the management and the affairs of Mack Soft Tech, thus both QLI and Mack Soft Tech could be considered as a ‘single economic unit’ at that point of time, the UAE-based company said in its appeal.

According to Roy, QLI had failed to prove time value of money, a pre-requisite under Section 5(8) of IBC for ‘financial debt’, before the NCLT, Hyderabad, which found Mack Soft had defaulted on the loan taken from QLI and had appointed IRP in August last year under the new IBC.

It has sought the SC’s view on whether the payments made by QLI on behalf of its subsidiary Mack Soft Tech for the construction of the information technology park, without intending to recover the amount, would amount to a debt under Section 2(11) or a financial debt under Section 5(8) of the IBC and whether the holding company, not having made any attempt to demand interest or principal of the alleged loan amount, will be estopped from treating it as a debt or a financial debt and invoking Section 7 of the IBC.

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