8 April 2019: The Supreme Court has allowed settlement of insolvency proceedings against Mack Soft Tech Pvt Ltd, based on an application filed by group company, Quinn Logistics India Ltd.
Quinn Logistics was the holding company of Mack Soft when the loans were disbursed to it during 2007-2010, in connection with the ‘Q-City’ project. Quinn Logistics held 99.9% of Mack Soft’s shareholding. The loan granted by Quinn Logistics was interest-free. Subsequent to insolvency triggered against a Quinn group company offshore, Mack Soft Tech diluted Quinn Logistics’s shareholding by issuing shares to Mecon FZE, in 2011 (which is also currently under dispute).
Quinn International Property Group (Quinn IPG), which had funded the asset, came into financial trouble in Ireland where it owed money to the Irish Bank Resolution Corporation (IBRC), a nationalized bank. IBRC alleged that the Quinn family had tried to take the Q City asset out of Quinn IPG knowing well that Quinn IPG would be taken over by IBRC. Since 2011, Mack Soft ceased to be a subsidiary of Quinn Logistics. And since 2011, IBRC and the Quinn Group have been attempting to take control of Mack Soft and various cases were filed in the courts in Hyderabad.
It appears that the total debt of Rs. 62.9 crores owed to Quinn Logistics was written off unilaterally by `Mack Soft‘ and adjusted as income in its balance sheet, for which income-tax was also paid.
Quinn Logistics in 2017 demanded the repayment of this debt. Mack Soft did not pay and Quinn Logistics moved to the NCLT under Section 7 of the Insolvency and Bankruptcy Code. Mack Soft’s primary line of defence was that the period of limitation had expired and thus the debt was time-barred. The NCLT did not find merit in this argument due to acknowledgment in the balance sheet and therefore admitted the application. On appeal, the NCLAT upheld the NCLT decision and found a ‘continuous cause of action’.
Subsequently, an appeal was filed with the Supreme Court against the NCLAT order upholding admission. The Supreme Court had, in September 2018, issued an interim stay against the NCLAT order. However, while the appeal was pending, on March 5, 2019, a global settlement was reached in respect of the litigation pertaining to Mack Soft between IBRC and the former shareholders and in terms, thereof the control of Mack Soft has passed to a new Board. Upon conversion of certain debentures, Mack Soft is now controlled by Quinn Finance (an Irish entity controlled by IBRC). With this global settlement being approved by the Supreme Court and the NCLT, the Resolution Professional appointed for Mack Soft has been removed and a new stable Irish led Board has been put in place.
The Supreme Court has recorded settlement and permitted withdrawal of the case while disposing of the appeal against the NCLAT order. It appears that this power was once again drawn from Article 142 of the Constitution.
Despite Section 12A having come into place last year by the IBC (Amendment) Ordinance, Article 142 is being used to withdraw cases. Section 12A permits withdrawal of CIRP provided 90% creditors vote is achieved in favour of settlement. However, the Supreme Court had previously in the case of Shipra Hotels held that this provision is to apply only prospectively, implying that all cases under CIRP as of the Ordinance date would not be entitled to use Section 12A for settlement. Technically, all such cases should go to the Supreme Court for settlement.
Quinn Logistics and Quinn Finance, the creditors of Mack Soft were advised during the insolvency process by team of lawyers from Delhi-based Capital Law Chambers LLP. Mecon FZE and the management of the Board prior to settlement were advised by RRG & Associates.