How Union Bank got caught in HDIL-DE Shaw showdown

Mumbai: Union Bank of India (UBI), one of the largest state-owned lenders, is caught in the crossfire between the promoters of HDIL and an arm of DE Shaw, their overseas business partner, which has alleged that the Wadhawans have diverted funds from the joint venture company.The global investment fund DE Shaw, according to a court petition filed in August against Wadhawans and UBI, has “halted all fresh investments in India after the discovery of this fraud”.The JV company has been deprived of the money from the sale of a property to UBI as the proceeds were supposedly misused by the Wadhawans to repay a loan taken by an HDIL subsidiary from UBI.The petitioner, Ocean Deity Investment Holdings — an investment company in Mauritius and an affiliate of DE Shaw — has alleged that the entire purchase consideration was siphoned off from Mack Star, the JV entity, by the Wadhawans, transferred to HDIL, and “immediately routed back by HDIL to UBI” to repay the bank a loan taken by Guruashish Construction, an HDIL subsidiary. Wadhwans, said the petitioner, had colluded with UBI to carry out the transaction.Responding to queries from ET, UBI chief general manager Ashok Chandra said, “Based on the requirement of office space, the bank had purchased the said property for its own use after following the due procedure applicable to a sale-purchase transaction by a PSU bank, and complied with all processes as per the policy of the bank. This is absolutely a bona fide transaction. Hence, the bank has an excellent case to defend the said transaction before the court of law. We reserve our rights to defend the same appropriately and defend the transaction challenged by M/s Mack Star Marketing Pvt Ltd. pending before the High Court of Bombay.” On behalf of Rakesh and Sarang Wadhawan — among the defendants in the petition — Zulfiquar Memon of MZM Legal, said, “The matter is sub judice and as such we refrain from commenting on the same. Any and all allegations against our Clients in the said suit are denied and will be contested appropriately.”In January 2016 Mack Star — the JV in which Ocean Deity owns 78.09 per cent while the balance is owned by Wadhawans and HDIL group entities — sold a unit in ‘Kaledonia’, the commercial building developed by Mack Star, for Rs 19.08 crore. The DE Shaw arm had invested Rs 1,000 crore in Mack Star, of which Rs 900 crore was used to acquire development rights of the land in Mumbai’s Andheri East suburb and Rs 100 crore was spent in construction. Despite its predominant holding, the foreign partner had left the day to day running of the company to Wadhawans due to their understanding of the real estate industry. 78901001According to the foreign investor, the nature of the transaction, which with was in violation of Mack Star’s articles of association, was not understood immediately — partly because of the accounting policy followed by the Mack Star auditor (who was arrested in 2019 by the Mumbai police after the collapse of the PMC Bank which had lent heavily to HDIL group companies). Alleging that UBI was a “willing participant” in the irregular property transaction, the petitioner has prayed before the Court that the sale agreement between Mack Star should be declared null and void, the unit sold should be passed on to a court receive, and UBI should be restrained from selling or transferring the property.

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