IBC eliminates right to redemption of Essar Steel shareholders, says lenders

The Insolvency and Bankruptcy Code eliminates the right to redemption of Essar Steel shareholders, the counsel to lenders and ArcelorMittal said as part of their rejoinder arguments to Essar Steel Asia Holdings (ESAHL)’s plea for consideration of their settlement offer proposed ‘for and on behalf of Essar Steel’.

According to sources, the rejoinder argument by CoC and ArcelorMittal could be based on the fact that once a petition under IBC is admitted against the corporate debtor, there is a moratorium on judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts against the corporate debtor till finalsation of corporate insolvency resolution process or till the NCLT approves the resolution plan.

Meanwhile, the right of redemption comes from the Transfer of Property Act that allows the mortgagor to get his property back from the mortgagee following payment of the amount borrowed from him.

Under Indian jurisprudence, special law supersedes general law. Here, IBC prevails over general law of property, they indicated.

Senior counsel Abhishek Manu Singhvi, appearing on behalf of ArcelorMittal, said it was ‘bizzare’ that Essar was raising an argument that nullifies the IBC.

The Ahmedabad bench of the NCLT will continue to hear arguments on Friday.

On Monday, the counsel to ESAHL had presented the counter argument to preliminary objection by the CoC and the resolution professional over maintainability of Essar’s promoters — Ruias — last-minute offer to pay `54,389 crore for control of the company.

As is known, more than 90% of the CoC had voted in favour of the bid by Arcelor Mittal which has promised Rs 39,500 crore by way of cash upfront, and currently awaits approval from the NCLT for execution.

A day after it, Essar Steel promoters offered to pay Rs 54,389 crore towards a full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of Essar Steel. The package included an upfront cash payment of `47,507 crore to all creditors, including a payment of `45,559 crore to the senior secured financial creditors.

Essar Steel