Safiya Malik

The Supreme Court of India has delivered a significant judgment regarding the requirement of prior approval from the Competition Commission of India (CCI) in the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). The issue before the court was whether a resolution applicant must secure CCI approval before the Committee of Creditors (CoC) considers a resolution plan. The decision addressed statutory compliance and procedural aspects within the insolvency framework.

The appeals were filed under Section 62 of the IBC against a judgment of the National Company Law Appellate Tribunal (NCLAT) concerning the resolution process of Hindustan National Glass and Industries Ltd. (HNGIL). A separate set of appeals also challenged the approval granted by the CCI to the combination between HNGIL and AGI Greenpac.

HNGIL, the corporate debtor in this matter, holds a dominant market share in the Indian glass packaging industry. The resolution process for HNGIL involved two competing resolution applicants, AGI Greenpac and Independent Sugar Corporation Ltd. (INSCO). AGI Greenpac, the successful resolution applicant, is a leading glass packaging manufacturer with a significant market share. The combination between AGI Greenpac and HNGIL, if approved, would result in an increased market concentration in the glass packaging industry, particularly in the food and beverage and alcoholic beverage segments.

INSCO, the unsuccessful resolution applicant, challenged the approval of AGI Greenpac’s resolution plan, arguing that the plan was approved by the CoC without the requisite CCI clearance. The primary legal issue in the proceedings was the interpretation of the proviso to Section 31(4) of the IBC, which states that where a resolution plan includes a combination, the resolution applicant must obtain approval from the CCI before CoC approval. The appellants contended that this requirement is mandatory, while the respondents argued that it is directory and that a strict interpretation could impede the insolvency resolution process.

The appellants contended that obtaining prior approval from the CCI is a statutory precondition under the IBC. They argued that failure to obtain such approval before CoC consideration could render the resolution plan legally ineffective. The appellants further submitted that permitting resolution applicants to seek CCI approval after CoC approval could create legal uncertainty. It was argued that the legislative intent behind Section 31(4) was to ensure that anti-competitive combinations do not proceed without regulatory scrutiny.

The appellants pointed out that AGI Greenpac's initial application to the CCI had been declared "not valid", and that a fresh application had to be submitted. At the time of CoC approval, AGI Greenpac’s resolution plan had not yet received CCI clearance, raising concerns about compliance with statutory requirements.

The respondents argued that the proviso to Section 31(4) should be understood as directory rather than mandatory. They contended that requiring prior CCI approval before CoC consideration would disrupt statutory timelines under the IBC. The respondents submitted that the CoC has the authority to evaluate the feasibility of a resolution plan even if CCI approval is obtained at a later stage. They also pointed out that the Competition Act provides a timeline of 210 days for CCI to decide on a combination proposal, which could lead to delays in the CIRP if prior approval were treated as mandatory. The respondents asserted that the legislative framework supports a flexible approach to regulatory approvals.

The Supreme Court examined the legislative framework governing insolvency and competition laws, addressing the interaction between the IBC and the Competition Act, 2002.

The court recorded the following findings:

The requirement for CCI approval prior to CoC approval is provided as a procedural safeguard. The court noted that the absence of specified statutory consequences for non-compliance suggests that the requirement is not absolute. It was observed that while statutory compliance is necessary, "the proviso to Section 31(4) does not explicitly render a resolution plan invalid for lack of prior CCI approval."

The CoC plays a crucial role in assessing resolution plans. The judgment recorded that "the commercial assessment by the CoC must consider regulatory approvals where applicable." The court noted that the CoC’s commercial wisdom is a key aspect of the insolvency resolution framework and that regulatory compliance must be balanced with insolvency timelines.

The court observed that the CCI’s role in evaluating combinations is essential for ensuring market competition and preventing distortions. It was noted that the CCI has the authority to approve, modify, or reject combinations based on their impact on competition. The court considered whether prior CCI approval was necessary to maintain regulatory oversight over competition concerns arising from insolvency resolutions.

On the question of harmonization between the timelines under the IBC and the Competition Act, the court stated that statutory compliance should not obstruct the insolvency process. It was observed that "the respective statutory authorities must function within their respective frameworks without causing procedural delays."

The Supreme Court issued the following directives:

1. The requirement for CCI approval under Section 31(4) of the IBC should not be considered an absolute precondition for CoC approval of a resolution plan. The court held that while CCI approval is necessary, its timing should not be rigidly enforced in a manner that delays insolvency resolutions.

2. Regulatory authorities should ensure timely consideration of combination approvals to avoid delays in insolvency proceedings. The court observed that "the CCI should expedite its review of combination proposals in CIRP cases to facilitate timely resolution of insolvencies."

3. The CoC retains its role in assessing resolution plans, but any anti-competitive concerns raised by the CCI must be addressed. The court noted that while "the CoC has discretion in evaluating plans, it must consider the implications of CCI decisions and modify the resolution plan accordingly if required."

4. The National Company Law Tribunal (NCLT) and NCLAT must verify compliance with regulatory approvals, including those from CCI, before granting final approval under Section 31 of the IBC. The court stated that "judicial authorities overseeing insolvency resolutions must ensure that all necessary approvals are in place before granting final clearance to resolution plans."

Case Title: Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors.
Case No.: Civil Appeal No. 6071 of 2023 and connected matters
Bench: Justice S.V.N. Bhatti, Justice Hrishikesh Roy and Justice Sudhanshu Dhulia

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