The Hon’ble Supreme Court of India (“Court”) recent judgment in Independent Sugar Corporation Ltd. v. Girish Sriram Juneja, 2025 SCC Online Sc 181 is a landmark decision. It highlights the interplay between the Insolvency and Bankruptcy Code, 2016 (“Code”), and the Competition Act, 2002 (“Competition Act”), in the context of resolution plans involving combinations that may have an appreciable adverse effect on competition (“AAEC”) in the relevant market.
The Court had to determine if the Competition Commission of India’s (“CCI”) prior approval under Section 31(4) of the Code for combinations was mandatory before the committee of creditors (“CoC”) could consider and approve the resolution plans. The Court also examined procedural lapses and substantive concerns related to the CCI’s approval of the proposed combination between AGI Greenpac Ltd. (“AGI”) and Hindustan National Glass and Industries Ltd. (“HNGIL”), the corporate debtor undergoing the corporate insolvency resolution process (“CIRP”). The said judgment overturned the earlier legal position that the proviso to Section 31(4) of the Code was merely directory, in effect, holding by a 2:1 majority that the proviso to Section 31(4) of the Code was mandatory and not directory, and that CCI approval for a combination was required prior to the approval of the resolution plan by the CoC.
Brief background
The controversy pertains to the CIRP of HNGIL, which held 60% market share of India’s glass packaging industry. During the CIRP, AGI, the second biggest company in the glass packaging industry, submitted its resolution plan, which was approved by the CoC on October 28, 2022, (“Resolution Plan”). The Resolution Plan, inter alia, proposed a combination of AGI and HNGIL, with a potential market share of 80-85% in food & beverage segment and 45-50% in the alco-beverage segment, likely to result in AAEC in the glass packaging industry, including, in food & beverage and alco-beverage segments. The CCI approved the said combination proposal on March 15, 2023, subject to compliance with certain modifications, including a revised divestment plan submitted by AGI (“CCI Approval”). Thereafter, the Resolution Plan was approved by the Hon’ble National Company Law Tribunal (“NCLT”) on April 28, 2023, and consequently by the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) on September 18, 2023. The appeal filed against the grant of CCI Approval was also dismissed by the Hon’ble NCLAT on July 28, 2023.
Arguments raised by the Appellants
The Resolution Plan approval as well as the CCI Approval was challenged by Independent Sugar Corporation Ltd. (“INSCO”), an unsuccessful resolution applicant, and other appellants (collectively referred to as “Appellants”) on the ground that the proviso to Section 31(4) of the Code, clearly mandated obtaining CCI’s approval for a combination prior to the approval of the resolution plan by the CoC. It was contended that this was a statutory requirement that could not be relaxed or waived by the resolution professional (“RP”) or the CoC, and that the failure to comply with it rendered the resolution plan invalid and violative of the Code and the Competition Act. The Appellants also alleged that the CCI’s approval was based on incorrect and misleading data provided by AGI, and that the CCI did not follow proper procedure under the Competition Act, such as issuing a show cause notice to HNGIL, inviting public objections, and proposing modifications to the combination.
Arguments raised by the Respondents
On the other hand, the Respondents, i.e. AGI, RP, CoC and CCI, argued that the proviso to Section 31(4) of the Code was only directory and not mandatory, and that the CCI’s approval could be obtained at any stage before the final approval of the resolution plan by the adjudicating authority, i.e., NCLT. They submitted that this interpretation was in accordance with the legislative intent and object of the Code, i.e. to facilitate timely and efficient resolution of stressed assets and maximise value for the stakeholders. It was contended that insisting on prior CCI approval, before the CoC’s approval, would create practical difficulties and delays in the CIRP and also undermine the commercial wisdom and discretion of the CoC. Additionally, it was noted that the proviso did not specify any consequences for non-compliance and should therefore be deemed as directory. The Hon’ble NCLAT has also consistently taken this position in several judgments, which have not been interfered by the Court.
Statutory scheme of the Code and the Competition Act
Sections 5, 6, 29, 29A, 30 and 31 of the Competition Act, read with CCI (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011, deal with the regulation of combinations and stipulate the timelines and procedure of enquiry and scrutiny of such combinations to prevent AAEC. As per the scheme of the Competition Act, any person or enterprise proposing to enter into a combination, is required to give a notice to CCI, along with the details of the proposed combination within 30 days from the approval of the proposal by board of directors of such enterprise or execution of any agreement or other document in relation to the combination. No combination can come into effect until 150 days (the time period of review from 210 days was reduced to 150 days vide the Competition (Amendment) Act, 2023) have passed from the day notice was given to CCI or CCI has passed any orders under Section 31 of the Competition Act. Thus, an upper limit of 150 days has been prescribed by the legislature for CCI to take appropriate decision on the proposal for combinations submitted before it.
In this regard, it is to be noted that while the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), had stipulated that the resolution plan shall provide for necessary approvals to be obtained from the Central and State Governments and other authorities, the Code did not prescribe any timeline for procurement of these approvals. Accordingly, pursuant to the recommendations of the Insolvency Law Committee (“Committee”), by way of Insolvency and Bankruptcy Code (Amendment) Act, 2018, Section 31 of the Code was amended to provide for a timeline of one year from the date of approval of the resolution plan by the NCLT or within such period as provided for in such law, whichever is later.
However, the Committee concurred that approval as required to be sought from CCI may be dealt through specific regulations to expedite the approval process. Hence, a distinction was drawn between the necessary approvals required from statutory authorities and the approval to be obtained from CCI. This distinction forms the basis of the proviso to Section 31(4) of the Code. According to this proviso, if a resolution plan includes a proposal for a combination, as defined under Section 5 of the Competition Act, the resolution applicant must secure CCI approval before the CoC can approve such a resolution plan.
Decision of the Court
The Court, after a detailed examination of the statutory provisions, the legislative history, the precedents and the facts of the case, with a 2:1 majority, held that the proviso to Section 31(4) of the Code was mandatory and not directory, and that CCI approval for a combination was required before the CoC approves the resolution plan. The Court applied the literal rule of interpretation and observed that the use of the word ‘shall’ and the expression ‘prior to’ in the provisoindicated a clear legislative intent to make CCI approval a precondition to CoC approval. The Court also noted that the proviso was introduced by an amendment in 2018 to address the specific issue of combinations under the Competition Act, and that the notes on clauses and the statement of objects and reasons of the amendment supported the mandatory nature of the proviso.
The Court rejected the argument that the proviso was only directory and that the CCI’s approval could be obtained at a later stage and held that such an interpretation would defeat the purpose and the scheme of the Code and the Competition Act. It was further held that the RP and the CoC had no power or authority to relax or waive the requirement of CCI’s approval, and that the RP was dutybound to ensure that the resolution plans submitted to the CoC were compliant with the provisions of law.
In view thereof, the CoC-approved Resolution Plan was set aside, as being unsustainable in law for failing to secure prior CCI Approval. The Court nullified all the actions taken pursuant to the Resolution Plan, restoring the status quo ante, and directed the CoC to re-consider the Resolution Plan submitted by AGI or any other resolution plans, which possessed the requisite CCI approval as on October 28, 2022, i.e. the date on which CoC voted upon the submitted resolution plans.
Conclusion
The judgment may have significant implications on ongoing and future corporate insolvencies in India under the Code, especially in cases involving combinations that may have an AAEC in the relevant market. Further, resolution plans that have already been approved by the CoC without prior CCI approval might also face legal challenges and may be remanded back to the CoC. It may also be relevant to note that AGI has preferred a review petition against this judgment, contending inter alia that the judgment, having retrospective implications, has caused uncertainty and will have ramifications on several ongoing CIRPs. The said petition is currently pending adjudication.
Going forward (with respect to ongoing and future corporate resolution processes), resolution applicants will have to adjust their timelines to incorporate the requirement of obtaining CCI approval before seeking CoC nod. While this may result in procedural delays, it will ensure that all regulatory compliances are met upfront, reducing the risk of future legal complications.
For further information, please contact:
Raunak Dhillon, Partner, Cyril Amarchand Mangaldas
aunak.dhillon@cyrilshroff.com
