Supreme Court Clarified Prior CCI Approval Requirement for IBC Resolution Plans Involving Combinations.
The Supreme Court Bench comprising Justice Hrishikesh Roy, Justice Sudhanshu Dhulia, and Justice S.V.N. Bhatti, by a 2:1 majority, issued a landmark judgment clarifying the requirement for obtaining Competition Commission of India (CCI) approval in corporate insolvency resolution processes involving combinations such as mergers or acquisitions. This judgment emerged from the insolvency resolution of Hindustan National Glass and Industries Ltd. (HNGIL), where AGI Greenpac Ltd. was the successful resolution applicant.
The Court addressed critical concerns regarding the timing of CCI approval in such cases, interpreting the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (IBC). This provision mandates that when a resolution plan involves a combination, the resolution applicant "shall" obtain prior CCI approval before the Committee of Creditors (CoC) grants its approval.
Majority Opinion (Mandatory Nature of Prior CCI Approval)
Justices Hrishikesh Roy and Sudhanshu Dhulia, forming the majority, emphasized that obtaining CCI clearance before CoC approval was essential for safeguarding market competition and upholding statutory compliance. They highlighted the following key points:
The term “prior to” was deliberately used by the legislature to mandate that CCI clearance must precede the CoC’s consideration of the resolution plan.
Failure to obtain prior CCI approval constituted a fundamental defect in the resolution plan that could not be cured retrospectively.
Conditional approvals by the CCI at a later stage might undermine market competition and compromise the objectives of the IBC and Competition Act.
Resolution plans containing anti-competitive elements were inherently flawed and could not be implemented even after CoC approval.
Given these considerations, the Supreme Court set aside the CoC’s approval of AGI Greenpac’s resolution plan and directed fresh consideration of all resolution plans. The Court also emphasized the need for stringent monitoring mechanisms, such as third-party audits, to ensure compliance with conditional approvals.
Minority Opinion (Directory Interpretation)
Justice S.V.N. Bhatti dissented, holding that the requirement under Section 31(4) was directory rather than mandatory. He reasoned that rigid adherence to the need for prior CCI approval could unnecessarily delay insolvency resolutions, thereby undermining the IBC’s objective of timely resolution.
Justice Bhatti opined that post-CoC CCI clearance could suffice if competition concerns were adequately addressed. He emphasized the importance of maintaining flexibility in procedural requirements to avoid delays in the insolvency process.
Background of the Case
The appeals under Section 62 of the IBC arose from decisions by the National Company Law Appellate Tribunal (NCLAT) concerning the Corporate Insolvency Resolution Process (CIRP) of HNGIL. These appeals primarily revolved around the approval of a resolution plan submitted by AGI Greenpac Ltd., raising significant questions about competition law compliance.
HNGIL, a dominant player in India’s glass packaging market, faced insolvency proceedings where AGI Greenpac Ltd., the second-largest player in the sector, emerged as the successful resolution applicant. The proposed combination raised concerns about an Appreciable Adverse Effect on Competition (AAEC) due to the entities' potential control of 80-85% of the food and beverage market segment and 45-50% of the alco-beverage market.
Another bidder, Independent Sugar Corporation Limited (INSCO), a Bermuda-registered company, challenged the approval process, contending that the absence of prior CCI approval violated mandatory requirements under Section 31(4) of the IBC. The NCLAT ruled that while CCI approval was necessary, its timing was directory rather than mandatory.
Despite securing conditional CCI approval subject to divestment of HNGIL’s Uttarakhand plant, AGI Greenpac faced challenges due to compliance concerns.
Key Principles Established by the Judgment
Mandatory Nature of CCI Clearance: Resolution plans involving combinations must secure CCI clearance before CoC approval to prevent anti-competitive outcomes.
Statutory Compliance: Fast-tracking insolvency resolutions cannot come at the cost of disregarding statutory provisions.
Regulatory Integrity: Ensuring adherence to legal procedures fosters confidence among stakeholders and promotes a stable business environment.
Balancing Objectives: The decision underscored the need to balance swift insolvency resolutions under the IBC with competition safeguards under the Competition Act.
Legal Representation
Dr. Abhishek Manu Singhvi and Mahesh Jethmalani, Senior Advocates, along with Utsav Trivedi, Manini Roy, Unnati Agrawal, and others from IndusLaw, represented the appellant.
Mr. Mukul Rohatgi and Mr. Parag Tripathi, Senior Advocates, represented AGI Greenpac.
Mr. Tushar Mehta, Solicitor General, appeared for the CoC.
Mr. P. Chidambaram, Senior Advocate, appeared for the Resolution Professional.
Mr. Balbir Singh, Senior Advocate, represented the CCI.
Mr. Dushyant Dave, Senior Advocate, along with Mr. Chirag Shah and Mr. Yadunath Bhargavan, Advocates, appeared for the respondent.
This judgment significantly contributes to evolving jurisprudence on insolvency law and competition regulations by reinforcing the importance of regulatory compliance and competition safeguards.
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