Introduction
On 29 January 2025, the three judge bench of the Hon'ble Supreme Court ("the Court") gave a landmark judgement in the matter of Independent Sugar Corporation Limited v. Girish Sriram Juneja.
The Court held that a resolution plan which has a provision of a proposed combination shall obtain the approval of the Competition Commission of India ("CCI") before the approval of the Committee of Creditors ("CoC") under proviso of Section 31(4) if the Insolvency and Bankruptcy Code, 2016 ("IBC").
Brief Facts:
Hindustan National Glass and Industries Ltd. ("HNGIL"), the corporate debtor entered into a corporate insolvency resolution process ("CIRP"). Greenpact AGI Ltd ("AGI or Successful Applicant") and Independent Sugar Corporation Limited ("INSCO") had submitted their respective resolution plan with the resolution professional.
As the resolution plans included a provision of proposed combination, it had to obtain the approval of CCI before seeking the approval of the CoC as per the proviso of Section 31(4) of the IBC. Accordingly, AGI submitted its application to CCI to obtain approval for its resolution plan. However, CCI rejected AGI's application due to insufficient information provided. Despite rejection of AGI's application by the CCI, the resolution professional submitted AGI's resolution plan before the committee of creditors ("CoC") for consideration. Thereafter, CoC approved AGI's resolution plan with 98% (ninety eight percent) votes. After the said approval AGI submitted detailed application before the CCI for approval and subsequently the resolution professional submitted AGI's resolution plan before the National Company Law Tribunal ("NCLT") for its approval.
INSCO filed an application before NCLT Kolkata and thereafter NCLAT challenging the CoC's approval granted to AGI's resolution plan as it was without CCI's approval.
Both the tribunals upheld the approval granted by CoC to AGI's resolution plan, stating that, although approval of CCI's approval is mandatory in nature, however the fact that it should precede the CoC's approval is directory. The reason given by the tribunal for the same was that the time taken by CCI to give its approval is longer and this should not lead to a situation where the CIRP is halted because of pending application before the CCI.
Aggrieved by the NCLAT decision, INESCO appealed to the Supreme Court.
Ruling of Supreme Court:
The issue of consideration before the Court was whether approval of resolution plan proposing a combination by CCI shall precede the approval by the CoC in terms of Section 31(4) of the IBC.
The Court, by majority of 2:1 upheld the mandatory nature of the proviso of Section 31(4) of the IBC.
Majority Opinion:
The majority upheld the requirement of obtaining the CCI's approval prior to the CoC's approval, on various grounds, which inter alia include the following:
Intent of the Legislature:
The Court stated that the insertion of the proviso by way IBC (Amendment) Ordinance, 2018 and the use of the word 'prior' in the proviso indicates the intent of the legislature to ensure that resolution plan with a provision of combination shall obtain CCI's approval before it is placed for consideration before the CoC.
Rule of literal interpretation:
The Court emphasized that the language of the proviso is clear, unambiguous and only one meaning can be derived from it, therefore rule of literal interpretation is the right way to understand the intent behind enacting a said provision. Reading the proviso otherwise would not only defeat legislative intent but also contradict its natural meaning.
Conflict of timelines:
The Court dismissed NCLAT's concern in relation to delay in the CIRP timeframe of 330 days due to the requirement of prior CCI's approval. In this regard the Court pointed out that the CCI typically takes less than 120 days in most cases and in certain cases involving appreciable adverse effect to competition, it may take around 210 days. Further the Court discussed that if the resolution plan is submitted to CCI at the right stage i.e. at the (i) time of expression of interest or (ii) request for resolution plan then the CIRP process can culminate within the stipulated timeframe i.e. 330 days. Therefore, the timebound CIRP shall not override the proviso of requiring prior permission of the CCI.
Plausible irregularities:
Treating the proviso as mere directory in nature may lead to a situation where a resolution plan involving combination may be approved by the CoC and subsequently CCI directs modifications to such resolution plan therefore the CoC in such situation may not get the opportunity to consider and exercise its commercial wisdom on any modifications accorded by the CCI.
Minority opinion:
The minority adopted the purposive approach concluding that the intent of IBC i.e. "to preserve the corporate debtor as going concern and maximize recovery to the creditors" could be hindered by the mandatory prior approval of the CCI. Therefore, he was of the opinion that the proviso of Section 31(4) of IBC is directory in nature such that the approval of CCI although mandatory before the adjudicating authority's approval but not to CoC's approval.
Our Thoughts
This ruling of the Supreme Court has ended the saga of interpretations of a clear provision created by NCLT and NCLAT. The majority decision rightly places importance on the legislative intent behind Section 31(4) of the IBC and its clear emphasis on obtaining the CCI's approval prior to the CoC's approval. This interpretation aligns with the IBC and Competition Act's broader objective of maintaining fair competition and protecting market dynamics while resolving distressed businesses.
In light of the Court's ruling, it is evident that the IBC's provisions should be followed in their letter and spirit, ensuring that all necessary approvals are obtained in the correct sequence to avoid any potential complications down the line. The Court's decision reinforces the importance of adhering to procedural safeguards in maintaining the integrity of the insolvency process.
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