Introduction
In a recent decision1, the Supreme Court of India (Court), interpreted the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (IBC) and held that, where a resolution plan provides for a combination under the Competition Act, 2002 (Competition Act), prior approval from the Competition Commission of India (CCI) is mandatory, before the Committee of Creditors (CoC) considers the plan.
Facts
Corporate Insolvency Resolution Process (CIRP) was initiated against Hindustan National Glass and Industries Ltd. (HNGIL/Corporate Debtor) before the National Law Company Tribunal, Kolkata (NCLT). HNGIL has a 60% market share of the glass packaging industry in India. Resolution plans were submitted by AGI Greenpac Ltd. (AGI) and Independent Sugar Corporation Ltd. (INSCO). AGI is the second largest company in the same filed as HNGIL.
Since combination of two major players in the sector would likely cause an Appreciable Adverse Effect on Competition (AAEC), resolution plans were required to obtain approval from the CCI under the proviso to Section 31(4) of the IBC. However, in August 2022, the Resolution Professional (RP), permitted parties to obtain the CCI approval, after the CoC approval, but prior to filing the application for approval of resolution plan before the NCLT. AGI applied for CCI approval, however, the application was held to be "not valid" by CCI, and immediately a few days thereafter, the CoC approved AGI's resolution plan.
INSCO filed an application before the NCLT, challenging CoC's approval of AGI 's plan. AGI had filed another detailed application seeking approval of CCI, and sometime thereafter, submitted a divestment plan to CCI as part of a voluntary modification to comply with the requirements of competition laws. At the same time, the RP had filed an application for approval of AGI's plan. CCI had thereafter granted its approval to AGI's combination proposal subject to certain conditions. The NCLT dismissed INSCO's application, observing that the requisite CCI approval under Section 31(4) of the IBC had been obtained in the meantime. INSCO preferred an appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT affirmed the CoC's approval of AGI's resolution plan, holding that while CCI's approval under Section 31(4) is mandatory, obtaining such approval prior to CoC's approval is merely directory. Hence, INSCO filed an appeal before the Supreme Court.
Judgment
Proviso to Section 31(4) IBC — Whether CCI approval must mandatorily precede CoC approval
The Court observed that the insertion of the proviso to Section 31(4) of the IBC, and the use of the word "prior", reflects the legislature's intent to create an exception. In cases where a resolution plan involves a combination, the approval of CCI must be obtained before the plan is placed before the CoC. No other provision of the IBC indicates a contrary intention. The language of the proviso is clear, precise, and unambiguous. Thus, a literal interpretation must prevail over a purposive interpretation.
Why literal and not purposive interpretation?
It was held that where the language of a statute is clear, plain, and unambiguous, courts are bound to give effect to its natural and ordinary meaning, regardless of the consequences. Since the legislature expresses its intent through the words used, courts must avoid speculative interpretations or invoking the 'spirit of the law' when the language is unambiguous. Use of the word "prior" in the proviso to Section 31(4) of the IBC is direct and unambiguous. Treating this requirement as directory would defeat the legislative purpose and render the proviso totally inconsequential. Since the language leads to no absurdity, any interpretation permitting CCI approval after CoC approval would amount to restructuring a statutory provision.
Threshold for combinations
Unlike other statutory approvals, which can be obtained within one year after CoC approval of the resolution plan,the IBC sets a distinct and stricter threshold for CCI approval. This distinction is deliberate, given that the Competition Act specifically regulates combinations that may cause an AAEC, and prescribes a detailed process for their scrutiny. Since the CCI has the power to approve, reject, or modify combinations, to align with competition law, its prior approval is essential before a resolution plan can be considered by the CoC.
Consequence of no prior CCI approval
When a resolution plan which is placed before the CoC, includes a combination likely to cause an AAEC, without first obtaining the mandatory approval from CCI, the plan would be legally unenforceable and incapable of implementation. Both, the IBC, and the Competition Act, provide specific legal consequences for such non-compliance. It was held that this would not be a mere procedural lapse but a substantive defect that cannot be rectified at a later stage. Consequently, any approval granted by the CoC to a resolution plan lacking prior CCI clearance, holds no legal validity.
No conflict between IBC and Competition Act
Model timelines prescribed under Regulation 40A of the CIRP Regulations, cannot override a statutory provision. The Court further clarified that there is ordinarily no conflict between the timelines prescribed under the IBC and the Competition Act. Any potential overlap or delay would arise only in extremely rare situations; the average time for disposal of combination applications being 21 working days. Importantly, it was observed that the trigger event for notifying a combination to CCI is not confined to the stage of submitting the resolution plan to the RP. The application to CCI can be submitted at various stages in the CIRP, such as upon submission of an expression of interest, issuance of request for resolution plan, or publication of the provisional list of eligible resolution applicants. Thus, there would be sufficient time to obtain CCI approval within the overall CIRP period of 330 days under the IBC, thereby not impeding the CIRP timeline.
Relevance of CCI & its scrutiny
Without prior CCI approval, a resolution plan may violate Section 6 of the Competition Act, and its subsequent rejection by CCI would render the entire exercise futile. The RP, lacking adjudicatory powers, and the RP's role being only administrative, the RP cannot relax this statutory requirement.
CoC's approval of AGI's plan set aside
The Court held that while the IBC aims to ensure timely resolution of stressed assets with maximised value for stakeholders, such resolution must strictly comply with statutory mandates. Expediency cannot override the need to adhere to legal provisions. It was held that where a resolution plan involves a combination, prior approval from the CCI is a necessary pre-condition to the CoC's consideration and approval of a plan. Accordingly, the CoC's approval of AGI's resolution plan was set aside and quashed. All actions taken pursuant to the said plan were nullified, and the rights of stakeholders were restored to status quo ante.
Dissenting judgement (Justice S.V.N. Bhatti)
Hon'ble Justice S.V.N. Bhatti, took a dissenting view, holding that the word "shall" in the proviso to Section 31(4) of the IBC ought to be interpreted as directory, not mandatory. The dissenting opinion observed that the determination of whether a statutory provision is mandatory or directory must be guided by legislative intent, keeping in mind the overall scheme, and the consequences of interpretation, rather than mere literal reading. Emphasizing a purposive interpretation, it was observed that insisting on prior CCI approval before CoC approval, would limit the pool of eligible resolution applicants and undermine the IBC's objective of maximizing value for stakeholders.
While exercising its commercial wisdom, the CoC is tasked with evaluating feasibility, viability, and manner of distribution proposed. While exercising its commercial wisdom, the CoC is not precluded from considering the consequences of failure to obtain combination approval, and this may influence the voting pattern of the CoC. Thereafter, whether a proposal is legally compliant in a CIRP attracting CCI approval, is to be examined by the Adjudicating Authority. The absence or presence of a combination approval is not relevant from the perspective of feasibility and viability, which the CoC is primarily concerned with.
Conclusion
This ruling reinforces the need for strict compliance with statutory mandates, and ensures that the insolvency resolution process does not bypass competition law safeguards, thereby preventing anti-competitive results. The judgment seeks to balance the integrity of both the IBC and the Competition Act. However, it may lead to restricting the number of applicants, causing some adverse effects on the IBC's objective of value maximization. It is also likely to deter those applicants who wish to enter into negotiations with the CoC, especially given the Court's observations on conditional CCI approvals. AGI has filed a review petition, and it would be interesting to see how it unfolds.
Footnote
1 Independent Sugar Corporation Ltd. vs. Girish Sriram Juneja and Others (2025 SCC OnLine SC 181)
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