Resolving Insolvency, Regulating Competition: The Legal Imperatives Post Independent Sugar Corporation Ltd. V. Girish Sriram Juneja Introduction
I. INTRODUCTION
The Intersection of the Insolvency and Bankruptcy Code, 2016 (‘IBC’), and the Competition Act, 2002 (‘the Act’) arises primarily when a corporate entity undergoing insolvency resolution attracts the interest of another entity, often a competitor aiming to acquire it as part of a resolution plan. Such an acquisition during the Corporate Insolvency Resolution Procedure (‘CIRP’) would constitute a “combination” under Section 5 of the Act, 2002 if it meets a certain threshold related to assets and turnover. Consequently, if such a combination is identified as a combination under the Act, then it will fall under the regulatory purview of the Competition Commission of India (‘CCI’). The CCI will then ensure that the combination does not have an appreciable adverse effect on competition (‘AAEC’) within the relevant market.
Consider the following situation, where a financially distressed manufacturing company with a significant market share in a specific sector is undergoing CIRP. A larger competitor submits a resolution plan that involves acquiring the distressed entity. The Committee of Creditors (‘CoC’) focuses on the financial viability and maximization of asset value as per their commercial wisdom and approves the resolution plan without first obtaining clearance from the CCI. [JE2] Subsequently, it is determined that the resultant combination would create a significant market concentration, leading to an AAEC, and triggering a review by the CCI. If the CCI ultimately rejects the combination after the resolution plan has been approved by both the CoC and the Adjudicating Authority, the CIRP risks being invalidated. This could render the CIRP futile, potentially forcing the corporate debtor into liquidation, and causing significant market disruption.
The legislative framework, particularly Section 31(4) of the IBC and its proviso, attempted to address this overlap. Section 31(4) generally mandates obtaining necessary statutory approvals within a year of the resolution plan’s approval by the Adjudicating Authority. The proviso to the section further mandates that where a resolution plan includes a combination, prior approval from the CCI must be obtained before the CoC approves such a plan. Despite the provision’s seemingly direct language, the judicial trend previously interpreted its requirement as directory rather than mandatory.
II. COURTS ON THE INTERSECTION OF IBC AND CCI
The intersection of IBC and the Act has often been a legal labyrinth, especially when it comes to the mandatory requirement of obtaining CCI approval for resolution plans involving combinations. Previous judgments, such as ArcelorMittal India Pvt. Ltd. v. Abhijeet Guhathakurta (‘ArcelorMittal’), Vishal Vijay Kalantri v. Shailen Shah (‘Vishal Vijay Kalantri’), and Makalu Trading V. Rajiv Chakraborty (‘Makalu Trading’), did recognize that CCI approval was mandatory under section 31(4) of the IBC. However, the reasoning employed by the National Company Law Appellate Tribunal (‘NCLAT’)in these cases was misguided, as it built its reasoning on a framework that was inconsistent with the law’s requirements.
In ArcelorMittal, the NCLAT held that the proviso to Section 31(4) was “directory, not mandatory,”[JE3] Allowing CCI approval to be sought after the CoC had approved the resolution plan. The tribunal reasoned that the CoC could approve a plan subject to CCI approval being obtained later, watering down the mandatory import of the proviso to section 31(4), effectively putting the cart before the horse. Similarly, in Vishal Vijay Kalantri, the NCLAT held that a resolution plan would be compliant under section 34(1) even if the CCI approval was obtained subsequent to the CoC approval. While acknowledging the same, the NCLAT observed that “treating such requirement as mandatory is fraught with serious consequences”. However, without delving into the specifics of these ‘serious’ consequences, the NCLAT chose to rely on ArcelorMittal upholding its interpretation of section 31(4) as directory. Makalu Trading followed suit, reiterating the stance taken in ArcelorMittal without much independent analysis.
While the end conclusion in these cases was that the CCI approval was indeed necessary, the reasoning was flawed, as it treated the mandatory requirement as a mere formality that could be deferred. This judicial approach created uncertainty, leaving room for ambiguity in the interplay between IBC and the Act. However, the Supreme Court, in its judgment of Independent Sugar Corporation Ltd. v. Girish Sriram Juneja (‘HNGIL case’) stepped in to address this ambiguity. The Court held that CCI approval must be obtained before the CoC approves a resolution plan, firmly establishing the mandatory nature of Section 31(4) of the IBC. The decision marks a significant development in the jurisprudence governing the intersection between IBC and the Act.
III. FACTUAL BACKGROUND OF THE CASE
The present matter arises from a series of appeals concerning the CIRP of Hindustan National Glass and Industries Ltd. (‘HNGIL’), against the backdrop of a proposed combination between HNGIL and AGI Greenpac Ltd. (‘AGI Greenpac’).
The CIRP against HNGIL was initiated by DBS Bank, a Financial Creditor, under Section 7 of the IBC, and was admitted by the NCLAT (Kolkata Bench) on 21st October 2021. Subsequently, an Expression of Interest (‘EOI’) was floated on 25th March 2022 by the Resolution Professional (‘RP’), which stipulated a mandatory requirement of approval from the CCIprior to the approval of the Resolution Plan by the CoC.
Responding to the EOI, Independent Sugar Corporation Ltd. (‘INSCO’) and AGI Greenpac submitted their respective Resolution Plans in April 2022. AGI Greenpac, being the second largest company in the field of glass packaging and manufacturing in India after HNGIL (which holds a 60% market share), proposed a combination by acquiring 100% of HNGIL’s shareholding and business. This proposed combination raised concerns regarding a potential AAEC in the glass packaging industry.On 27th September 2022, AGI Greenpac submitted an application with the CCI under Form I under Regulation 5(ii), seeking approval for the proposed combination. However, this application was declared ‘not valid’ by the CCI on 22nd October 2022 Thereafter, final Resolution Plans were submitted for consideration by the CoC. At this juncture, AGI Greenpac did not possess the requisite CCI approval nor did it have a pending application seeking such approval.
INSCO objected to the approval of AGI Greenpac’s Resolution Plan, contending that the mandatory CCI approval had not been obtained at the time of voting by the CoC. Despite this objection, the CoC approved AGI Greenpac’s Resolution Plan on 28th October 2022 with 98% of the votes, while INSCO’s plan received 88%.Subsequently, on 3rd November 2022, AGI Greenpac submitted a detailed application in Form II seeking CCI approval. The RP filed an Interim application (‘IA’) before the NCLT Kolkata under Section 30(6) of the IBC seeking approval for AGI Greenpac’s Resolution Plan, while INSCO filed an IA before NCLT Kolkata challenging the approval granted to AGI Greenpac’s Resolution Plan by the CoC.
During the pendency before the NCLT, AGI Greenpac submitted a divestment plan to the CCI on 10th March 2023, proposing to divest one of HNGIL’s seven plants (located in Uttarakhand) as a voluntary modification to comply with the Act. On 15th March 2023, the CCI approved AGI Greenpac’s combination proposal, subject to compliance with these modifications, including the divestment.
INSCO challenged the approval of AGI Greenpac’s Resolution Plan before the NCLT, which was rejected on 28th April 2023. The NCLT held that the required CCI approval under Section 31(4) of the IBC had been obtained in the interim. This rejection was challenged by INSCO before the ‘NCLAT’.
The NCLAT, in its judgment dated 18th September 2023, upheld the approval accorded to AGI Greenpac’s Resolution Plan, concluding that while CCI approval was mandatory, its prior approval by the CoC was directory. Meanwhile, INSCO also challenged the CCI’s approval dated 15th March 2023 before the NCLAT, which upheld the CCI’s decision on 28th July 2023.
It is against these two decisions of the NCLAT (dated 28th July 2023 and 18th September 2023) that INSCO preferred the appeals before the Supreme Court under Section 62 of the IBC and Section 53T of the Act. The primary legal issue before the Supreme Court revolved around the interpretation of the proviso to Section 31(4) of the IBC, specifically whether the CCI’s approval of a combination must mandatorily precede the CoC’s approval of the Resolution Plan in cases involving a combination under Section 5 of the Act. The appeals also encompassed challenges to the procedural aspects of the CCI’s approval process.
ANALYSIS
A) IMPLICATIONS FOR THE STAKEHOLDERS
The intersection between the two legislative frameworks creates significant implications for the various stakeholders in the insolvency ecosystem.
From the perspective of creditors, a crucial fact to be noted is that the delays in the initiation of the Corporate Insolvency Resolution Process (‘CIRP’) itself contribute to significant value erosion. If prior CCI approval requires a longer waiting period before the CoC can finalize a resolution plan, creditors may face further delays in recovering dues, potentially increasing the haircuts they must take. In the present case, the Supreme Court acknowledges the IBC’s claim of maximizing asset value and the concerns about the delays. However, it also emphasizes the need for adherence to the statutory provisions. A mandatory prior CCI approval could potentially lengthen the overall resolution timeline, thereby impacting the creditors’ ability to achieve timely recoveries.
For employees of the distressed companies, delays in the CIRP often translate to prolonged uncertainty regarding their job security and outstanding wages. The IBC aims to ensure the corporate debtor continues as a going concern, which is crucial for protecting employment. Moreover, as the process is prolonged due to the mandatory prior CCI approval, the distressed company’s operational viability might be further jeopardized, increasing the risk of liquidation and consequent job losses. Therefore, the judgment emphasizes the importance of concluding the CIRP swiftly to avoid jeopardizing the company’s survival.
The broader economic implications of this interpretation are multifaceted. While ensuring compliance with the Competition Act is essential for maintaining a competitive market, a mandatory prior CCI approval could potentially deter potential buyers from participation in the IBC processes if it adds a significant layer of complexity and time. This could reduce the pool of resolution applicants, thereby impacting the competitive spirit of the CIRP and potentially leading to lower valuations for distressed assets. Furthermore, the timely resolution is also crucial for preserving the economic value of the distressed enterprise. If the requirement for prior CCI approval frequently extends the resolution timeline beyond the stipulated 330 days, it might undermine the IBC’s effectiveness in providing a time bound insolvency resolution process. Extended uncertainty and operational decline during prolonged processes further erodes asset values, creating a negative feedback loop.
B) IMPACT ON IBC TIMELINES
The statutory deadline under the IBC for the completion of the CIRP is 330 days, including extensions and time taken in legal proceedings. A scenario where CCI takes longer than the average time, especially approaching or exceeding 120 days in complex cases, could significantly impact the remaining timeline for the CoC’s deliberations, NCLT approval, and the implementation of the resolution plan. If the prior CCI approval becomes mandatory, any delay at the CCI level would directly translate to a delay in the overall IBC process, potentially pushing it beyond the 330-day limit.
Additionally, when the insolvency proceedings involve complex asset structures and regulatory requirements across multiple jurisdictions, the mandatory prior CCI approval requirement can worsen existing delays in the resolution process. State Bank of India and Others Vs Consortium of Murari Lal Jalan and Florian Fritsch and Another1, famously known as the Jet Airways insolvency case, provides a clear example of these challenges within the country’s Bankruptcy framework when dealing with asset heavy industries. The long duration of the resolution process, combined with the difficulties associated with international assets and the operational disruptions, led to the Supreme Court ordering liquidation in November 2024, as the Jalan-Kalrock Consortium did not complete the requirements of the resolution plan within the time prescribed. This outcome illustrates how regulatory delays and procedural complexities can transform potentially viable corporate rescues into failed attempts, highlighting the need for an efficient and speedy insolvency framework to prevent asset values from declining in time-sensitive industries where approval from multiple authorities can create a domino effect of delays.
THE WAY FORWARD
The judgment, through emphasizing adherence to the statutory framework, may inadvertently prolong the CIRP beyond the intended timelines, potentially leading to value erosion of the distressed assets. To better balance the objectives of the provisions with the necessity of competition scrutiny, India should consider the following policy recommendations.
The adoption of accelerated review timelines, exemplified by the United States Model, presents substantial opportunities for enhancing the operational efficiency of merger assessments within the Insolvency Resolution Process. In the United States, the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”) established the pre-merger notification regime for antitrust review to safeguard consumer interests, with the Federal Trade Commission being responsible for the process through a standard 30-day waiting period. However, recognizing the unique nature of the distressed transactions, acquisitions of bankrupt companies under Section 363(b) of the Bankruptcy Code, The HSR process follows a specialized expedited process, reducing the initial waiting period to 15 days when both the acquiring person and the trustee or debtor in possession file their HSR notifications. If the agencies issue a second request for additional information, they have only 10 days to complete their review instead of the standard longer timeline for non-bankruptcy transactions. This process ensures reduced regulatory hurdles and swift handling of distressed assets while safeguarding competition.
Should India proceed with the implementation of the green channeling of the Insolvency and Restructuring Proceedings, it would be imperative to incorporate robust safeguards similar to the Failing Firm defence as utilized by the European Union framework. This mechanism, as elucidated upon the Horizontal Merger Guidelines, necessitates the satisfaction of the three fundamental criteria, first, the target entity must demonstrate a genuine likelihood of commercial failure, second, no alternative acquirer presenting lesser anti-competitive implications must be available, and third, the entity’s assets would inevitably exit the relevant market absent the proposed merger transactions.
Finally, another vital recommendation involves fostering enhanced inter-agency cooperation between the Insolvency and Bankruptcy Board of India (‘IBBI’) and the CCI. Creating a dedicated inter-agency task force or a formal mechanism for regular consultation and information sharing could significantly streamline the interface between the CIRP and the competition review process. Such collaboration would facilitate a smoother flow of information and potentially expedite the identification and resolution of competition concerns related to proposed combinations in resolution plans.
CONCLUSION
The Supreme Court’s landmark decision in HNGIL radically transformed the landscape of the insolvency resolution process in India by clarifying the relationship between competition law and insolvency proceedings, establishing clearly that CCI approval must be secured prior to initiating a combination under 31(4) of IBC. While such clarification removes ambiguity at the intersection of competition and the IBC, it also creates new dilemmas that call for upfront policy solutions.
Going forward, the challenges will be to strike a delicate balance between competitive markets whilst keeping IBC’s primary goal of quick resolution in mind. India must make immediate regulatory changes to allow for fast-track review mechanisms-much like the US’s bankruptcy process, while providing necessary safeguards, as in a failing firm defence, similar to the European Union. Further, the idea of fast channels for distressed transactions will also help prevent the corporate rescue process from unintentionally becoming a lengthy liquidation process. Such legislations in the Indian jurisprudence would ensure that the legislative intent of both the Acts is realized, fulfilling their objective.
Notes:-
1 SBI v. Murari Lal Jalan & Florian Fritsch (Consortium), (2025) 4 SCC 354
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Authors:
Devpriya Sengupta, 3rd Year B.A. LL.B. (Hons.), National Law University Odisha
Mridula Singh Bhatti, 3rd Year BBA. LL.B. (Hons.), National Law University Odisha
