The legal framework w.r.t. law of insolvency in India has seen considerable progress since the introduction of Insolvency and Bankruptcy Code, 2016 ("IBC"). The Legislature, taking cue from various judgments passed by the courts and the grey areas identified during the implementation of the provisions of IBC, introduced various amendments from time to time. However, notwithstanding such amendments, various legal questions involving interpretation and implementation of provisions of IBC keep arising posing challenges before the Courts to resolve the same.
Recently, an interesting legal question arose before Supreme Court of India in Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors. – 2025 INSC 124, "whether seeking approval of the Competition Commission of India to a resolution plan involving combination, prior to the approval of Committee of Creditors as stipulated under Section 31(4) of IBC is mandatory or directory?"
I. Brief Background
A set of appeals were filed by various parties under Section 62 of IBC, challenging the final judgment dated 18.09.2023 passed by National Company Law Appellate Tribunal ("NCLAT") w.r.t. the Corporate Insolvency Resolution Process ("CIRP") initiated against Hindustan National Glass and Industries Ltd. ("HNGIL" or "the corporate debtor"). The above appeals were taken up together as the same involved a common question of law. The CIRP of HNGIL commenced on 21.10.2021 by NCLT, Kolkata, pursuant to an application filed by DBS Bank under Section 7 of the IBC.
Subsequently, the following two major Resolution Applicants filed their respective plans:
- AGI Greenpac Ltd. ("AGI")
- Independent Sugar Corporation Ltd. ("INSCO")
Since, HNGIL as well as AGI were both dominant players in Glass packaging industry, AGI's takeover of HNGIL would have been a 'combination' in terms of Section 5 of Competition Act, 2002. For the sake of clarity, the definition of 'combination' primarily includes an arrangement between two corporate entities where one entity is taking complete or partial control of another entity or two entities are getting merged. However, an exhaustive definition of 'combination' is provided under the aforesaid provision which can be referred to for better understanding of the meaning of the said term.
Considering the above, the Expression of Interest ("EOI") issued by the Resolution Professional ("RP") required all Applicants to secure prior CCI approval before CoC voting on the plans, as mandated under Section 31(4) of IBC. However, the RP later relaxed this condition via email dated 25.08.2022, allowing the Resolution Applicants to obtain CCI approval after CoC's approval but before approaching NCLT for approval. AGI applied to the CCI on 27.09.2022, however, the application was rejected as 'not valid'. The CoC, still approved AGI's resolution plan on 28.10.2022. Subsequently, AGI once again applied to CCI on 03.11.2022 seeking its approval. In the meantime, INSCO challenged CoC's approval of AGI's plan before NCLT, which got rejected. CCI on 15.03.2023 granted approval to AGI's combination proposal with HNGIL. INSCO approached NCLAT, however, the appeal was rejected and CoC's approval of AGI's plan was upheld. NCLAT held that though obtaining CCI's approval was 'mandatory', however, the requirement of seeking such approval, prior to approval of CoC was 'directory' in nature. INSCO challenged the aforesaid judgment before Supreme Court of India.
II. Contentions of Parties
INSCO's Arguments:
- As per the EOI, RP communications, and proviso to Section 31(4), prior approval of CCI was 'mandatory'.
- AGI failed to comply with the aforesaid requirement.
- INSCO alleged preferential treatment to AGI besides contending that CCI approval was post-facto and was based on misleading data.
AGI's Arguments:
- The proviso to Section 31(4) of the IBC was merely 'directory'.
- The provisions of the IBC and Competition Act must be harmoniously interpreted to avoid delays in the whole process.
- Since there was no consequence for non-compliance of the proviso to Section 31(4) therefore, the same cannot be treated as a mandatory provision.to comply.
- INSCO did not have locus standi to challenge the approval of plan.
III. Supreme Court's Decision
The Supreme Court of India, by majority (2:1), ruled in favour of the Appellant and set aside the CoC's approval of AGI's plan, holding that CCI's prior approval was indeed a 'mandatory' precondition before CoC approval, as mandated under the proviso to Section 31(4) of the IBC.
- Locus Standi of INSCO
The Court interpreted the expression "any person aggrieved" appearing in Section 62 of IBC and found INSCO, being a Resolution Applicant, had the locus.
- Interpretation of Proviso of Section 31(4)
The Court held that the language of the proviso to Section 31(4) of IBC is clear. The legislative intent of inserting the proviso suggests seeking prior approval of CCI and such mandate should not be seen as a flexible provision to be ignored. The requirement of prior approval, if held as directory, it would distort the very objective of inserting the said proviso and the same would become completely inconsequential.
- Statutory Framework and CCI's Role
Section 31(3) of the Competition Act, 2002, empowers CCI to suggest modifications to 'combinations'. If CoC approves a plan without knowing CCI's view, the suggested changes would escape CoC's scrutiny. It was observed that if a plan having 'appreciable adverse effect' on competition, if presented before CoC, prior to obtaining CCI's approval, the above aspect would be completely ignored. Such plan would, thus, be clearly in violation of IBC & Competition Act, 2002.The Court also noticed a major procedural lapse, observing that CCI failed to issue the Show Cause Notice under Section 29(1) of the Competition Act, 2002 to the Corporate Debtor. This was held to be in violation of basic framework of IBC under which all parties to the 'combination' should be afforded a fair opportunity to participate in the decision -making process.
- Harmonious Construction
The Court discussed various provisions of IBC & Competition Act, 2002 to deal with the contentions relating to harmonious interpretation of the aforesaid statutes. It was observed that the timelines stipulated under the above statutes do not cause any disharmony or conflict except when some external factors were involved.
- Status Quo Ante Restored
The Court set aside CoC's approval granted to AGI's resolution plan and directed a return to the pre-approval stage (i.e., status as of 28.10.2022). It further asked the CoC to reconsider all such resolution plans, including INSCO's, that had valid CCI approvals by that date.
- Conduct of Resolution Professional
The Court strongly disapproved of RP's action in unilaterally modifying a statutory condition through email, which establishes that deviating from the statute, even for pragmatic reasons, undermines the entire CIRP process. This ruling once again reiterate that RPs must strictly adhere to the statutory framework.
IV. Review Petitions
Subsequently, two separate review petitions were filed by CCI and AGI against the above judgment.
Decision - CCI's Review Petition:
The Court agreed to partially review its earlier observations regarding CCI's powers under Sections 29(1) and 29(1A) of the Competition Act, 2002. It clarified that:
- Issuance of a show cause notice under Section 29(1) is mandatory if CCI forms a prima facie opinion that a 'combination' may cause appreciable adverse effect on competition.
- Under Section 29(1A), however, CCI has the discretion whether to direct for further investigation or not.
This distinction was drawn from the expression "shall" used in Section 29(1) and "may" (1) used in Section 29(1A). The Court, accordingly, clarified that CCI had wide discretion available under Section 29(1A).
Decision - AGI's Review Petition:
The review petition filed by AGI was dismissed as not being maintainable.
CONCLUSION
This landmark decision by Supreme Court of India, thus, clearly confirmed the mandatory nature of the proviso to Section 31(4) of IBC. The ruling upholds the principle that legality cannot be compromised for convenience. The precedent sets a robust standard for future CIRPs and emphasizes that adherence to legal procedure is fundamental to maintaining the effectiveness of India's insolvency regime.
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