'Prior' CCI Approval Of Resolution Plans: A Case For Legislative Amendment

The recent judgment of the Supreme Court in Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors. has reignited the debate on whether the approval of the Competition Commission of India ("CCI") must precede the Committee of Creditors ("CoC") approval in the insolvency process. This note critiques the Court's strict interpretation of the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 and supports the dissenting opinion, arguing for a liberal interpretation of the proviso to Section 31(4). The note proposes a legislative amendment to the proviso, proposing that CCI approval be required prior to approval of the adjudicating authority (i.e., the NCLT) instead of prior to CoC approval, to better balance regulatory compliance with efficiency of the insolvency process.

Introduction

The Supreme Court's recent judgement in Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors.¹ has reignited the debate in respect of the timing for Competition Commission of India ("CCI") approval for resolution plans under the Insolvency and Bankruptcy Code, 2016 ("IBC").

The factual matrix of this case arose from the Corporate Insolvency Resolution Process ("CIRP") of Hindustan National Glass and Industries Ltd. ("HNGIL"). The core issue before the Supreme Court was whether CCI approval of a combination is mandatory before approval by the Committee of Creditors ("CoC") of a resolution plan that provides for such combination.

This note discusses the Supreme Court judgement and argues for a legislative amendment.

Background

The proceedings before the Supreme Court arose out of a National Company Law Appellate Tribunal ("NCLAT") order dated September 19, 2023.² AGI Greenpac Ltd. ("AGI"), the successful resolution applicant, sought to acquire HNGIL through its resolution plan. AGI's resolution plan envisaged the formation of a combination³ between HNGIL and AGI, which required CCI approval. Independent Sugar Corporation Limited ("INSCO"), another resolution applicant, challenged the approval of AGI's plan, arguing that it lacked the necessary prior CCI approval for the proposed combination. The NCLAT concluded that CCI approval is not mandatorily required to be approved prior to the approval of the resolution plan by the CoC. The unsuccessful resolution applicant, INSCO, filed an appeal in the apex court.

The Prevailing View Before This Judgement

Before the Independent Sugar Corporation judgement, the prevailing view as reflected in several NCLAT decisions leaned towards a liberal interpretation of the proviso to Section 31(4). The NCLAT decisions in Arcelor Mittal India Pvt. Ltd. v. Abhijit Guhathakurta,⁴ Vishal Vijay Kalantri v. Shailen Shah⁵ and Makalu Trading v. Rajiv Chakraborty⁶ supported the view that while CCI approval was mandatory, obtaining it prior to CoC approval was not mandatory. The NCLAT, in those cases, reasoned that rigidly enforcing a prior approval requirement could unduly delay the CIRP, potentially undermining the IBC's objectives.

In two of these cases, Vishal Vijay Kalantri and Makalu Trading, the Supreme Court also dismissed appeals against the NCLAT decisions, lending credence to the NCLAT's interpretation.

However, the recent judgment in Independent Sugar Corporation has now established a different precedent.

The Majority Judgement

The Supreme Court by a majority opinion overturned the NCLAT's judgement. It held that the proviso to Section 31(4) of the IBC mandates prior CCI approval for resolution plans involving combinations, and that CCI approval is required to be taken prior to the resolution plan being considered by the CoC. The court based its reasoning on the principle of plain meaning. The court held that when the language of the provision is plain, clear and unambiguous, literal interpretation is the best way to understand the legislative intention behind enacting the particular provision. Therefore, if the statute requires that the act of obtaining approval of the CCI for the resolution plan must be done in a particular manner, i.e, 'prior' to the resolution plan being approved by the CoC, then it should be interpreted in a straightforward manner as a mandatory requirement.

Commenting on the relevance of CCI and its scrutiny of the resolution plans containing proposals of a combination, the majority judgement noted that only those resolution plans, which meet the requisite lawful criteria, can be placed for the scrutiny and approval before the CoC by the resolution professional. In this case, lawful criteria would mean that the resolution plan is fully compliant with the Competition Act, 2002 (the "Competition Act"), and that the proposed combination does not lead to any appreciable adverse effect on competition in the relevant market. If the prior approval of CCI is not obtained, it may lead to the situation where the CoC approves a resolution plan which does not pass muster under the Competition Act. This would render the whole CIRP exercise futile. To avoid such situations, a 'prior' approval of the CCI is mandatory.

The Dissenting Judgement

The dissenting judgement emphasized the directory nature of the proviso to Section 31(4). It held that the prior approval of the CoC is not mandatory. The literal rule of interpretation is not an inviolable rule. Interpreting the proviso in a literal manner should not frustrate the objects of the statute. Such interpretation, apart from causing difficulties in the CIRP, defeats the object of IBC which is maximization of recovery. The use of the word 'shall' in the proviso may appear to make the requirement mandatory, however it is offset by other considerations such as the object, scope of the enactment, and the consequences flowing from such interpretation.

Moreover, the CoC uses its commercial wisdom to judge the feasibility or viability of the resolution plan, and the combination approval is not very relevant from that perspective. The compliance of the resolution plan with the Competition Act, as approved by the CoC, is examined by the Adjudicating Authority. The minority judgement opined that an insistence on CCI approval before the resolution plan is considered by the CoC would limit the number of resolution applicants. Given that the core object of the CIRP is to maximize recovery, such an insistence would be harmful to the CIRP exercise. Further, only the Adjudicating Authority can reject a non-compliant resolution plan; the CoC is principally concerned with the feasibility and viability of the plan from a commercial perspective. The dissenting judgement, thus, upheld the impugned NCLAT order, and relied on a purposive interpretation of the proviso.

A Case for a Purposive Interpretation

While the Supreme Court's commitment to upholding statutory provisions is laudable, the mandatory nature of prior CCI approval, as emphasized in the majority opinion, may inadvertently hinder the IBC process. The minority judgement, in our view, presents a more pragmatic approach. It correctly emphasizes the importance of adhering to the IBC's timelines. The CIRP is intended to be a swift and efficient process, aimed at maximizing asset value and ensuring timely resolution. Mandating prior CCI approval introduces a potentially lengthy step that could disrupt these timelines. The CCI's approval process can take a considerable amount of time, potentially freezing or halting the CIRP due to a pending application.

Moreover, a rigid interpretation of the proviso to Section 31(4) could stifle the CoC's commercial wisdom. The CoC, comprising experienced financial creditors, is best positioned to assess the feasibility and viability of resolution plans. Requiring prior CCI approval might prematurely exclude potentially viable plans, simply because the CCI process is not completed.

An Interesting Twist

In considering the legislative intent behind the proviso to Section 31(4), the memorandum explaining modifications which introduced this proviso in 2018 was placed before the court. The memorandum states as follows:

"(d) in clause 24 of the Bill, in sub-section (4) of section 31 of the Code, a new proviso is inserted "provided where the resolution plan contains a provision for combination as referred to in Section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors" so as to clarify that the approval for the combinations from Competition Commission of India has to be obtained prior to the approval of resolution plan by the Adjudicating Authority."

Do the underlined words in the memorandum reflect the true legislative intent and did the proviso to Section 31(4) inadvertently refer to approval of the CoC instead of the approval of the adjudicating authority? This was argued before the court but rejected by the majority on the basis that the language of the proviso to Section 31(4) is clear and unambiguous and there is no need for any external aid for interpretation.

The Way Forward

To strike a better balance between competition concerns and the objectives of the IBC, the proviso to Section 31(4) warrants reconsideration. In line with the memorandum explaining the introduction of the proviso to Section 31(4) in 2018, the authors propose a legislative amendment in the proviso to Section 31(4) to replace the words "Committee of Creditors" with "Adjudicating Authority".

Accordingly, the authors propose that the amended proviso to Section 31(4) should read as follows (change shown in strikethrough format):

"PROVIDED that where the resolution plan contains a provision for combination as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under the Act prior to the approval of such resolution plan by the Committee of Creditors Adjudicating Authority".

Such legislative amendment would ensure that CCI approval is obtained before the final approval of the resolution plan by the relevant NCLT, while still allowing the CoC to exercise its commercial wisdom in a timely manner.

Conclusion

The Supreme Court's judgement in Independent Sugar Corporation has brought the debate around prior CCI approval in IBC resolutions back into focus. The practical implications of this judgement warrant careful consideration. A more flexible approach, as put forward by the minority opinion, would have better served the objectives of the IBC and ensure a more efficient and effective resolution process. Legislative action to amend the proviso to Section 31(4) now appears necessary to achieve a balanced approach.

Footnotes

1. 2025 SCC OnLine SC 181

2. 2023 SCC OnLine NCLAT 632

3. Section 5, Competition Act, 2002

4. 2019 SCC OnLine NCLAT 920

5. 2020 SCC OnLine NCLAT 1013

6. 2020 SCC OnLine NCLAT 643