LKS - Neelambera Sandeepan, Shambhavi Sirothia 
The Viewpoint

CCI approval a prerequisite for notifiable IBC transactions: Supreme Court confirms

The Supreme Court's decision reinforces that procedural requirements are not mere formalities that can be circumvented for expediency.

Neelambera Sandeepan, Shambhavi Sirothia

The Supreme Court of India (“SC”), on January 29, 2025, delivered a landmark judgment in Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors., addressing the regulatory overlap concerning the intersection of Insolvency and Bankruptcy Code, 2016 (“IBC”)  and Competition Act, 2002 (“Competition Act”).

Any acquisition, merger or amalgamation, including corporate restructuring under the Corporate Insolvency Resolution Process (“CIRP”), that breach the thresholds (in terms of assets or turnover or deal value) prescribed under the Competition Act need prior approval of the Competition Commission of India (“CCI”) for consummation of the transaction.

The CCI ensures that restructuring under IBC does not lead to distortion of market dynamics. The critical regulatory risk that emerges for such transactions is that of gun-jumping, i.e., non-notification or premature consummation of a transaction without obtaining mandatory approval from the CCI.

The SC, by a 2:1 majority, ruled that approval from CCI must be obtained prior to the Committee of Creditors (“CoC”)’s acceptance of the Resolution Plan (“RP”). Further, the judgment mandated CCI to issue a Show Cause Notice (“SCN”) to all relevant parties, most notably, the target company and not just the acquirer, in compliance with the procedural requirements under Section 29 of the Competition Act before granting its approval.

The decision has far-reaching implications for restructuring transactions in India given the stricter scrutiny and rigid timelines under the IBC and Competition Act.  

Background

DBS Bank initiated CIRP against Hindustan National Glass and Industries Ltd (“HNGIL”), one of India’s largest glass packaging companies. Independent Sugar Corporation Ltd (“INSCO”) and AGI Greenpac Ltd. (“AGI”) submitted individual RPs to acquire HNGIL. Both RPs required approval from CCI. Whilst INSCO’s RP received a green channel approval from CCI, AGI’s RP triggered a long-form and phase-II investigation due to potential high market shares in food and beverage (80-85%) and alco-beverage (45-50%) segments. While the proposed acquisition by AGI was still under review by the CCI, CoC accepted AGI’s RP, and it was filed before the National Company Law Tribunal (“NCLT”) for approval. AGI later secured CCI’s approval by offering voluntary modifications such as the divestment of some of HNGIL’s key assets to alleviate the competition concerns. INSCO challenged the NCLT’s approval of AGI’s RP (as confirmed by the National Company Law Appellate Tribunal (“NCLAT”) and also CCI’s approval of the same.

Broad interpretation of locus standi

Regarding whether INSCO had the locus to challenge the approval granted to the AGI RP by NCLT and CCI, the SC clarified that the IBC and Competition Act appeal provisions were available to unsuccessful Resolution Applicant (“RA”) like INSCO, person reporting anti-competitive practices to the CCI, etc. Thus, the right to appeal under these legislations is not restricted to parties directly involved in the case but was wide in its application.

Mandatory prior approval of CCI before placing RP before CoC

Section 31(4) of the IBC states that once an RP is approved by NCLT, the RA must obtain additional approvals required under other laws. However, the SC observed that the proviso to Section 31(4), inserted via an amendment in 2018, specifically carves out an exception for RPs requiring CCI’s approval. The approvals from other statutory bodies may be obtained within one year after the CoC’s approval, but the explicit use of the term ‘prior’ in the proviso clearly indicates that CCI’s approval must be secured before the CoC evaluates and accepts the RP.

This is in line with the scheme of the Competition Act wherein all combinations (unless specifically exempt) require mandatory prior approval from the CCI.

SC emphasized that Section 31(4)’s language is straightforward. It creates a precise distinction between the requirement for prior clearance by CCI and subsequent approvals needed from other regulatory bodies. SC, thus, adopted a literal interpretation of the proviso to Section 31(4), ruling that it cannot disregard the placement of the word ‘prior’. It underscored that SC does not have the authority to reconstruct the statutory provision and distort legislative intent by interpreting ‘prior’ to mean approval could be obtained even ‘after’ CoC’s acceptance of the RP. Furthermore, SC explained that the timelines under the IBC and the Competition Act are not in conflict.  An application for CCI’s approval can be filed at any stage, including as early as the Expression of Interest (“EoI”) to submit an RP. Moreover, generally, CCI can take up to 150 days to approve a transaction. This warrants that CCI’s approval process can be completed within the IBC's 330-day resolution timeline.

The SC reaffirmed that although the ‘commercial wisdom’ of CoC is paramount, CCI retains the power to approve, reject and/or modify an RP that harms competition. It highlighted that by allowing CoC to approve before CCI, the entire CIRP exercise can be rendered futile as it may lead to a situation where: (i) CoC accepts an RP which is subsequently rejected by the CCI; or (ii) CoC approves an RP without incorporating modifications directed by CCI. Such an RP would be unenforceable. Moreover, this interpretation is in line with the fact that the scheme of IBC obligates resolution professionals to only place those RPs before CoC which meet the requisite lawful criteria - one such criterion being the absence of competition concerns under the Competition Act.

Failure to comply with procedure under the Competition Act

The SC also ruled on CCI’s procedural deficiency, which undermined the fairness and completeness of the investigation process undertaken by it. Notably, when the CCI arrived at a prima facie opinion that AGI’s RP raised competition concerns and initiated a detailed review of the proposed transaction, it issued an SCN only to AGI to mitigate the competition concerns and failed to notify HNGIL (target). In response to the SCN, AGI proposed modifications to the proposed transaction, including divestment of one of HNGIL’s plants. The SC explained that the involvement of all affected parties is integral for a comprehensive assessment under the Competition Act. Consequently, CCI should not have accepted AGI’s modification plan, which sought to divest one of HNGIL’s plants without HNGIL’s active participation and explicit approval. The exclusion of HNGIL from the voluntary modification process vitiated the approval granted by the CCI.

SC also considered the discrepancy in the market data provided by AGI and HNGIL, which would significantly impact the effectiveness of the divestiture as a remedy to rectify market dynamics. The SC highlighted the lack of any mechanism for verification and monitoring of the market data and the impact of structural remedies such as divestiture by third-party reviewers and auditors in the competition law framework.

Supreme Court’s Verdict

In light of the above observations, the SC set aside the NCLAT’s approval of AGI’s RP for failing to secure prior approval from the CCI.  Resultantly, all developments pursuant to AGI’s RP have been nullified, and the rights of all stakeholders have been restored to their original position before CoC’s approval of the RP. The CoC will now reconsider the INSCO RP along with other RPs that had requisite CCI approval at the time the CoC voted for the RPs.

Key Takeaways

The SC’s decision reinforces that procedural requirements are not mere formalities that can be circumvented for expediency. Rather, they are meaningful protections designed to ensure fairness and transparency in the process. The key takeaways are as follows:

  • RAs must mandatorily obtain approval from CCI for RPs that are notifiable to the CCI before placing them before CoC. Failure to comply with this rule will lead to the rejection of the RP by either the CoC or NCLT. Rival RAs and stakeholders may challenge improperly approved RPs, leading to increased litigation.

  • RAs should apply for CCI approval at the earliest possible stage and need not wait until the RP is finalized by the resolution professional.

  • Post this decision, the CCI is mandated to issue SCN to all relevant parties involved in the transaction. SC’s requirement to mandatorily issue SCN to target could result in extended approval timelines. In practice, the acquirer manages the approval process regarding an acquisition with the CCI. CCI engages with the target only during hostile takeovers when the acquirer is unable to provide complete information about the target’s business. However, in order to comply with this judgment, the CCI will have to formulate a process whereby necessary inputs from all parties are received in combinations that necessitate remedies for implementation.

  • CCI ought to devise a mechanism for the verification of market data and monitoring of RP approved with modifications to ensure that the competition law objectives are appropriately achieved.

About the authors: Neelambera Sandeepan is a Partner and Shambhavi Sirothia is an Associate at Lakshmikumaran & Sridharan attorneys.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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