The Hon’ble Supreme Court of India, on January 29, 2025, delivered a landmark judgment with a 2:1 majority, on the interpretation of regulatory timelines fixed under the Insolvency and Bankruptcy Code, 2016, (“IBC”) and the Competition Act, 2002 (“Act”).

The dispute arose when Hindustan National Glass and Industries Limited (“HNGIL”), which held 60% of the market share in the glass packaging industry in India, started undergoing Corporate Insolvency Resolution Process (“CIRP”). The judgment settles a core dispute at the heart of the CIRP process, that started in 2021.

Pursuant to the initiation of the CIRP, the Resolution Professional (‘RP’) appointed on behalf of HNGIL, received Resolution Plans (‘plan’) from, inter alia, the Appellant (Independent Sugar Corporation Limited or INSCO) and AGI Greenpac Limited (“AGI”). The proposed combination between HNGIL and AGI had the potential to reach 80-85% of the market share in the glass packaging for food and beverages segment and 45-50% in the glass packaging for alcoholic beverages segment, therefore raising concerns regarding a potential for having an Appreciable Adverse Effect on Competition (“AAEC”), in the glass packaging industry.

The dispute arose when the final plans were placed before the Committee of Creditors (“CoC”) of HNGIL for consideration. AGI’s plan succeeded in obtaining more votes, despite not having obtained approval from the Competition Commission of India (“CCI”), for the proposed combination.

After succeeding before the CoC, AGI filed an application before the CCI and also voluntarily offered to divest one of the HNGIL plants. The CCI approved the proposed combination of AGI and HNGIL as the voluntary divestment, eased concerns of AAEC. Against this, INSCO approached the National Company Law Tribunal (“NCLT”), which dismissed the application, observing that prior CCI approval under Section 31(4) of the IBC had been obtained. On appeal, the National Company Law Appellate Tribunal (“NCLAT”) found that despite CCI approval being mandatory, the requirement that CCI approval should be given prior to the resolution plan being placed before the CoC, was only directory. The NCLAT’s reasoning was based on the fact that the CCI’s timeline to investigate is longer, and would halt CIRP due to an application remaining pending before the CCI.

INSCO also challenged the CCI’s approval to the proposed combination of AGI and HNGIL before the NCLAT which upheld the approval on several grounds, including that the procedure followed by the CCI relating to investigation of combinations was incorrect. Both decisions of the NCLAT were challenged before the Hon’ble Supreme Court of India.

The majority judges held that under the proviso to Section 31(4) of the IBC, CCI’s approval must be granted before the resolution plan can be submitted for CoC approval. The dissenting opinion observed that provision is only directory and not mandatory, and the lack of CCI’s approval is not fatal to a resolution plan approved by the CoC.

While the decision of the Hon’ble Supreme Court may cause significant disruption in the CIRP timeline, another aspect to be examined is the effect on the workload of the CCI when investigating combinations proposed under IBC.

Section 29(1) of the Act provides that where the CCI is of the prima facie view that a combination is likely to cause or has caused an AAEC within the relevant market, it shall issue a show cause notice (“SCN”) to the parties to the combination to seek a response as to why an investigation in respect of the combination should not be carried out.

The Court observed that Section 29(2)-(6) of the Act outline consequential steps seeking to gather data from not just the acquirer and the target company, but also from other stakeholders, potentially impacted by the combination, to gauge the ‘ripple effects’ of a potential AAEC. Essentially, the Court emphasised that the procedure prescribed under Section 29 of the Act mandates an expansive fact-finding mission, including consulting stakeholders, to ensure that the combination maintains competitive fairness, or is modified to avoid adverse impact on the relevant market. In this regard, the Court held that the SCN should be issued to both the target entity (HNGIL) and the acquiring entity (AGI). In the present case, the SCN was issued only to AGI and not to HNGIL.

While the Appellant’s challenge focused on the procedural deviation of the CCI from issuing an SCN to both the acquiring and the target entities, the Court goes on to suggest that the entire investigation process in relation to combinations must be followed by the CCI prior to granting approval, and consequently, prior to submitting resolution plans for CoC approval.

The Court observed that ‘investigation’ under Section 29 of the Act is a far more serious evidence gathering and fact-finding exercise, and contrasts the same with the term ‘inquiry’ found in Section 26 of the Act. One interpretation that could be given is that the investigation must necessarily involve the Director General (DG) submitting a report pertaining to the proposed combination, regardless of whether such a report is called for under Section 29(1A) of the Act.

As a consequence of this judgement, the CCI may have to commence a mandatory investigation into every proposed combination under the IBC, including invoking Section 29(1A) to require the DG to submit a report, which will not only increase the workload of the DG and CCI, but also contribute to significant delays if measures are not taken to address the sudden increase in procedural compliance.

Interestingly, the dissenting opinion proposes an alternate interpretation of the provisions and procedure to be followed by the CCI. When an SCN is issued, the purpose is to seek a response as to whether further steps under Section 29 of the Act are even warranted. As per the dissenting opinion, Section 29 of the Act does not imply that in all cases where a prima facie opinion is formed, a report must be sought from the DG. The Parliament’s intention in drafting Section 29(1) of the Act is that the intermediary step of SCN and reply provides an opportunity to explain doubts raised by the CCI while forming the prima facie opinion. It cannot be said that the SCN is preceded by a prima facie opinion, as the SCN itself is a tool to assist in the formation of this prima facie opinion.

As per the dissenting opinion, in AGI’s case, the CCI was satisfied with the reply and the suggestion for voluntary divestment, and hence granted approval for the proposed combination, without involving the DG. Interestingly, the dissenting view agreed with the majority that the SCN must be served on both the acquirer and target entity, but remained silent on whether the deviation from procedure would be fatal to the CCI approval.

It can be argued that the majority finding in respect to the CCI procedure, is detrimental to the interests of all stakeholders for two reasons. First, the majority’s mandate comes with a procedural burden that the CCI has historically not performed for combinations, especially under IBC. The effect will impact not only the CCI but also all the stakeholders identified by the IBC. The question was initially whether CCI approval is mandatory prior to CoC approval. The answer is not only in the affirmative, but also that CIRP must wait until the full procedure prescribed under Section 29 of the Act is completed by the CCI. This may lead to a significant increase in the time taken by the CCI to grant approval, which may also impact the CIRP timeline, which already does not boast an impressive record with delays marred by multiple rounds of litigation.

Another argument that can be put forth is that the CCI historically employs a summary procedure for combinations under the IBC, which is an ex-ante exercise. The Act provides for various other mechanisms under Sections 3 and 4 to ensure the effectiveness of ex-post antitrust regulation. The argument is not that CCI’s investigations into the effects of combinations must be lenient, but rather that combinations, under the IBC specifically, must be dealt with expeditiously owing to the importance of a successful CIRP outcome. The dismissal of the competent regulator’s ability to have discretion over procedure cannot be countenanced due to the time-sensitive nature of IBC proceedings, which is integral to its objectives.

Arguendo, the CCI always has the liberty to analyse activities arising out of a combination under Sections 3 and 4 of the Act, ex-post and suo-moto, should there be any case of determination of AAEC in India or any subsequent investigation to follow.

About the authors: Prashanth Shivadass is a Partner and Prahalad Sriram is an Associate with Shivadass & Shivadass (Law Chambers).

The contents and comments of this document do not necessarily reflect the views/ position of Shivadass and Shivadass (Law Chambers) but remain solely of the author(s).

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