IBC resolution plans involving combinations must be approved by CCI before CoC stage: Supreme Court

The Supreme Court, by a 2:1 majority, has held that Competition Commission of India (CCI) approval for corporate insolvency resolution plans involving combinations (mergers, acquisitions etc.) must be obtained at a stage before its approval by a Committee of Creditors (CoC) [Independent Sugar Corporation v. Girish Sriram Juneja]..Justices Hrishikesh Roy and Sudhanshu Dhulia ruled in favour of this position of law while Justice SVN Bhatti dissented. .In focus was the interpretation of the proviso to Section 31 (4) of the IBC, which lays down that if a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC) involves a combination, the resolution applicant "shall" obtain CCI approval "prior to" the approval of such a resolution plan by the CoC.Justices Roy and Dhulia adopted a strict interpretation of this provision and held it to be mandatory."For a Resolution Plan containing a combination, the CCI’s approval to the Resolution Plan, in our opinion, must be obtained before and consequently, the CoC’s examination and approval should be only after the CCI’s decision. This interpretation respects the original legislative intent, and deviation from the same would not only undermine the statute but would also erode the faith posed by the stakeholders in the integrity of our legal and regulatory framework," the majority ruled. .The two judges added that even if the IBC envisions a fast resolution of corporate insolvency, such a resolution cannot come at the cost of the procedure laid down in the law. "While the IBC’s primary objective is the timely resolution of stressed assets with maximised value realisation for the stakeholders, the significant delay seen in the present case is both unfortunate and regrettable. Nevertheless, expeditious resolution cannot come at the cost of disregarding statutory provisions. Providing relief for stressed assets must necessarily align with the statutory framework, as adherence to legal principles is fundamental to a fair and just resolution process," held Justices Roy and Dhulia. .In contrast, Justice Bhatti held that the proviso is directory, and that the word "shall" in this provision can be purposively read as "may." "The proviso is interpreted purposively and held that the approval of a combination of CCI at the stage of consideration by CoC is directory and not mandatory," he said, in his minority view. .Case backgroundThe Court was dealing with appeals filed under Section 62 of the IBC against the National Company Law Appellate Tribunal’s (NCLAT) judgments regarding the Corporate Insolvency Resolution Process (CIRP) of Hindustan National Glass and Industries Ltd. (HNGIL). The primary issue concerned the approval of a resolution plan submitted by AGI Greenpac Ltd., which has sought to acquire HNGIL. The combination of these two major players in the glass packaging industry raised concerns over its potential impact on market competition.The appeals also challenged the NCLAT’s interpretation of the requirement for CCI approval under Section 31(4) of the IBC.HNGIL (corporate debtor) holds a dominant position in India's glass packaging market. AGI Greenpac, which emerged as the successful resolution applicant in the CIRP concerning HNGIL, is the second-largest company in the sector. Their proposed combination would lead to an 80-85 per cent market share in the food and beverage segment and 45-50 per cent share in the alco-beverage segment. This raised concerns that the combination of the two entities could have an anti-competitive effect in the market, which is referred to as an Appreciable Adverse Effect on Competition (AAEC) in competition law.The Independent Sugar Corporation Limited (INSCO), a Bermuda-registered company, had also submitted a resolution plan during HNGIL's CIPR, but lost the bid. Controversy arose when AGI Greenpac’s plan was approved by the CoC without first securing the CCI's clearance for AGI Greenpac's proposed acquisition of HGNIL. This led to legal challenges.INSCO argued that AGI Greenpac’s resolution plan violated the mandatory requirement of securing CCI approval before CoC approval. However, the NCLAT ruled that while CCI approval is necessary, the timing of when it must be obtained—before or after CoC approval—is directory, not mandatory. The appellate tribunal emphasized that strict adherence to rule for prior approval could delay the insolvency resolution process. Meanwhile, AGI Greenpac obtained the CCI's conditional approval later, subject to divesting one of HNGIL’s plants in Uttarakhand to address anti-competition concerns..Supreme Court verdictThe majority of judges on the Supreme Court Bench emphasised that grammatical interpretation of legal texts is necessary unless it contradicts legislative intent. The proviso to Section 31(4) clearly stated that CCI approval, in resolution plans involving combination, needs to be obtained "prior to" CoC approval, the Court added. This term was intentionally used by Parliament, it opined. It explained that if a resolution plan has an anti-competitive effect, it cannot be implemented even it is approved by the CoC. The lack of CCI approval in such cases is a major flaw that cannot be fixed later. "To interpret the specific word to mean that such an approval can be obtained even ‘after’ and not necessarily ‘prior’ to the approval by the CoC would amount to reconstructing a statutory provision, which is not permissible," the Court concluded. .In the present case, the Court noted that the CCI initially believed that the resolution plan violated competition law. The CCI only approved the plan after the company proposed changes (divestment). Crucially, the CoC approved the plan before the CCI gave its approval. Therefore, the CoC-approved plan lacked the necessary CCI approval at the time, violating competition law.It, thus, set aside the approval of AGI Greenpac’s resolution plan and directed the CoC to consider all the resolution plans in its possession afresh. .The Court added that conditional approvals, such as the one given by the CCI in this case at a later stage, have to be monitored to ensure the conditions are met. Without mandatory oversight like third-party audits, conditions can be easily bypassed. It further noted that conditional approvals do not address the harm that can occur before the conditions are fully implemented. The Court also pointed out that since conditional approval relies on future compliance, it clashes with the IBC's goal of finality.It added that India needs a reliable business environment to attract investment and become a manufacturing hub. While the Green Channel route (fast track mergers where no anti-competitive effect is anticipated) for mergers aims to level the playing field, it must balance the goals of IBC and of the Competition Act, the Court opined. .Justice Bhatti disagreed, holding that the NCLAT was right in this case to accept AGI Greenpac's resolution plan.In his dissent, he also lamented that undue delays in the IBC process, like the one in this case, are regrettable.Thus, he opined that costs of ₹25 lakhs should be imposed on INSCO, adding that other appellants such as UPGMS, the HNG Karamchari Union, and Soneko Marketing should be fined ₹10 lakhs each, while HNG Industries (also an appellant) should be fined ₹50,000..INSCO (appellant) was represented by Senior Advocates Dr. Abhishek Manu Singhvi, Mahesh Jethmalani and Abhimanyu Bhandari along with Utsav Trivedi, Manini Roy for M/s TAS LAW.INSCO was represented by Unnati Agrawal, Nikita Agarwal, Swapnil Singh Shekhawat and Hrishav Kumar Singh from IndusLaw in a connected appeal.AGI Greenpac was represented by Senior Advocates Mukul Rohatgi and Parag Tripathi.The CoC was represented by Solicitor General Tushar Mehta.Senior Advocate P Chidambaram appeared for the Resolution Professional. The CCI was represented by Senior Advocate Balbir Singh. HNG Nalasangam was represented by Senior Advocate Dushyant Dave, with Chirag Shah and Yadunath Bhargavan, Advocates..[Read Judgment]