In a landmark ruling, the Supreme Court of India (Supreme Court) has established that when an acquisition of a company under insolvency requires approval from the Competition Commission of India (CCI), such approval must be obtained before the Committee of Creditors (CoC) votes on the resolution plan.
This decision has wide-reaching implications for the insolvency and resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC) and reinforces the need for strict compliance with competition law requirements.
Significant Aspects of the Ruling |
This judgment highlights critical intersections between insolvency laws and competition laws, particularly in contentious cases where rival bidders or third parties may litigate insolvency and competition issues concurrently.
CASE BACKGROUND |
Hindustan National Glass & Industries Ltd. (HNG), one of India’s largest glass packaging manufacturers, entered the Corporate Insolvency Resolution Process (CIRP) under the IBC.
Two major bidders—Independent Sugar Corporation Ltd. (INSCO) and AGI Greenpac Ltd. (AGI Greenpac)—submitted resolution plans to acquire HNG. Since both acquisitions met relevant thresholds, CCI approval was required under India’s merger control regulations.
Key Developments |
INSCO obtained CCI approval through the ‘green channel’ route, which is available for transactions that do not raise competition concerns.
AGI Greenpac, despite lacking CCI approval, received CoC approval for its resolution plan. This was based on a widely accepted interpretation of Section 31(4) of the IBC, which suggested that CCI approval was only necessary before the National Company Law Tribunal’s (NCLT's) final approval, rather than CoC approval.
AGI Greenpac subsequently secured CCI clearance, subject to voluntary modifications addressing competition concerns.
INSCO and other third parties challenged the validity of AGI Greenpac’s resolution plan and CCI approval, leading to appeals before the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court.
SUPREME COURT’S KEY FINDINGS |
1. CCI Approval is a Mandatory Precondition for CoC Approval
The Supreme Court ruled that Section 31(4) of the IBC clearly mandates that CCI approval must be obtained before the CoC votes on a resolution plan.
This overturns prior interpretations that allowed CCI approval to be secured at a later stage, before final approval by the NCLT.
The Court emphasized that the legislative intent behind the provision is clear, and treating it as “directory” rather than “mandatory” would defeat the purpose of competition law oversight.
Resolution professionals cannot waive or relax this requirement.
2. Failure to Obtain Prior CCI Clearance Invalidates a Resolution Plan
If a resolution plan is approved by the CoC without prior CCI clearance, it cannot be enforced or implemented.
The Supreme Court set aside AGI Greenpac’s resolution plan and restored the status quo ante, effectively nullifying the CoC’s approval.
The Court directed the CoC to reconsider all resolution plans that had valid CCI approval at the time of voting, including INSCO’s plan.
3. Procedural Lapses in CCI’s Approval Process
The Supreme Court found significant shortcomings in the way CCI handled AGI Greenpac’s approval:
Show-cause notices were issued only to AGI Greenpac, not to the target, HNG—a serious procedural flaw.
AGI Greenpac unilaterally proposed voluntary modifications to address competition concerns without input from HNG, despite the fact that the proposed divestment involved HNG’s assets.
The Supreme Court ruled that all parties, including the target, must actively participate in responding to competition concerns.
4. Conditional Approvals May Be Insufficient for Insolvency Cases
CCI had conditionally approved AGI Greenpac’s plan, requiring future compliance with voluntary modifications.
The Supreme Court found that such conditional approvals do not align with IBC’s objective of finality and certainty in the resolution process.
This may discourage the CCI from issuing conditional approvals in future insolvency cases, potentially making the resolution process more complex.
5. No Conflict Between Insolvency Timelines and Competition Laws
The Supreme Court clarified that the statutory requirement for CCI approval takes precedence over insolvency timelines.
Resolution applicants should apply for CCI clearance as early as possible, ideally at the EOI stage, to avoid delays and disputes.
The ruling will change industry practice, which has traditionally involved seeking CCI approval only after submission of a final resolution plan.
6. Right to Appeal in Insolvency and Competition Matters Must Be Broadly Interpreted
The Court reaffirmed that any “aggrieved person” under IBC and the Competition Act can challenge decisions before the NCLAT.
Given that insolvency proceedings involve public interest, the right to appeal should not be unduly restricted.
The ruling ensures greater transparency and accountability in the insolvency resolution process.
PRACTICAL IMPLICATIONS FOR STAKEHOLDERS |
CONCLUSION |
The Supreme Court’s ruling strengthens the framework for merger control in insolvency cases, ensuring compliance with competition laws while maintaining fairness in the resolution process.
While this decision clarifies legal ambiguities, it also presents new challenges for bidders and resolution professionals, particularly regarding timing and procedural requirements.
Given the potential regulatory shifts following this ruling, businesses and insolvency practitioners must proactively adjust their strategies to navigate the evolving legal landscape.
For specific guidance on how these changes affect your business or ongoing proceedings, please contact our team:
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