The government is exploring urgent legislative changes to ensure swift approvals from the Competition Commission of India (CCI) for the sale of distressed assets after a Supreme Court (SC) order cast a cloud over bankruptcy rescues, two people informed of the development said. The apex court had mandated a ‘non-negotiable’ prior CCI nod for resolution plans containing an acquisition or merger, as well as full-fledged investigations into deals posing competition concerns.
The move to quickly undertake legislative measures comes after the Parliamentary Standing Committee on Finance, led by the Bharatiya Janata Party (BJP) lawmaker Bhartruhari Mahtab, sought clarity from the ministry of corporate affairs and the CCI, about how the regulator plans to implement the SC ruling, which could come in the way of timely approval of investments into bankrupt businesses, the persons said on the condition of anonymity.
“The government is holding consultations with the stakeholders on how best to address this. Appropriate measures will be decided quickly,” said one of the two persons cited above. The measures could include changes to the Competition Act and the Insolvency and Bankruptcy Code (IBC), but the final call will be taken after the consultations, said the person.
The apex court on 29 January set aside the debt resolution of Hindustan National Glass and Industries Ltd, a market leader in glass packaging, by its sale to AGI Greenpac Ltd, another leading packaging products company, the successful bidder. AGI Greenpac in this case secured CCI approval in March 2023, subject to modifications to the transaction, that is, the target company selling one of its seven plants. But that was after the distressed business’ committee of creditors (CoC) had already approved its resolution plan.
A three-judge bench of the apex court, by a 2:1 majority, held the debt resolution plan as unsustainable as “it failed to secure prior approval from the CCI.” The court also said that an investigation into the transaction’s potential impact on competition was warranted by CCI’s Director General, the order showed.
The Supreme Court’s judgement overruled a 2023 order of the National Company Law Appellate Tribunal that had said that while CCI approval was mandatory under the Insolvency and Bankruptcy Code, it was not necessary to obtain it before the distressed business’ creditors voted on the resolution plan.
Queries emailed to the ministry of corporate affairs and to CCI on 26 February seeking comments for the story remained unanswered till press time.
The first person cited above said that full-fledged investigations into mergers and acquisitions are not necessarily held by CCI in every case, and that where modifications to the transaction—for example, divestment or exclusion of certain assets from the purview of the deal–helps to address competition-related concerns, the regulator clears the deal subject to such remedies. One of the legislative proposals before the government is to make CCI’s discretion in going in for full-fledged investigations more explicit in the law.
CCI had last August cleared the merger between Disney Star, the local unit of The Walt Disney Company, and Reliance Industries-controlled Viacom18, subject to certain voluntary modifications to the deal.
Going in for full-fledged investigation by the Director General in every case with competition concerns would prolong the process and delay the rescue of companies in distress, the person said.
The Supreme Court’s (majority) ruling mandating CCI approval before the distressed company’s committee of creditors can consider any resolution plan has caused significant anxiety within India’s insolvency resolution landscape, said Ravi Gangal, senior associate at Axiom5 Law Chambers.
This is likely to create a new bottleneck, Gangal said. “Firstly, the CCI has never blocked a deal. However, its review on some occasions has been time-consuming – which is expected of a regulator ensuring market competitiveness and consumer protection. Therefore, the Supreme Court should have focused on the risk of CCI timeline delays exacerbating corporate insolvency resolution delays.”
The government is keen to align CCI’s approval process and the bankruptcy code to ensure that corporate rescue is not hampered by over-regulation. Finance and corporate affairs minister Nirmala Sitharaman had in her 1 February budget speech said reforms will ensure a ‘light-touch’ regulatory framework.
“The Supreme Court ruling places an administrative burden on the CCI, which will now handle multiple simultaneous applications which will considerably enhance its administrative burden,” said Gangal. The requirement for CCI approval prior to creditors’ review of the bids may deter potential bidders or lead to the rejection of otherwise viable bids that cannot secure timely clearance, he said.
“The dissenting opinion in the ruling could be a more balanced approach. It argues that CCI approval should be a prerequisite for National Company Law Tribunal approval, not committee of creditors’ consideration. It rightly notes that it is for the NCLT to decide on whether a bid is legally compliant or not. In this way, the timelines under both these regimes run concurrently. In case of any undue delays in the CCI process, the bidder will also have an opportunity to make appropriate representations before the NCLT,” said Gangal.
During the previous Lok Sabha, the Parliamentary Standing Committee on Finance, led by BJP’s Jayant Sinha, had flagged the delays in debt resolution under the bankruptcy code, its low recovery rates and high number of liquidation cases, while recommending a review of the code.
