The Supreme Court bench, by a majority of 2:1, has ruled that approval of the Competition Commission of India (CCI) for corporate insolvency resolution plans involving mergers and acquisitions must be secured before the Committee of Creditors (CoC) approves the plan, according to a report by Bar and Bench.
Justices Hrishikesh Roy and Sudhanshu Dhulia supported the position emphasising that the proviso to Section 31(4) of the Insolvency and Bankruptcy Code (IBC), which requires CCI approval ‘prior to’ CoC approval, must be strictly interpreted. The majority opinion reinforced that such a timeline is crucial to maintain the integrity of the legal framework and ensure that the resolution process adheres to the statutory provisions, the news report mentioned.
Justices Roy and Dhulia highlighted that while expeditious resolution is essential under the IBC, it should not come at the cost of ignoring legal requirements. They stated that adherence to legal principles is fundamental to a fair and just resolution process, even if it results in delays.
Justice SVN Bhatti dissented, arguing that the word ‘shall’ in the proviso could be interpreted as ‘may’ in a purposive manner. He contended that the requirement for CCI approval before CoC approval is directory and not mandatory, suggesting that the timing of approval should not be rigidly enforced, the report said.
Case background
The case stemmed from appeals filed under Section 62 of the IBC related to the Corporate Insolvency Resolution Process (CIRP) of Hindustan National Glass and Industries Ltd (HNGIL). The dispute focused on AGI Greenpac Ltd’s resolution plan to acquire HNGIL, raising concerns about potential anti-competitive effects. The merger would grant AGI Greenpac and HNGIL a substantial share of the glass packaging market, prompting regulatory scrutiny.
AGI Greenpac’s plan was approved by the CoC before securing CCI’s clearance, leading to legal challenges. INSCO, a competitor, argued that the plan violated the statutory requirement of obtaining CCI approval beforehand.
NCLAT’s ruling
The National Company Law Appellate Tribunal (NCLAT) had ruled that while CCI approval is necessary, the timing of its acquisition — whether before or after CoC approval — was directory. The NCLAT’s stance emphasised that strict adherence to the requirement could delay the insolvency process.
Meanwhile, AGI Greenpac obtained conditional CCI approval later, subject to divesting a plant to address anti-competition concerns.
Supreme Court’s final verdict
The Supreme Court, in its majority opinion, emphasised the need for a grammatical interpretation of legal texts unless it contradicts the legislative intent. The court firmly stated that CCI approval must precede CoC approval to maintain the integrity of competition law. It highlighted that conditional approvals granted later do not sufficiently address the harm that may occur before full compliance.
The Court ruled that the CoC’s approval of AGI Greenpac’s resolution plan without prior CCI approval was illegal and directed the CoC to reconsider all resolution plans afresh. It also noted that conditional approvals must be monitored closely to ensure compliance, the news report said.
Justice Bhatti’s dissent
Justice Bhatti, in his dissent, supported the NCLAT’s view and expressed concerns about the delays in the insolvency process. He suggested imposing financial penalties on certain appellants for their involvement in the delays.
The top court’s ruling underscores the need for a balanced approach in corporate insolvency cases, particularly when dealing with combinations, and highlights the importance of legal compliance in maintaining fair competition.
