The acquisition of stressed assets or shares under the CIRP is not yet exempted from obtaining a clearance from the CCI... The Insolvency and Bankruptcy Code, 2016 ("IBC") was enacted on May 28, 2016 with the primary objective to provide a consolidated law relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner...
The acquisition of stressed assets or shares under the CIRP is not yet exempted from obtaining a clearance from the CCI...
The Insolvency and Bankruptcy Code, 2016 ("IBC") was enacted on May 28, 2016 with the primary objective to provide a consolidated law relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons/entities.1 The IBC provides a time limit of 180 plus 90 days (subject to approval) for the completion of the Corporate Insolvency Resolution Process ("CIRP") from the date of admission of the Insolvency Application by the National Company Law Tribunal ("NCLT").2
Whereas, the Competition Act, 2002 ("Act") was enacted to establish the Competition Commission of India ("CCI") as a regulator, inter alia, entrusting it with the duty to prevent practices having an adverse effect on competition in India, promote and sustain competition in markets, and protect interests of consumers and ensure freedom of trade carried on by other participants in markets.3 It is mandated under the Act that all combinations meeting the prescribed asset and turnover threshold are to be notified to the CCI, provided they do not fall under any exemptions4, and the CCI is then required to approve or disapprove the same within 210 plus 60 days from the date of notifying.5
The acquisition of stressed assets or shares under the CIRP is not yet exempted from obtaining a clearance from the CCI. Therefore, in such an event where the proposed acquisition under the CIRP meets the prescribed asset or turnover threshold, it is mandatory for the parties to notify the CCI about the same and seek clearance for the proposed transaction.
Under the IBC, a Creditor seeking the payment of an unpaid debt from the Corporate Debtor may make an Insolvency Application before the NCLT. Upon admission of the application, the NCLT starts with the CIRP by appointing an interim Insolvency Resolution Professional after seeking confirmation from the Insolvency and Bankruptcy Board of India. A Committee of Creditors ("COC") is formed which further confirms the appointment of an InsolvencyResolution Professional ("RP"). The RP then takes charge of the assets and affairs of the Corporate Debtor, and conducts the entire CIRP by inviting bids for the insolvency auction so as to maximize the value of the stressed assets of the Corporate Debtor undergoing the CIRP. The RP upon receipt of the bids and the Resolution Plans places the same before the COC for its approval, and then, the approved Resolution Plan is finally sent to the NCLT for its approval. It is to be noted that even after getting final approval of the Resolution Plan by the NCLT, the acquirer cannot complete the proposed acquisition/transaction until it gets a clearance from the CCI.6 The parties need to make a timely filing with the CCI to get the clearance as soon as possible to complete the acquisition/transaction.
The main cause for concern here is that the CIRP as provided under the IBC is a time-bound process and is required to be completed within the time frame of 180 plus 90 days (subject to approval) whereas a clearance for combination notified to the CCI can take as long as 210 days which can be extended for a further 60 days in certain cases. This makes the situation difficult for a bidder (the acquirer) participating in an Insolvency Auction to seek an early clearance from the CCI as the RP can invite the bids only after a COC has been formed and a purchaser has been selected by the COC after approving the Resolution Plan. It is then that the resolution applicant (the acquirer) can approach the CCI for the approval if the required thresholds are met. Also, it is likely that the CCI might not approve every such transaction, and in case of disapproval, the CIRP might not be able to meet its timebound completion.
However, until now, only a few number of combinations arising out of CIRP have been notified to the CCI. There have been five notifications to the CCI filed for clearance by the resolution applicants (the acquirers).7 The notifications have been filed by the resolution applicants at the instance of their participation in the bidding process and submission of the resolution plan to the RP as well as upon the approval of the resolution plan by the COC.8
It has been argued by some lawyers that as the CIRP is a time-bound process, the mandatory notification of the proposed acquisition seeking a clearance from the CCI should be done away with. The Central Government should consider exempting such acquisitions arising out of CIRP as the entity undergoing CIRP is economically weak and stressed and is not looked upon as a competitor by the rivals.9 Whereas, other lawyers are of the dissenting view that doing away with the CCI's approval of combinations arising out of the CIRP can result in market dominance by the acquirer in the relevant market which might result in abuse, thereby distorting the competition in the market and harming the consumers. Thus, the CCI's clearance should be mandated for combinations (meeting the required threshold) arising out of CIRP.10
Until a notification of exemption for CCI's clearance in case of CIRP is out or any amendments are made to the IBC, the resolution applicants (the acquirers) are mandatorily required to notify the proposed combination with the CCI for its clearance, if the required threshold limits are met. One cannot afford to do away with it, as failure to notify the same can attract penalty under the Act.11
Also, as an abundant caution and convenience, it is advised to the parties to go for pre-filing consultation with the CCI as soon as they decide to propose a resolution plan in a CIRP if the thresholds are met and file the notification with the CCI the moment the resolution plan is approved by the COC in order to get a timely approval from the CCI.
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Also, with respect to the proposal of doing away with the mandatory filing of notifications of combinations to the CCI pursuant to a CIRP, it is to be noted that even if the target (the Corporate Debtor undergoing CIRP) is economically weak, the assets of the same hold potential to add to the market share of the resolution applicant (acquirer) with a possibility of making the acquirer dominant in the market. A competition assessment done by the CCI pursuant to notified combinations is not only limited to the economic value of the assets of the target or the acquirer, but also to the resultant combined market share of the enterprises post combination, commercial advantages of the acquirer, number of active and potential competitors in the market, extent of entry barriers created, etc.12 Therefore, in my view, the notification of combinations pursuant to the CIRP to CCI should not be exempted; instead, the provisions of the IBC may be amended so as to either exclude the time taken by the CCI for approving/disapproving the combinations from the timeframe of 180 plus 90 days or a further extension of time period of certain days may be allowed under the IBC to get the clearance from the CCI.13
Both the IBC and the Act are enacted by the legislature keeping in view the enhancement and improvement of the economic development of the country. These legislations focus ultimately on improving the economy of the country. Accordingly, a harmonious approach between the two is to be adopted so as to benefit the economy of the country.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.