Supreme Court Rules Resolution Plans Involving Combinations Must Get CCI Approval Before CoC Examination

Supreme Court Rules Resolution Plans Involving Combinations Must Get CCI Approval Before CoC Examination

The Supreme Court, in a 2:1 majority decision, has ruled that the Competition Commission of India (CCI) approval for corporate insolvency resolution plans that involve mergers or acquisitions must be obtained before the approval by the Committee of Creditors (CoC). Justices Hrishikesh Roy and Sudhanshu Dhulia supported this interpretation of the law, while Justice SVN Bhatti dissented.

The case focused on interpreting the proviso to Section 31(4) of the Insolvency and Bankruptcy Code (IBC), which mandates that a resolution plan involving a combination must obtain CCI approval "prior to" CoC approval. The majority opinion, authored by Justices Roy and Dhulia, held that obtaining CCI approval before the CoC's approval is a mandatory requirement, as this aligns with the original legislative intent.

The two judges emphasized that while the IBC's goal is to expedite the resolution of corporate insolvency cases, the process must still adhere to the statutory framework. They stated that bypassing statutory procedures would undermine the legal system and erode confidence in the regulatory framework. They also acknowledged that delays in insolvency resolution are unfortunate but noted that they cannot justify ignoring legal requirements.

In contrast, Justice Bhatti disagreed with the majority, arguing that the use of the word "shall" in the provision should be interpreted as "may," making CCI approval before CoC approval directory rather than mandatory.

The Court was addressing appeals under Section 62 of the IBC, challenging the National Company Law Appellate Tribunal’s (NCLAT) judgment in the Corporate Insolvency Resolution Process (CIRP) of Hindustan National Glass and Industries Ltd. (HNGIL). The issue arose from the approval of a resolution plan by AGI Greenpac Ltd. to acquire HNGIL.

This acquisition raised concerns about the potential anti-competitive effects of the merger in the glass packaging industry. The NCLAT had ruled that while CCI approval is required, the timing of when it must be obtained—before or after CoC approval—should not be considered mandatory. The appellate tribunal argued that strict adherence to the timing requirement could delay the insolvency process. However, the Supreme Court disagreed, stating that the law clearly mandates prior approval.

The Court explained that without CCI's approval, a resolution plan involving a combination cannot be implemented, even if it has been approved by the CoC. It concluded that interpreting the provision to allow for post-CoC approval would effectively alter the statutory intent, which is not permissible. Furthermore, the Court stressed that conditional approvals granted by the CCI must be carefully monitored to ensure that all conditions are met before implementation, as failure to do so could undermine the fairness of the resolution process.

In the present case, AGI Greenpac obtained CCI’s conditional approval after the CoC had approved the resolution plan. However, the Supreme Court held that the plan lacked CCI approval at the time of CoC approval, making it non-compliant with competition law. As a result, the Court set aside the approval of AGI Greenpac’s plan and directed the CoC to re- examine all the resolution plans in its possession.

Justice Bhatti, in his dissent, supported the NCLAT’s ruling and expressed concern about delays in the insolvency resolution process. He suggested that fines be imposed on the parties involved, including ₹25 lakh on INSCO, ₹10 lakh each on other appellants, and ₹50,000 on HNG Industries.

In conclusion, the Supreme Court has underscored the importance of adhering to the statutory framework governing insolvency and competition laws, as timely and proper resolution is crucial for maintaining investor confidence and a reliable business environment in India.