Court’s Decision
The Supreme Court ruled that under Section 31(4) of the Insolvency and Bankruptcy Code (IBC), 2016, a resolution plan that contains a provision for a combination must obtain prior approval from the Competition Commission of India (CCI) before being approved by the Committee of Creditors (CoC). The Court held that this requirement is mandatory and not directory, meaning that failure to obtain prior CCI approval renders the resolution plan non-compliant and legally unenforceable.
The Court overruled the NCLAT’s decision, which had held that the requirement was directory and that CCI approval could be obtained after CoC approval. The Court reasoned that the statutory language is clear, unambiguous, and must be interpreted literally. Therefore, AGI Greenpac’s resolution plan, which lacked prior CCI approval at the time of CoC’s approval, was held to be illegal.
Facts
Background of the Corporate Debtor
- Hindustan National Glass and Industries Ltd. (HNGIL) was undergoing Corporate Insolvency Resolution Process (CIRP) after a Section 7 IBC application was filed by DBS Bank.
- HNGIL controlled 60% of the glass packaging market in India.
- The insolvency professional invited Expressions of Interest (EOI) from potential resolution applicants.
Proposed Combination & Competition Concerns
- AGI Greenpac Ltd. (AGI Greenpac), a major player in the glass packaging industry, submitted a resolution plan for acquiring HNGIL.
- If approved, the combination of AGI Greenpac and HNGIL would have resulted in a dominant market share of 80-85% in the F&B sector and 45-50% in alco-beverages.
- Such a merger raised concerns under the Competition Act, 2002, as it could result in an Appreciable Adverse Effect on Competition (AAEC).
- The Resolution Professional (RP) initially set a condition in the EOI that prior approval from CCI was mandatory before CoC approval.
CoC Approval and CCI Proceedings
- Two Resolution Applicants emerged:
- AGI Greenpac (Successful Resolution Applicant)
- Independent Sugar Corporation Ltd. (INSCO) (Unsuccessful Resolution Applicant)
- Both AGI Greenpac and INSCO submitted their resolution plans.
- INSCO received 88% CoC votes, while AGI Greenpac received 98% votes.
- However, AGI Greenpac had not obtained prior approval from CCI at the time of CoC’s approval.
- CCI initially rejected AGI Greenpac’s Form I application, and it later filed Form II, which was approved on 15.03.2023 after agreeing to divest one of HNGIL’s seven plants.
Legal Challenges
- INSCO challenged CoC’s approval of AGI Greenpac’s resolution plan before NCLT Kolkata, arguing that it was in violation of Section 31(4) of the IBC.
- NCLT rejected INSCO’s challenge, leading INSCO to appeal before NCLAT.
- NCLAT (18.09.2023) ruled that prior approval from CCI was not mandatory, allowing the CoC to approve a resolution plan first.
- INSCO appealed to the Supreme Court challenging NCLAT’s decision.
Issues for Determination
- Is prior approval from CCI for a resolution plan containing a combination mandatory under the proviso to Section 31(4) of the IBC?
- Can a resolution plan be approved by CoC before obtaining CCI approval and rely on post-facto ratification?
- Did NCLAT err in interpreting the proviso to Section 31(4) as directory rather than mandatory?
Petitioner’s Arguments (INSCO)
- Non-Compliance with Statutory Provisions
- AGI Greenpac’s resolution plan was illegally approved by the CoC despite lacking prior CCI approval.
- Section 31(4) explicitly states that CCI approval must be obtained “prior” to CoC approval.
- NCLAT’s decision contradicts the plain language of the statute.
- Unfair Treatment & Violation of the EOI Conditions
- The Resolution Professional (RP) initially required prior CCI approval, but later changed its stance to favor AGI Greenpac.
- This created an unfair playing field, where INSCO followed the rules, but AGI Greenpac was given undue flexibility.
- Violation of Competition Law
- AGI Greenpac’s first CCI application (Form I) was rejected.
- AGI Greenpac later obtained CCI approval under Form II, but only after CoC had already approved its plan.
- Such post-facto modification violates the IBC and Competition Act.
- Harm to the Bidding Process
- If AGI Greenpac had been disqualified, INSCO’s plan would have been considered instead.
- This would have ensured a fair resolution process.
Respondent’s Arguments (AGI Greenpac, CoC, RP)
- Proviso to Section 31(4) is Directory, Not Mandatory
- AGI Greenpac argued that requiring prior CCI approval would disrupt the CIRP timeline.
- NCLAT correctly held that prior approval was only a procedural requirement.
- No Material Alteration to Resolution Plan
- The modifications made for CCI approval did not fundamentally alter the plan.
- CoC approval remained valid despite later CCI clearance.
- Commercial Wisdom of CoC is Supreme
- Courts should not interfere in CoC’s decision-making.
- The Supreme Court should uphold CoC’s authority.
Analysis of the Law
Literal Interpretation of Section 31(4)
- The phrase “shall obtain the approval…prior to the approval of such resolution plan by the CoC” is unambiguous.
- The Court must interpret the law literally, not reframe it based on convenience.
Legislative Intent
- The 2018 Amendment to IBC introduced the proviso to Section 31(4) specifically to address competition concerns.
- The goal was to ensure that potentially anti-competitive combinations were cleared before CoC approval.
Precedent Analysis
- The Court relied on multiple precedents supporting strict adherence to statutory language, including:
- Sundaram Pillai v. Pattabiraman (1985)
- State of U.P. v. Babu Ram Upadhyaya (1960)
- Bhavnagar University v. Palitana Sugar Mill Pvt. Ltd. (2003)
Absence of Conflict Between IBC & Competition Act
- CCI’s average approval time is 21 days, making compliance feasible.
- There is no inherent conflict between IBC’s timelines and CCI’s approval process.
Court’s Reasoning
- Failure to Obtain Prior CCI Approval Renders the Plan Void
- The word “prior” in Section 31(4) is clear.
- NCLAT misinterpreted the law.
- A resolution plan that lacks prior CCI approval cannot be implemented.
- Upholding Regulatory Framework
- Allowing post-facto approval would violate both IBC and Competition Act.
- Commercial wisdom of CoC cannot override statutory compliance.
Conclusion
- The Supreme Court set aside the NCLAT ruling.
- Prior approval from CCI for a resolution plan containing a combination is mandatory.
- AGI Greenpac’s resolution plan was declared non-compliant.
Implications
- Strengthens CCI’s role in insolvency.
- Prevents anti-competitive mergers from bypassing regulatory scrutiny.
- Ensures fairness in insolvency resolution.