- FACTUAL BACKGROUND
The Hindustan National Glass and Industries Ltd. (HNGIL) a dominant company with over 60% in the market share with multiple manufacturing plants across India catering to Pharmaceuticals, Cosmetics, F&B, and alco-beverages. A Corporate Insolvency Resolution Process (CIRP) was initiated against HNGIL by the DBS Bank as per Section 7 of Insolvency and Bankruptcy Code (IBC),2016. The National Law Tribunal (NCLT), Kolkata Bench, admitted the application on 21st October, 2021. Furthermore, AGI Greenpac Ltd., the second largest player in the industry and Independent Sugar Corporation Ltd. (INSCO) submitted resolution plans to acquire HNGIL. AGI’s proposed combination with HNGIL was projected to control over 80-85% of food and beverages glass segment and 45-50% of alco-beverage segment, raising competition law concerns over possible AAEC.The Resolution Professional (RP) floated an Expression of Interest (EOI) on 25th March , 2022, which specified a mandatory approval from the Competition Commission of India (CCI) before Committee of Creditors (CoC) approval. Both AGI and INSCO submitted their respective resolution plans in April of 2022 qualifying them as eligible applicants. INSCO challenged this relaxation arguing that under section 31(4) of the IBC, while EOI required CCI approval after CoC approval but prior to filing before the NCLT. Post CoC approval, AGI Greenpac applied for CCI clearance, which was eventually granted. The NCLT and later the National Company Law Appellate Tribunal (NCLAT) approved the modified plan proposed by AGI, interpreting the CCI approval requirement as directory and not mandatory. Further INSCO challenged these orders, appealing to the Supreme Court, arguing that the process was legally invalid, lacking the prior competition approval as per the strict reading of section 31(4) of IBC, in order to avoid combinations leading to market dominance.
- ISSUES RAISED
The Supreme Court in this case concerns the Corporate Insolvency Resolution Process (CIRP) under IBC, 2016 and the Competition Act, 2002, deliberated on the following legal questions:
- Whether the approval of CCI must necessarily precede CoC approval of a resolution plan as per the legal requirement or is it merely a timely directory?
- Whether the NCLAT erred in treating the proviso as directory, as it held that while CCI approval is mandated, obtaining it prior to CoC approval is not, as CIRP timelines could otherwise stall.
- Whether the modification by AGI and the approval by CCI were valid, given that mandatory steps like SCN issuance and public objections were bypassed?
- Whether the plan by AGI , contingent to divestment, is inconsistent with the IBC’s framework requiring final and immediate plans?
- Whether the CoC approval stands given mandated statutory approval were secured, should this commercial wisdom be exercised only after complete regulatory compliance?
- Whether INSCO was an unsuccessful bidder, challenged the plan and CCI’s approval, or did they lack standing once their plan was rejected?
- Whether the interpretation is literal or purposive, should courts adopt the plain meaning of prior in section 31(4) or allow a purposive reading to save the CIRP timelines?
- CONTENTIONS
- Appellant [INSCO- Independent Sugar Corporation Ltd.]
The contention put forth by the appellant Senior Advocates Dr.A.M.Singhvi and Mr. Mahesh Jethmalani is in the affirmation that the process of approving AGI Greenpac’s plan was irregular and hence be nullified. There was a serious violation of Section 31(4) IBC as AGI Greenpac’s plan was sent to NCLT without the prior CCI approval, despite law and RFEP requiring it. The RP also ignored AGI’s own undertaking before the NCLT that CCI approval would come before CoC approval. Proviso to section 31(4) makes CCI approval mandatory before CoC’s approval, this was bypassed. Once AGI had failed to comply, CoC and RP should have considered other complaint plans like INSCO’s. NCLAT wrongly assumed IBC and Competition Act Timelines Clash, while in reality, CCI has a 30-day window to give a prime facie opinion and CIRP timelines can be extended. CCI procedure under section 29(1) Competition Act was not followed as there was no SCN to target companies and no public objectives. The fact that the modifications were proposed by AGI and not by CCI is against law. The RP had no authority to allow Divestment of assets without CoC’s permission as per Section 28 of IBC. The AGI’s plan was conditional as the approval depended on divestment which is not allowed under IBC.
- Respondent [AGI Greenpac (Successful Resolution Applicant)]
Represented by senior advocate Mukul Rohatgi and Parag Tripathi, AGI Greenpac affirmed that there was a legislative drafting error as the term CoC in Proviso is synonymous with Adjudicating authority, and courts should not interpret it literally when it frustrates IBC’s object. Since no penalty is prescribed for non-compliance, it should be interpreted as directory. The plan itself is not conditional, as the approval of divestment was a part of the compliance process. Appellants lack locus standi, as they have no rights once their plan is rejected. Even workmen or operational creditors are not to challenge the same. CIRP must be concluded swiftly as HNGIL is a glass furnace company and delays threaten survival. Scrivener’s Error Principle was also invoked as here CoC reference is a drafting slip and real intent was Adjudicating Authority.
- Supporting respondent [Committee of Creditors (CoC)]
The contention put forth by representative of CoC Solicitor General Tushar Mehta, was that CoC considered the feasibility, statutory approval and timelines before approving AGI’S plan. IBC’s object is time-bound resolution and maximizing value, and not liquidation. Timelines are sacrosanct, and the Competition Act timelines and IBC timelines must be harmonised. Treating the proviso to Section 31(4) as mandatory would derail CIRP, hence it should be seen as directory. NCLAT has considered this view and the SC hasn’t overturned those precedents. INSCO got an unfair head start through Green Channel but big industry players like AGI should not be disadvantaged. CCI approval did not materially alter AGI’s plan, hence no fresh CoC approval was needed.
- Supporting respondent [Resolution Professional ]
The contentions put forward by Resolution Professional represented by Senior Advocate Mr.P.Chidambaram, is that RP has only followed the existing NCLAT precedents, treading the proviso as directory. The RP’s role is largely procedural, not substantive. Hence, no illegality arises in his actions.
- RATIONALE
The court held that an unsuccessful resolution applicant like INSCOis to be considered as an aggrieved party under section 62 of IBC and Section 53T of Competition Act. The CIRP proceedings particularly are in rem and not in personman, hence the locus is considered wide and not restricted. The court further stressed on the language of the proviso to be clear, unambiguous and mandatory in nature. The word “prior” cannot be ignored or treated as surplusage, courts must give effect to legislative intent without rewriting. Moreover the literal interpretation was preferred over purposive interpretation. The Hon’ble court also gave notes on Clauses and Committee Reports confirming that CCI approval was deliberately required before CoC approval in order to ensure that the CoC’s commercial wisdom to be exercised with complete information, inclusive of any modifications imposed by CCI. Treating it as a directory would defeat the very purpose of the proviso. The court rejected the arguments whose timelines clash. Data showed that the CCI usually disposes of combination fillings within 30 days , therefore, CIRP need not stall. In the rare cases, the extensions exist, the same cannot be diluted as a statutory mandate. The court found approval of the plan without prior CCI clearance leading to an unworkable sequencing , as modification/divestments required by CCI might not be scrutinised by the CoC, such plans are legally deficient. The Supreme Court further overruled NCLAT holding, that CCI approval must mandatorily precede CoC approval under the proviso section 31(4). The AGI’s plan was held invalidly approved by the CoC without the prior CCI clearance. Matter was remanded for reconsideration of resolution plans in compliance with the law.
- DEFECTS OF LAW
- There was an ambiguity in Section 31(4) proviso of IBC, as the proviso requires a CCI approval prior the CoC approval, but the drafting created a confusion. The very use of the term “CoC” in the proviso versus the “Adjudicating Authority” in the memorandum led to arguments of the Scrivener’s Error. This ambiguity allowed inconsistent interpretations by tribunals.
- There was a clear clash between the timelines of IBC and the timelines of the Competition Act, though the same was clarified by the Supreme Court, that in practice the timelines don’t clash as the statues create an appearance of disharmony. This uncertainty enabled the NCLAT to treat the proviso as directory, weakening mandatory safeguards against anti-competitive combinations.
- There was also a noted lack of clarity on conditional plans as the IBC framework does not explicitly address whether conditional resolution plans as it is dependent on regulatory approvals/modifications the same are not valid. This loophole allowed the plan of AGI to be approved prematurely , despite the pending CCI conditions.
- There were inadequate procedural safeguards under the Competition Act in the CIRP context. In the case of AGI, mandatory procedures like issuing SCN to the target company and inviting public objections were bypassed. While the law does not expressly mandate how CCI’s processes must integrate with insolvency proceedings, creating procedural gaps.
- Lastly, there was an unclear scope of CoC’s commercial wisdom. The vests primacy in CoC but it does not clarify whether this wisdom must operate only after all statutory approval is secured. This creates scope for premature decision.
- INFERENCE
The case clarified that there must be a mandatory compliance with the competition law, as it cannot be sidelined during insolvency proceedings. A plan that risks creating monopoly must be first screened by the CCI before the approval of the creditors. The supreme court reaffirmed the importance of literal interpretation, when the statutory language is clear , it is important for the courts to not twist it for convenience or policy reasons. The judgment also shows how the IBC, Act and the Competition Act must work harmoniously, and not at cross-purposes. Protecting timelines cannot be a reason to override statutory mandates designed to prevent anti-competitive outcomes. It also highlights the potential danger of conditional resolution plans, which can create uncertainty and delay in further implementation. Before exercising commercial wisdom it is important for the creditors to be provided with full information, including the modifications provided by CCI. The Court’s recognition of locus standi ensures that unsuccessful bidders like INSCO can still challenge irregularities. This not only strengthens the fairness in CIRP but also the transparency. While at the same time the case also reveals drafting issues and procedural gaps in the interplay of IBC and Competition law, pointing to the need for legislative clarity. Overall a person understands from this case that insolvency resolution is not just about saving a company quickly but also about ensuring the legal compliance, competition fairness and the integrity of the process. The balance between two most competing goals is speed vs. legality, and firms lean towards legality when statutory mandates are clear.
Name :- Janvi Aeri
College:- Christ (deemed to be) University, Pune, Lavasa, Maharashtra