The Supreme Court, by a 2:1 majority, has held that a resolution plan containing a proposed combination under the Insolvency and Bankruptcy Code (IBC) must receive prior approval from the Competition Commission of India (CCI) before being placed before the Committee of Creditors (CoC). This ruling is rooted in the interpretation of the proviso to Section 31(4) of the IBC, which explicitly mandates that such approval must be obtained before the CoC considers and approves a resolution plan.
The Court, in its analysis, underscored the significance of the word 'prior' in the proviso. Justices Hrishikesh Roy and Sudhanshu Dhulia, forming the majority, held that the legislative intent was clear in requiring the CCI’s approval before the CoC’s evaluation. They reasoned that any deviation from this requirement would undermine statutory integrity and stakeholder confidence. The Court found that the literal interpretation of the provision should be upheld, and the approval of the CCI must precede CoC consideration to prevent post-facto modifications that may escape scrutiny.
However, Justice SVN Bhatti dissented, opining that the proviso to Section 31(4) should be interpreted as a directory rather than mandatory. According to him, as long as CCI approval is obtained before final adjudication by the National Company Law Tribunal (NCLT), the resolution process remains compliant with both the IBC and the Competition Act. He contended that a strict reading of the proviso could lead to undue delays in insolvency resolution and could impede the ‘going concern’ objective of the IBC. Justice Bhatti also noted that the statutory framework provides for a reasonable period post-CoC approval to obtain necessary regulatory clearances, and insisted that the requirement of prior CCI approval should not be construed as an absolute prerequisite for CoC consideration.
The factual background of this case involved the resolution process of Hindustan National Glass and Industries Ltd. (HNGIL). The appellant, an unsuccessful resolution applicant, contested the approval of a resolution plan submitted by AGI Greenpac, which included a combination that required CCI clearance. AGI Greenpac had initially approached the CCI for approval of its proposed combination, but its first application was declared invalid. Subsequently, the CoC approved AGI Greenpac’s resolution plan before obtaining CCI’s final approval, which was later granted subject to modifications. The appellant challenged this sequence of events before the NCLT, which upheld the CoC's decision, and the NCLAT also affirmed the approval while holding that prior CCI clearance was only a directory.
The Supreme Court examined the interplay between the IBC and the Competition Act to determine whether CoC approval could precede CCI’s decision. The majority observed that a literal interpretation of Section 31(4) was necessary, as legislative intent explicitly mandated prior CCI approval. They emphasized that the CoC’s commercial wisdom must be exercised on a fully compliant resolution plan, rather than one subject to subsequent regulatory modifications. The Court also pointed out that permitting CoC approval before CCI clearance could create an impractical scenario where post-approval modifications imposed by the CCI would not be subject to creditor scrutiny.
Furthermore, the Supreme Court rejected arguments that strict adherence to prior CCI approval would cause delays in insolvency resolution. The judgment highlighted that CCI has prescribed timelines for approving combinations, and the IBC framework allows for a reasonable extension of the corporate insolvency resolution process where necessary. The Court also dismissed claims that the requirement for prior approval conflicts with the principle of commercial wisdom, reasoning that legislative design places compliance with regulatory mandates above discretionary decision-making by creditors.
The Court also addressed the issue of locus standi raised against the appellant. It reaffirmed that insolvency proceedings, once initiated, acquire an in rem character, meaning that any party aggrieved by a resolution plan’s approval has the right to challenge it. The Court observed that under both the IBC and the Competition Act, ‘any person aggrieved’ is to be interpreted broadly, ensuring that regulatory compliance is enforced through judicial scrutiny.
Consequently, the Supreme Court set aside the approval of AGI Greenpac’s resolution plan and remanded the matter for fresh consideration by the CoC, subject to the condition that only resolution plans with prior CCI approval would be eligible for consideration. This judgment solidifies the requirement that regulatory clearances must be secured before CoC exercises its commercial wisdom, ensuring that competition law considerations are integrated into the insolvency resolution process at the appropriate stage. This ruling is expected to have significant implications for future insolvency cases involving mergers and acquisitions, reinforcing the principle that statutory compliance is paramount in corporate restructuring under the IBC.