In a landmark judgement set to reshape India’s insolvency landscape, a three-judge Bench of the Supreme Court, by a majority order, ruled on Wednesday that any Resolution Plan involving a merger or acquisition (a “combination”) must first secure approval from the Competition Commission of India (CCI) before being taken up by the Committee of Creditors (CoC).
The judgment underscores the paramount importance of maintaining competitive markets by ensuring CCI scrutiny at an early stage of the insolvency resolution process.
Under India’s Insolvency and Bankruptcy Code (IBC), companies in distress undergo a Corporate Insolvency Resolution Process (CIRP) where prospective buyers, or “resolution applicants,” submit bids. These bids, or Resolution Plans, are assessed by the CoC and eventually need approval from the adjudicating authority (NCLT).
However, in situations where the plan could substantially alter market structures (e.g., large mergers, acquisitions, or other combinations), and merger control thresholds are triggered, the Supreme Court has now categorically held that the CCI’s clearance is a “non-negotiable procedural imperative” before the CoC can even consider the plan.
The Supreme Court was disposing statutory appeal against the judgement passed by the National Company Law Appellate Tribunal (NCLAT) pertaining to the Corporate Insolvency Resolution Process of the Hindustan National Glass and Industries Ltd. [HNGIL]. Additionally, there was a set of appeals arising out of the NCLAT Order, pertaining to the approval accorded by CCI to the combination between HNGIL and AGI Greenpac.
Key Takeaways
The Supreme Court stated, “For a Resolution Plan containing a combination, the CCI’s approval to the Resolution Plan, in our opinion, must be obtained before and consequently, the CoC’s examination and approval should be only after the CCI’s decision.”
Emphasizing the “competitive equilibrium” in the market, the Court reminded stakeholders that under the Competition Act, “no transaction involving a combination can be completed, without prior approval from the CCI.”
Dealing with the contention that the entire framework as envisaged under Section 29(1) of the Competition Act was bypassed by CCI, as no mandatory Show Cause Notice (SCN) was issued to the Corporate Debtor/Target Company before approving AGI Greenpac’s Combination proposal in respect of HNGIL, the Court underscored that issuing a notice (SCN) under Section 29(1) of the Competition Act to both acquirer and target is “non-negotiable,” ensuring transparency and fairness, particularly in situations where modifications involve divestment of assets.
“The reasoning advanced by the CCI to avoid the issuance of SCN to HNGIL under Section 29(1) is unacceptable. Only because the Resolution Professional did not object to the same does not override the statutory requirements prescribed under the scheme of the Act, especially because the target company’s participation is central to assessing the competitive impact of the combination”, held the apex Court.
Procedural Lapse
The failure to issue a SCN under Section 29(1) to the Target Company/Corporate Debtor, constitutes a major procedural lapse with significant consequence. The statutory scheme of the Competition Act, as well as the synergistic framework of the IBC, demands that all parties to the combination are afforded a fair opportunity to participate in the decision making process, particularly when the proposed measures bear a direct and material impact on their interests.
The absence of such notice undermines the procedural sanctity of the modification process and renders the resultant approval susceptible to bona fide challenge, ruled the Court.
The issuance of SCN to both the acquirer and the target is a non-negotiable procedural imperative. The interplay between the provisions of the Competition Act and the IBC necessitates a careful balancing of competing interests, underscoring the indispensability of procedural compliance.
The lack of participation by the Target in the voluntary modification process, especially where the modification entails the divestment of their assets, vitiates the approval granted by the CCI, held the Apex Court noting AGI Greenpac’s Resolution Plan as unsustainable as it failed to secure prior approval from the CCI, as mandated under the proviso to Section 31(4) of the IBC.
Consequently, the approval granted by the CoC to the Resolution Plan without the requisite CCI approval, was quashed.
Speaking on the broader impact, legal experts highlighted that this ruling fortifies the principle that economic concentration and insolvency resolution must go hand in hand with competition law considerations. “By ensuring CCI clearance is sought upfront, the Court is protecting market structures from distortions that could arise if a large player acquires distressed assets without thorough antitrust scrutiny,” said a senior corporate lawyer.
For businesses navigating insolvency, the message is clear: compliance with competition law is essential. Failure to do so can result in significant penalties under Section 43A of the Competition Act and could invalidate the entire Resolution Plan, potentially prolonging insolvency proceedings and increasing costs for all parties involved.
Industry observers view this as a positive step toward maintaining fair competition, particularly in sectors prone to consolidation.
“This judgment underscores the critical role competitive processes play in modern economies,” noted a market analyst. “It ensures that all players, including new or smaller entrants, have a fair chance to compete alongside established giants.”