SC solves competition-insolvency conundrum—or is there more to come?

The Insolvency and Bankruptcy Code, 2016 (IBC) was brought in as a time-bound solution to the problem of interminable winding-up proceedings. It provides for strict timelines to complete the resolution process, even as the company keeps its business running. 

However, adherence to timelines has proved challenging in practice. We are looking at an average of over two years to conclude the resolution process. From time to time, courts have had to step in to provide answers to the problems posed by resolution processes that did not finish on time. 

A subset of these problems is when the procedure provided in a different legislation delays resolution. One such problem arose in Independent Sugar Corporation Ltd. v Girish Sriram Juneja where the Supreme Court had to consider a situation where the timelines prescribed by the Competition Act, 2002 were interposed into the timeline laid down by the IBC.

In a 2:1 majority Judgement on 29 January 2025, a three-judge Bench of the Court relied on a plain reading of the IBC to conclude that the provision calling for approval of the Competition Commission of India (CCI) before submitting a resolution plan to the Committee of Creditors (CoC) was mandatory and not directory. Justice Hrishikesh Roy authored the majority opinion for himself and Justice Sudhanshu Dhulia. Justice S.V. Bhatti dissented. 

Review petitions against the decision have been filed before the Supreme Court and are expected to be heard soon. 

The path to the Supreme Court

This case concerned the takeover of an indebted company called Hindustan Glass and Industries Ltd. (HNGIL), which had 60 percent of the market share of India’s glass packaging industry. The successful resolution applicant in the insolvency proceeding was AGI Greenpac Ltd. (AGI), the company with the second-largest market share in glass packaging and manufacturing. The combined entity of HNGIL and AGI would likely have had overwhelming dominance in the glass packaging industry, particularly within the sub-segment of Food and Beverage and alcoholic beverages.

One of the provisions of the ‘Expression of Interest’ for taking over HNGIL noted that any suitor would have to mandatorily obtain the approval of the CCI before its resolution plan is approved by the CoC. But the Resolution Professional had relaxed this condition so that CCI approval could be obtained after the CoC’s approval of the resolution plan, but prior to filing an application before the National Company Law Tribunal (NCLT). 

AGI’s first filing before the CCI was declared invalid and they were asked to file a Form II (a long-form notification) for approval. AGI submitted its resolution plan to the CoC before it had filed this Form II. Promptly after the plan was accepted by the CoC, it was challenged in the NCLT by a competing suitor for HNGIL—Independent Sugar Corporation Limited (INSCO). INSCO’s plan had received 10 percent less votes than AGI’s plan in the vote carried out by the CoC. 

In the meantime, AGI applied for CCI approval, which was granted subject to a voluntary modification it proposed—that it would divest one of HGNIL’s plants. The NCLT approved this modified plan. INSCO challenged this in the National Company Law Appellate Tribunal (NCLAT). The NCLAT upheld the decision of the NCLT, noting that while it was mandatory to obtain approval of the CCI under the IBC for such a combination, the requirement of obtaining such approval prior to the approval by the CoC was only directory. 

INSCO appealed the NCLAT’s decision in the Supreme Court. Essentially, the top court was called on to answer whether the resolution plan was vitiated by the fact that AGI had not obtained approval of the CCI before approval of its resolution plan by the CoC. 

The provisions

The legal provisions in play were the provisos to Section 31(4) and Section 12 of the IBC and Sections 6(2),(2A), 29(1) and 31 of the Competition Act, along with the CCI Regulations on Combinations.

Section 31(4) provides that when a resolution plan is approved by NCLT, the applicant must obtain the necessary statutory approvals within a year of such approval. The proviso creates an exception to the rule as it applies to combinations under Section 5 of the Competition Act. It requires that the applicant obtain CCI approval prior to the CoC approval of the resolution plan. 

In ArcelorMittal India Pvt Ltd v Abhijit Guhathakurta (2019), the NCLAT held that the proviso to Section 31(4) was not a mandatory requirement but a directory provision. This view had been followed by the NCLAT in cases like Makalu Trading Ltd v Rajiv Chakraborty (2020) and Vishal Vijay Kalantri v Shailen Shah (2020). Challenges before the Supreme Court in these two cases had not resulted in a reversal of the NCLAT decisions. 

Separately, the scheme for approval of combinations is detailed under Section 6 of the Competition Act read with the CCI Regulations on Combinations. Section 6(2A) provides for a 150-day period. The procedure for investigation envisaged under Section 29 envisages a prima facie finding on ‘appreciable adverse effect on competition’ (AAEC). 

The NCLAT has previously granted extensions overriding the timeline for completion of the insolvency process. Such extensions have been endorsed by the Supreme Court. In Committee of Creditors of Essar Steel v Satish Kumar Gupta (2020), the Court held that the timeline of 330 days in the second proviso to Section 12 of the IBC was “directory” and subject to the approval of the NCLT or NCLAT. In Whispering Towers Flat Owners Welfare Association v Abhay Narayan (2022), the NCLAT relied on this view to condone a delay of over 730 days. 

The contentions

In the Supreme Court, INSCO contended that the requirement under the proviso to Section 31(4) is mandatory. It also argued that there is no inconsistency between the timelines under the IBC and the Competition Act, as, upon finding a prima facie case for anti-competitive practice, the IBC timeline can be extended in deserving cases. 

Further, INSCO contended that conditional approval from the CCI (hinging on the divestment proposal) after CoC approval of the plan is not only contrary to the scheme of the IBC but also creates an unfeasible sequence. 

AGI relied on the NCLAT decisions and purposive interpretation to contend that the proviso is directory in nature. AGI also contended that the reference to the CoC in the proviso to Section 31(4) was a legislative error (or at best a scrivener’s error) and it should have been a reference to the adjudicatory authority (that is, the NCLT). The CoC, on its part, argued that the proviso is directory given that (i) the time-bound resolution process is geared towards maximising asset value; and (ii) there was a need to harmonise the statutory timelines of the IBC and the Competition Act. 

The decision

While ruling in favour of INSCO and the proviso being mandatory, the Bench found that there was no need for purposive interpretation—the language of the statute was unambiguous and not in disharmony with the scheme and intent of the IBC. Since the CCI has the option of approving, rejecting or modifying proposed combinations, it was clear that the legislature intended a resolution plan to be placed in front of the CoC after CCI approval. 

On the issue of timeline harmonisation, the Court took the view that a conflict would arise only in cases involving “an extremely high degree of AAEC, mostly indicative of a complicated super-monopolistic behemoth.” Based on the CCI’s Annual General Report for 2022-23, the Court noted the average time taken to dispose of combination applications was only 21 working days. 

The Court also pointed out that the application for CCI approval can be made at any stage after ‘execution of any agreement or other document for acquisition’—much before the plan is submitted to the Resolution Professional.

Further, the Bench pointed to the shortening of approval timelines under the 2023 amendment to the Competition Act—from 210 to 150 days for the approval of a combination proposal and from 30 to 15 days for a prima facie opinion on AAEC. 

While distinguishing Arcelor and other NLCAT decisions, the Supreme Court said the factual and legal contexts of those cases were materially different. For instance, the resolution process in Arcelor had commenced prior to the introduction of the proviso to Section 31(4). 

The Bench noted that the decision in Arcelor lacked reasoning for considering the proviso as directory. The judgments that followed the ratio of Arcelor also did not provide any reasoning for the same. Factually, the Court said, none of these matters examined the necessity of CCI approval before an application to the CoC. 

The Bench also considered the ramifications of a situation where CCI approval is not obtained before an application to the CoC. It felt that it would fall foul of various sections of the IBC, which placed an obligation on the Resolution Professional to ensure that any plan placed before the CoC does not contravene an existing law. It would also pose challenges to the IBC stipulation that a plan approved by the CoC cannot be modified in any manner by the Tribunal. 

The Court also briefly touched upon the challenges posed by conditional approvals, which often opened the door for “prolonged negotiations” and “further modifications”. Conditional approvals were at variance with the objective of the IBC to lay down a process facilitating “finality and decisiveness”. 

The open issues

The Supreme Court was categorical in holding that if prior approval of the CCI is not obtained, it may lead to an “incongruous situation” where the CoC may approve a resolution plan which violates Section 6 of the Competition Act, leading to the CCI rejecting such a combination and rendering the entire process futile.

The Judgment affirms the regulatory stance on gun-jumping (a term used in anti-trust law and explained by the Court as denoting ‘the premature or unauthorised consummation of a transaction, prior to obtaining mandatory approvals’) and clarifies the alignment of the IBC with the statutory framework of the Competition Act. 

At the same time, the Judgement does leave some open questions. What happens to cases that “involve an extremely high degree of AAEC”? Also, in a situation where there is more than one suitor who triggers combination approval, is it feasible for the CCI to consider all such proposals, though only one will be chosen? Should the resetting of the clock at various stages of combination approvals be factored in by the IBC provision? These were vital concerns to have been discussed in a case that was expressly about the ‘chicken-and-egg’ situation involving two statutory timelines. 

This was also the appropriate stage to have considered whether a fast-tracked process for insolvency-bound combinations is the need of the hour, as suggested in the March 2018 Report of the Insolvency Law Committee.

Some questions around the general procedural design of the combination investigation are also ripe for reopening. For instance: (i) which parties should be issued the showcause notice by the CCI—in the present case, the CCI issued a notice only to AGI and not HNGIL; (ii) how are the voluntary modifications proposed by the acquirer envisaged under combination regulations?

The review petitions are expected to relook and address some of these issues. The petitions are being closely watched, including by the workers’ union of HNGIL, which had written to the CoC in February-end alleging that the erstwhile promoters had been “colluding” with AGI to “derail” the resolution process.

Hima Lawrence is a dual-qualified attorney (India & New York) and Advocate-on-Record at the Supreme Court of India.