Regulatory Checkmate – The Supreme Court’s Ruling on CCI Approval in CIRP

The recent decision in Independent Sugar Corporation v. Girish Sriram Juneja has sparked an intense discussion on competition law and insolvency in India. The Supreme Court of India ruled by a 2:1 majority that resolution plans incorporating combinations must be approved by the Competition Commission of India (CCI) before being approved by the Committee of Creditors (CoC). This judgment adds practical obstacles that may impair the effectiveness of the Corporate Insolvency Resolution Process (CIRP), even while it reinforces the legislative integrity of Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (IBC).

Adopting a textualist stance, Sudhanshu Dhulia, S.V.N. Bhatti, and Hrishikesh Roy, JJ. concluded that the term "shall" in Section 31(4) is unquestionably required. Their justification was straightforward but robust citing that CCI’s permission must be obtained prior to CoC deliberations if a resolution plan calls for a combination. The judges also highlighted that this view ensures that insolvency proceedings do not circumvent competition law compliance and is consistent with legislative intent.

The Court unequivocally stated, “For a Resolution Plan containing a combination, the CCI’s approval must be obtained before the CoC’s examination and approval. This interpretation respects the original legislative intent, and deviation from the same would not only undermine the statute but would also erode the faith posed by stakeholders in the integrity of our legal and regulatory framework.” On the other hand, Justice Bhatti dissented, arguing that the provision is merely directory. He contended that the term ‘shall’ should be read purposively as ‘may,’ thereby allowing CCI approval to be obtained even after CoC’s sanction. Justice Bhatti’s dissent highlights a commercial realism that acknowledges the IBC’s primary objective of expeditious resolution of distressed assets.

Background: The AGI Greenpac Conundrum

The dispute arose from the insolvency of Hindustan National Glass and Industries Ltd. (HNGIL), a dominant force in India’s glass packaging sector. AGI Greenpac Ltd, the successful resolution applicant, raised significant antitrust concerns when it sought to acquire HNGIL. The suggested combination would have led to an 80–85% market share in the food and beverage segment and also a 45–50% share in the alco-beverage segment, triggering apprehensions of an Appreciable Adverse Effect on Competition (AAEC).

The controversy sparked when AGI Greenpac’s resolution plan was approved by the CoC before obtaining CCI authorization. While CCI ultimately granted conditional approval subject to AGI divesting an HNGIL plant based in Uttarakhand, rival bidder Independent Sugar Corporation (INSCO) questioned the process. In furtherance of this, the National Company Law Appellate Tribunal (NCLAT) ruled that while CCI approval was essential citing that its timing was merely procedural. Nonetheless, the Supreme Court overturned this view, wiping down AGI Greenpac’s resolution plan and directing the CoC to reconsider all resolution plans afresh.

The Supreme Court also objected to the competition commission’s approval since it noticed that CCI has not followed the procedure laid down in the competition act. Generally, under the act any merger or acquisition taking place in India that meets a prescribed threshold must get an approval from the CCI. The commission reviews the transactions in two stages

Stage 1 is a 30-day initial review where the CCI assesses whether the deal could create an appreciable adverse effect of competition in the market. If no serious concerns arise, the deal is cleared. In case of concerns, the parties are asked to propose remedies (example- asset sales or capacity commitments etc.) to address potential issues, which allows the deal to be approved subject to compliance. If competition concerns persist, the review moves to Stage II.

Stage 2 review is a more thorough investigation where the competition commission of India analyses the deal in depth and also consults third parties like suppliers, competitors to further understand that what impact the deal could bring into the market. A show cause notice (SCN) is served in the inception of this stage, as to why the deal should not be investigated further, the parties get a chance to respond to the SCN with appropriate reasons, evidence and any proposed modifications to mitigate CCI’s concern. If the CCI is of the opinion that the proposed modifications are sufficient, it may approve the deal or if not, the commission can put the transaction out for public consultation

As a matter of practice, after the issuance of the SCN, the CCI has usually accepted proposed amendments and cleared transactions without initiating a public consultation process even though it is mandatory under the Competition Act.

In the present case, the CCI's stage I review of the AGI Greenpac-HNG resolution plan raised concerns regarding increased concentration in the glass manufacturing market. Thereafter, it formed a primary opinion that the AGI Greenpac-HNG acquisition could cause appreciable adverse effects to competition in the market.

The commission issued a SCN to AGI Greenpac, but not the target. It approved the transaction based on AGI Greenpac’s response to the SCN and the voluntary changes to the deal (including hiving off HNG’s plant in rishikesh). The deal was not opened up for public consultations. This was in line with the CCI’s prior practices.

The Supreme Court in this case held that the scheme of Section 29 of the Competition Act is such that once the CCI issues a SCN indicating an opinion that the transaction can cause AAEC, the entire procedure which includes (i) sending a SCN to both parties and (ii) opening up the transaction to public for its opinion must be adhered. The Supreme Court also held that any deviation from this process can open CCI approvals up for legal scrutiny.

The Court held that the active involvement of the target (HNG) in the CCI engagement process was particularly necessary in this case. This is because AGI Greenpac offered to divest HNG’s Rishikesh plant to address competition concerns. It also observed that since the CCI had not undertaken a public consultation process for the AGI-Greenpac transaction, its approval can be legally challenged.

This ruling, even though is legally sound, presents a double-edged sword. On the one hand, it maintains regulatory compliance, ensuring that resolution plans do not create anti-competitive market distortions, while on the other; it adds an additional procedural step into an already time-sensitive insolvency framework.

The IBC was designed to provide a swift and expedite resolution mechanism for stressed assets. Mandating CCI assent before CoC approval creates another checkpoint that could prolong CIRP timeframe. Given the already well known delays in insolvency proceedings, requiring pre-CoC CCI approval could deter bidders and complicate corporate restructuring efforts.

Legislative Intent vs. Practical Reality

While the verdict strengthens the statutory architecture of competition law in insolvency proceedings, it raises serious questions of over regulation in the proceedings. Justice Bhatti’s dissent raises an important question that whether commercial expediency takes a backseat to rigid statutory compliance?

This verdict sets a precedent that could fundamentally alter the interplay between insolvency resolution and competition review within the country. Applicants who seek resolution shall now pre-clear their plans with CCI prior to even engaging with creditors, increasing transaction costs and regulatory uncertainty. Even though procedural compliance is of utmost importance, the Court’s rigid approach might inadvertently dampen investor confidence and slow down insolvency resolution.

This ruling raises a wider concern than just legal compliance. Should regulatory frameworks rigidly follow statutory provisions or should they change to reflect changing business and commercial realities? The fact that insolvency resolution cannot take place in a vacuum is evident, even though the answer may not be straightforward. To avoid needless impediments to the restructuring of troubled assets, the delicate balance between insolvency efficiency and competition legislation must be maintained.

While the verdict strengthens the statutory architecture of competition law in insolvency proceedings, it risks over regulation. Justice Bhatti’s dissent raises a pertinent question, should commercial expediency take a backseat to rigid statutory compliance?

This decision sets a precedent that could fundamentally alter the interplay between insolvency resolution and antitrust review in India. Resolution applicants must now pre-clear their plans with CCI before even engaging with creditors, increasing transaction costs and regulatory uncertainty. While procedural compliance is essential, the Court’s rigid approach might inadvertently dampen investor confidence and slow down distressed asset resolution.

Final Thoughts: A Call for Legislative Recalibration?

The ruling compels stakeholders to rethink insolvency strategies and regulatory coordination. The onus now falls on the legislature to assess whether Section 31(4) needs clarification, should CCI approval be a strict prerequisite or an evolving parallel process?

If the objective is to create a seamless framework for resolving insolvency while maintaining competitiveness within the market, then a more pragmatic solution is needed. Perhaps an expedited Green Channel clearance for insolvency-driven combinations or a staggered approval process could reconcile these competing interests. Until then, this ruling stands as a stark reminder that in the tug-of-war between speed and statutory fidelity, the latter has won the battle against speed.

One can only hope that any future jurisprudence or legislative intervention will reduce the frictions that this verdict has undeniably set in motion.