Introduction
In the landmark decision in Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors., the Supreme Court of India examined the interpretation and applicability of the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (IBC) concerning the requirement of obtaining Competition Commission of India (CCI) approval prior to the approval of a resolution plan by the Committee of Creditors (CoC). This judgment has significant ramifications for resolution applicants, resolution professionals (RPs), and the functioning of the corporate insolvency resolution process (CIRP) under the IBC.
1. Factual Background and Procedural History
The dispute arose in the CIRP of Hindustan National Glass and Industries Limited (HNGIL), initiated on 21.10.2021 upon an application by DBS Bank under Section 7 of the IBC. Two competing resolution applicants—AGI Greenpac and Independent Sugar Corporation Ltd. (INSCO)—submitted resolution plans in April 2022.
AGI Greenpac’s plan lacked the necessary prior CCI approval at the time of CoC consideration, unlike INSCO, which had secured such approval. Nevertheless, AGI’s plan was approved by the CoC on 28.10.2022 with 98% votes.
INSCO challenged this approval before NCLT, which upheld AGI’s plan, relying on the fact that CCI approval was later obtained on 15.03.2023. NCLAT also upheld this view in two separate orders (dated 28.07.2023 and 18.09.2023), holding that while CCI approval is mandatory, obtaining it prior to CoC approval is only directory.
INSCO brought the matter before the Supreme Court via Civil Appeal No. 6071 of 2023, along with other connected appeals.
2. Identification of Legal Issues
The core legal issues before the Court were:
- Whether the proviso to Section 31(4) of the IBC mandates obtaining CCI approval prior to CoC’s approval of a resolution plan involving a combination.
- Whether a resolution plan without such prior approval contravenes Section 30(2)(e) IBC and is thus non-compliant.
- Whether procedural irregularities in the CIRP process vitiate the approval granted to AGI Greenpac’s resolution plan.
3. Arguments of the Parties
Appellant – INSCO
- Argued that the resolution plan approved by the CoC violated Section 30(2)(e) IBC as AGI Greenpac did not obtain prior CCI approval—a mandatory requirement under the proviso to Section 31(4) IBC.
- Highlighted that the RFRP and RP’s own email (dated 25.08.2022) required such approval before submission to the NCLT.
- Claimed AGI’s CCI application under Form I was rejected; Form II was filed only post-CoC approval, rendering the plan non-compliant.
- Asserted that allowing ex post facto CCI approval undermines the legislative intent and creates procedural uncertainty.
Respondents – AGI Greenpac, CoC, RP, and CCI
- Argued that the requirement under the proviso is directory and not mandatory.
- Emphasized that CoC’s commercial wisdom should not be fettered by procedural technicalities.
- Highlighted that the plan was later approved by the CCI with conditions, including a plant divestment.
- Submitted that the interpretation of “shall” as “may” is consistent with purposive interpretation to ensure timely completion of CIRP under Section 12 IBC.
4. Court’s Analysis and Reasoning
The Bench rendered a split opinion—Justice Hrishikesh Roy (concurring with Justice Sudhanshu Dhulia) and Justice S.V.N. Bhatti (dissenting).
Majority View (Roy and Dhulia, JJ.)
- Literal Interpretation Preferred: The Court held that the language of the proviso to Section 31(4) is clear and unambiguous, requiring prior approval of the CCI before CoC’s approval of the resolution plan.
- Mandatory Compliance: Citing the statutory framework and prior judgments, the Court ruled that this requirement is mandatory.
- Rejection of Directory View: NCLAT’s reliance on ArcelorMittal and Makalu Trading was rejected as these cases were factually distinguishable and did not consider the amended statutory context adequately.
- Harmonisation with Competition Act: The Court emphasized that failure to comply with Section 5 and 6 of the Competition Act may render the entire combination void, defeating the CIRP objectives.
- No Scope for Purposive Interpretation: Citing Francis Bennion, Ebix Singapore and other precedents, the Court reiterated that courts cannot supply casus omissus when the statutory text is clear.
Dissenting View (Bhatti, J.)
- Directory Interpretation: Justice Bhatti held that the requirement of obtaining CCI approval before CoC approval is directory, not mandatory.
- Practical Difficulties: Emphasized that the IBC and Competition Act timelines operate in parallel, and insisting on prior approval may stall the CIRP process.
- Policy Harmony: He stressed on the need to balance the IBC’s timelines and the CCI’s procedural flexibility.
5. Final Conclusion and Holding
The Supreme Court (majority) allowed INSCO’s appeal, setting aside the NCLAT and NCLT orders that had upheld AGI Greenpac’s resolution plan. The Court held that:
- The proviso to Section 31(4) IBC is mandatory.
- Resolution plans proposing combinations must obtain prior approval from the CCI before being considered by the CoC.
- Failure to adhere to this mandate renders the resolution process invalid.
This authoritative interpretation reinforces the sanctity of statutory compliance under IBC and limits judicial dilution of express legislative mandates.
FAQs:
1. Is CCI approval mandatory before the CoC approves a resolution plan under IBC?
Yes. The Supreme Court held that the proviso to Section 31(4) of the IBC mandates prior approval from the CCI before the CoC approves any resolution plan involving a combination.
2. What happens if CCI approval is obtained after the CoC approval?
Such post-facto approval does not cure the procedural defect. The plan would be non-compliant and liable to be invalidated, as held in this judgment.
3. What is the significance of Section 31(4) of the IBC?
It governs statutory approvals required for implementing resolution plans. Its proviso specifically mandates that CCI approval be obtained before CoC approval if the plan involves a merger or acquisition (combination).
4. Can the court read “shall” as “may” under Section 31(4) IBC?
Not when the legislative text is clear. The Supreme Court emphasized that where the language is unambiguous, courts must apply literal interpretation and avoid purposive or flexible readings.
5. Does this judgment apply to all future CIRPs involving combinations?
Yes. The ruling sets binding precedent that in all CIRPs where a resolution plan involves a combination under the Competition Act, prior CCI approval is a condition precedent to CoC approval.
Stay informed with insights that matter. Follow us for more updates on key legal developments.
Disclaimer
The content provided here is for general information only; it does not constitute legal advice. Reading them does not create a lawyer-client relationship, and Mahendra Bhavsar & Co. disclaims all liability for actions taken or omitted based on this content. Always obtain advice from qualified counsel for your specific circumstances. © Mahendra Bhavsar & Co.