[Khushi and Kunaal are students at Rajiv Gandhi National University of Law.]
On 29 January 2025, the Supreme Court of India in the decision of Independent Sugar Corporation v. CCI (Independent Sugar) by 2:1 majority observed that a resolution plan under the Insolvency and Bankruptcy Code 2016 (IBC), containing a proposed combination should only be placed before the Committee of Creditors (CoC) after it has been approved by the Competition Commission of India (CCI).
The bench of Justices Hrishikesh Roy and Sudhanshu Dhulia observed that for a resolution plan containing a combination, the CCI’s approval to the resolution plan must be obtained before and consequently, the CoC’s approval should be taken only after CCI’s decision. This interpretation respects the original legislative intent, and deviation from the same would undermine the statute. However, Justice SVN Bhatti disagreed, saying that the condition for prior approval from the CCI was not mandatory, the Proviso to sub-section (4) of the Section 31 is directory and would be compliant with IBC and the Competition Act 2002.
The present article challenges the ruling in Independent Sugar, firstly, by examining the statutory provisions and the judicial approach to this issue before the judgment, analysing how courts previously addressed similar concerns. Secondly, it criticises the present ruling, contending that making such approval mandatory is legally unsound and could disrupt the timelines prescribed under the IBC. Lastly, the article concludes that the decision should be reconsidered by a larger bench, advocating that the approval of CCI should be directory rather than mandatory, drawing insights from corresponding laws in other jurisdictions.
Bare Provision of IBC and Its Analysis
The proviso to Section 31 (4) of the IBC mentions that “where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.”
The resolution plan cannot move forward without first receiving approval from the CCI if the combined asset value or turnover of the resolution applicant and the corporate debtor surpasses the threshold set forth in Section 5 of the Act. As a result, the CoC cannot proceed with the resolution procedure until CCI has given its consent. The underlying rationale for this requirement is to prevent any “appreciable adverse effect on competition” in India. In order to ensure compliance with competition law, the CCI evaluates the proposed combination when certain jurisdictional requirements are satisfied.
Judicial Precedents: Supporting a Directory Interpretation
Various rulings have undermined the mandatory requirement of CCI’s prior approval after the amendment of 2018. In the case of ArcelorMittal Private Limited v. Abhijeet Guhathakurta, National Company Law Appellate Tribunal (NCLAT) held that “The ‘Committee of Creditors,’ responsible for assessing the viability, feasibility, and commercial aspects of a Resolution Plan, has the discretion to approve the plan, provided it is subject to approval by the Commission.”
Moreover, in the case of Vishal Vijay Kalantri v. Shailen Shah, the NCLAT concluded that the resolution plan remains compliant with Section 31(4) even if the necessary approval is obtained after the CoC’s approval. While the NCLAT recognized the mandatory nature of Section 31(4), it expressed concerns that rigid enforcement could lead to unintended and adverse consequences. A similar stance was taken in the case of Makalu Trading v. Rajiv Chakraborty wherein the NCLAT held that “a resolution plan does not contravene Section 31(4) as long as the requisite approval from the CCI is secured before the Adjudicating Authority grants final approval”.
In the case of AGI Greenpac, the Resolution Applicant raised concerns regarding non-compliance with mandatory approval requirements from the CCI. It was also alleged that AGI Greenpac’s actions violated the terms outlined in the Request for Resolution Plan. However, both the Resolution Professional and the CoC treated the CCI’s approval as merely directory rather than mandatory.
In the present case, CCI’s approval was obtained after the CoC’s approval, a sequence upheld by both National Company Law Tribunal and NCLAT. Both tribunals maintained that while CCI’s approval is essential, obtaining it before the CoC’s approval is not a mandatory requirement. Building on this perspective, the following section will examine the potential implications and different approaches that could arise if CCI’s approval were to be considered directory rather than mandatory.
Autonomy Granted to Merging Entities by the Use of Directory Approach
According to the proviso to Section 31(4) of the IBC, combinations resulting from resolution plans must first have clearance from the CCI. However, making this approval directory would enhance flexibility to deal with insolvency-related mergers on a case-by-case basis instead of adhering to a rigid straitjacket framework. We propose that the merging entities should have the discretion to decide the sequence of approvals. Such a flexible approach would provide the merging entities with three possible scenarios:
Securing CCI approval first
In this approach, the combining entities first seek approval from CCI for their combination plan regarding appreciable adverse effects on competition concerns before approaching the CoC for approval of the resolution plan. This sequence allows the merging entities to address any competition concerns flagged by CCI in advance which would ensure that the creditors have clarity on the assets retained post-resolution. A notable example is UltraTech’s acquisition of Binani Cement, wherein CCI’s approval was granted on 28 March 2018 which was followed by CoC approval on 28 May 2018. After significant legal proceedings, the NCLAT finally approved the resolution plan on 14 November 2018.
Securing CoC approval first
Here, the resolution plan first gets approved by the CoC before obtaining clearance from CCI for the combination. Such an approach is often preferred in cases where continuation of plant operations, preserving the asset value, and ensuring swift resolution are of utmost importance. A key example of this approach is ArcelorMittal's acquisition of Essar Steel, where the CoC approved the resolution plan on 19 October 2018. The Supreme Court upheld the resolution plan on 15 November 2019, while the CCI’s final approval for the acquisition was granted, on 29 September 2022.
Parallel approvals from CCI and CoC
In some cases, the combining entities may opt to start both antitrust and insolvency approval processes simultaneously. This method can be beneficial in cases when there are multiple interested buyers who require concurrent evaluations or when operational continuity is time-sensitive. Future Retail’s acquisition scenario is a noteworthy example of simultaneous parallel clearance processing, where Amazon Retail secured CCI approval on 28 November 2019, but the CCI later withdrew the approval on 17 December 2021. Meanwhile, the only resolution plan submitted by Space Mantra Private was not approved by the CoC, leading to the liquidation application for Future Retail Limited before the NCLT.
Each of these approaches align well with India’s legal framework while offering flexibility to address competition concerns and insolvency challenges effectively. A case-specific approach to regulatory approvals would not only streamline the resolution process but also enhance adaptability, ensuring that distressed assets find viable buyers without unnecessary delays.
Global Perspectives on Insolvency and Antitrust Approvals
In the United States, Section 363(b) of the US Bankruptcy Code requires bankruptcy court’s approval for asset sales, provided the court determines that such a transaction maximizes the estate’s value and serves the best interests of creditors. However, this approval does not exempt the transaction from external regulators such antitrust authorities. Hart-Scott-Rodino Act regulates merger and acquisitions in the USA. It warrants that even if a bankruptcy sale is approved by the court, transactions that are to be reviewed by the Department of Justice (DOJ) and the Federal Trade Commission (FTC) for antitrust purposes cannot be completed until their evaluations are finished.
While the bankruptcy court, the FTC, and the DOJ approvals run parallel to each other, they are still distinct and mandatory processes, allowing antitrust regulators to challenge or impose conditions on a sale despite its prior court approval. The case of M&G’s Sale of Its Corpus Christi Facility provides a clear example of how parallel approval proceedings work in case of corporate insolvency in the USA.
In Singapore, the approval process for combinations within the purview of the Competition Act, Companies Act, and the Insolvency, Restructuring, and Dissolution Act. The sequence of approvals varies depending on the unique transaction structure and specific circumstances. While the most commonly followed approach involves obtaining insolvency approval first which is followed by an antitrust clearance, the flexible regulatory M&A framework of Singapore also allows for antitrust approval before insolvency clearance or simultaneous parallel approval processing. When determining the order of approvals, factors including deal certainty, transaction complexity, and time urgency are crucial since they emphasize a case-by-case approach rather than a strict, predetermined process.
Conclusion
The nature of the proviso either directory or mandatory is still debatable, while some legal precedents place reliance upon the doctrine of commercial wisdom but the Supreme Court has, in its recent ruling, upheld that CCI approval must precede CoC approval. At this juncture, a practical approach would be to analyze foreign jurisprudence and consider other frameworks that lead to a more flexible and directory interpretation. The authors believe that the mandatory nature of the Section 31(4) of the IBC will disharmonize the IBC’s timelines and intent in the long run and purposive interpretation of the law should be balanced with the literal interpretation of the law. Further, a reconsideration of this issue by a larger bench would bring much-needed clarity and balance to insolvency proceedings in the country.