Decoding Section 31(4) IBC: The Independent Sugar Corporation Case and CCI Approval
On January 29, 2025, the Supreme Court issued a decision in the matter of Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors. on the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Competition Act, 2002, specifically regarding the approval of resolution plans involving combinations that could have an Appreciable Adverse Effect on Competition (AAEC). This case focuses on crucial legal issues such as statutory compliance, bankruptcy resolution timetables, and the powers and responsibilities of the Committee of Creditors (CoC) and Resolution Professionals.
The Factual Backdrop
Hindustan National Glass and Industries Ltd. (HNGIL), a big glass company, was struggling financially, leading to an insolvency process. AGI Greenpac Ltd. wanted to take over HNGIL, which could have made them a giant in the glass market. But Independent Sugar Corporation Ltd. (INSCO), another company that wanted to rescue HNGIL, stepped in and said the deal was illegal. INSCO argued that AGI Greenpac didn't have the required approval from the Competition Commission of India (CCI) when the deal was approved by the lenders (the Committee of Creditors, or CoC), violating a key role in the Insolvency and Bankruptcy Code (IBC)."
Key Legal Issues and Analysis
1. Section 31(4) IBC and the Proviso:
Section 31(4) of the IBC mandates that a resolution plan must comply with all applicable laws. However, the proviso to this section creates an exception for combinations under Section 5 of the Competition Act. This proviso stipulates that CCI approval is required before the CoC approves the resolution plan. The core legal question was whether this requirement is mandatory or directory.
The Supreme Court had to decide the legislative intent behind this proviso. INSCO argued that the proviso reflects a deliberate intention to ensure strict scrutiny of combinations that could harm competition. The RP's relaxation of this requirement for AGI Greenpac was, according to INSCO, a violation of the law.
2. Timeline Conflicts Between IBC and Competition Act:
A key argument revolved around the perceived inconsistency between the IBC's time-bound resolution process and the potentially lengthy CCI approval process. The National Company Law Appellate Tribunal (NCLAT) had taken the view that insisting on prior CCI approval could stall the CIRP, defeating the IBC's objective of timely resolution.
However, INSCO countered that the CCI is required to form a prima facie opinion on AAEC within 30 days, suggesting that the timelines are not necessarily incompatible. Moreover, the IBC allows for extensions of the 330-day CIRP deadline in deserving cases.
3. Interpretation of Undertakings and Plain Meaning Rule:
AGI Greenpac had given an undertaking to secure CCI approval before CoC approval and submission of the plan to the NCLT. The Supreme Court had to grapple with the legal effect of this undertaking and whether its breach invalidated the resolution plan.
The Court likely considered the principle of "plain meaning" in statutory interpretation. This principle dictates that if the language of a statute is clear and unambiguous, it should be given its literal meaning. Applying this principle to Section 31(4) and its proviso, the Court would have had to determine whether the language clearly mandates prior CCI approval.
4. Procedural Lapses under the Competition Act:
INSCO alleged that the CCI had bypassed mandatory procedures under Section 29(1) of the Competition Act, such as issuing a show cause notice (SCN) to HNGIL and inviting public objections before approving AGI Greenpac's combination proposal. These allegations raised questions about the fairness and legality of the CCI's approval process.
5. Modification of Resolution Plan and CoC's Powers:
AGI Greenpac submitted a divestment plan to the CCI after the CoC had already approved its resolution plan. INSCO argued that this modification was done without the CoC's permission, violating Section 28(1) of the IBC, which requires CoC approval for any sale or divestment of the corporate debtor's assets.
This issue raised questions about the extent to which a resolution applicant can modify its plan after CoC approval and the CoC's oversight responsibilities in such situations.
6. Conditional Approval and Feasibility:
INSCO contended that AGI Greenpac's resolution plan was conditional because the CCI's approval was subject to the divestment of one of HNGIL's plants. This conditionality, according to INSCO, created an unfeasible sequence of events, as the divestment depended on the plan's implementation, which in turn required prior CCI approval.
Potential Implications
The Supreme Court's decision in this case would have far-reaching consequences for the interpretation and application of the IBC and the Competition Act. If the Court had found in favor of INSCO, it would have sent a strong message that strict compliance with Section 31(4) and its proviso is mandatory, potentially slowing down the resolution process in cases involving combinations. On the other hand, upholding the NCLAT's decision might have been seen as prioritizing the IBC's timeline over rigorous competition scrutiny.
Conclusion
Ultimately, the case highlights the need for greater coordination and clarity between the IBC and the Competition Act to ensure that both insolvency resolution and competition concerns are adequately addressed. It also highlights the importance of CoC's and RP's diligence in ensuring compliance with all applicable laws and procedures. The judgment serves as a crucial guide for stakeholders navigating the complex legal framework of corporate insolvency and competition law in India.
Author: Anupriya Dixit, Associate