SC upholds prior CCI approval mandate in HNGIL CIRP; quashes AGI Greenpac’s resolution plan
The Supreme Court of India has ruled that the Competition Commission of India (CCI) must approve any merger involving a resolution plan under the Insolvency and Bankruptcy Code (IBC) before the Committee of Creditors (CoC) votes on it. The verdict came in the case involving AGI Greenpac’s acquisition of Hindustan National Glass and Industries Ltd. (HNGIL), which was challenged by Bermuda-based Independent Sugar Corporation Ltd. (INSCO), another bidder.
A bench led by Justice Hrishikesh Roy ruled that the approval of the resolution plan must comply strictly with the proviso to Section 31(4) of the IBC, which requires prior CCI clearance before the CoC’s decision. The judgment overturned the National Company Law Appellate Tribunal’s (NCLAT) order that had treated prior CCI approval as “directory” rather than “mandatory.”
Background of the Case
HNGIL, the largest player in India’s glass packaging industry, was undergoing Corporate Insolvency Resolution Process (CIRP) after DBS Bank initiated proceedings under Section 7 of the IBC. AGI Greenpac, the second-largest industry player, submitted a resolution plan to acquire HNGIL, which was approved by the CoC with 98% votes. However, INSCO, which had also bid for the company, challenged the approval, arguing that AGI Greenpac did not have prior CCI clearance when its plan was put to vote.
Despite INSCO’s objections, the NCLT Kolkata upheld the approval, stating that AGI Greenpac had subsequently secured CCI clearance. The NCLAT later ruled that while CCI approval was necessary, obtaining it before CoC approval was only a procedural requirement rather than a binding condition.
SC’s Observations
The Supreme Court disagreed with the NCLAT’s reasoning and emphasized that the language of the IBC clearly mandates that resolution plans involving mergers or acquisitions must secure CCI clearance beforehand. The ruling stated:
- “Where a statute requires one to do a certain thing in a certain manner, it must be done in that manner or not at all.”
- “The legislature provided a different threshold for the CCI’s approval compared to other statutory clearances, considering the impact on market competition.”
The apex court rejected arguments that strict adherence to this rule would delay the insolvency resolution process, noting that CCI’s review timeline is generally within 30 days, barring exceptional cases.
Key Takeaways from the Judgment
1. Ensuring Regulatory Harmony
The court emphasizes that India’s ambition to be a global manufacturing hub must be accompanied by a robust and reliable legal environment. The Insolvency and Bankruptcy Code (IBC) and the Competition Act must operate in alignment to maintain investor confidence. This ruling highlights that competition law considerations cannot be bypassed in insolvency proceedings, particularly when market dominance is at stake.
2. Mandatory Nature of CCI Approval
The Supreme Court’s strict interpretation of Section 31(4) of the IBC makes it clear that in cases involving combinations (mergers/acquisitions), prior approval from the Competition Commission of India (CCI) is a prerequisite before the Committee of Creditors (CoC) votes on a resolution plan. By enforcing this requirement, the judgment prevents potential anti-competitive outcomes and ensures compliance with the legislative intent of both the IBC and the Competition Act.
3. Protection of Procedural Safeguards
The ruling strongly reinforces the importance of procedural fairness in insolvency resolution. It rejects the notion that procedural steps can be overlooked for expediency, arguing that they are substantive protections that ensure transparency and equity in decision-making. The court found procedural lapses in handling objections to the proposed combination and the divestiture modifications under the Competition Act, thereby vitiating the integrity of the process.
4. Repercussions for AGI Greenpac and the CoC
Since AGI Greenpac failed to secure prior CCI approval before CoC voting, the Supreme Court invalidated its resolution plan and annulled any actions taken under it. The court has directed the CoC to reconsider resolution plans that had the necessary CCI approval as of October 28, 2022, the date when the CoC voted on the submitted plans. This ruling restores the status quo ante and offers other bidders, such as Independent Sugar Corporation Ltd. (INSCO), a fresh opportunity.
Implications for Future Insolvency Cases
- Stricter Regulatory Compliance: The judgment reinforces the mandatory requirement of CCI clearance before CoC approval in M&A-driven resolution plans. Future resolution applicants will need to ensure compliance upfront to avoid rejection.
- Judicial Restraint in Legislative Functions: The court reaffirmed that any dilution of IBC or Competition Act provisions should come through legislative amendments, not judicial interpretations.
- Strengthening Investor Confidence: By upholding the rule of law and procedural safeguards, the judgment enhances the credibility of India’s insolvency framework, making it more predictable and investor-friendly.
- Potential Delay in Resolution Processes: While the ruling ensures procedural fairness, it could also lead to longer resolution timelines, as bidders will now need to secure CCI clearance before engaging with the CoC.
Also See: Case study: Swiss Ribbons Pvt. Ltd. & Anr vs Union of India & Ors
