On January 29, 2025, a three-judge bench of the Supreme Court (“Court”), delivered a landmark ruling in Independent Sugar Corporation Limited v. Girish Sriram Juneja, [Civil Appeal No. 6071 of 2023], where the Court was called upon to demystify the law surrounding the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (“Code”).

The Supreme Court in this case, dealt with the question of the mandatory/ directory nature of the approval of resolution plan proposing combination from the Competition Commission of India (“Commission/ CCI”) under Section 31(4) and held that the resolution plan proposing combination shall be placed before the CoC only after the approval has been obtained from the Commission.

1. BRIEF FACTS:

The present set of appeals before the Supreme Court arose from the orders of the National Company Law Appellate Tribunal (“NCLAT”) upholding the approval of the resolution plan proposed by the AGI Greenpac Limited (“Greenpac/ Successful Resolution Applicant”) and the approval of the combination, advanced by proposed resolution plan, between the Hindustan National Glass and Industries Limited (“Corporate Debtor”) and Greenpac.

The corporate insolvency resolution process (“CIRP”) was initiated against the Corporate Debtor on admission Section 7 petition, followed by the formation of CoC. As resolution applicants, Greenpac and Independent Sugar Corporation Limited (“Appellant/ INSCO”) submitted resolution plans for consideration by the Committee of Creditors (‘CoC’). Although Greenpac’s resolution plan proposing a combination lacked CCI’s approval as mandated under Section 31(4), the same was approved by the CoC. Subsequently, approval from the CCI was obtained.

The Appellant challenged this approval before the National Company Law Appellate Tribunal, Kolkata (“NCLT Kolkata”), and later the NCLAT. However, both the forums upheld the CoC's decision, and opined that obtaining CCI’s nod, while mandatory, need not precede CoC approval.

Aggrieved by the NCLAT’s decision, the Appellant appealed to the Supreme Court.

2. ISSUE:

The primary issue before the Supreme Court was whether the approval of a resolution plan, proposing combination, by the Commission shall precede the approval of the plan by the CoC in terms of proviso to sub-clause (4) of Section 31 of the Code.

3. CONTENTIONS RAISED BY THE PARTIES:

a. Contentions raised by the Appellant:

The contentions raised by the Appellant in the instant case revolved around (i) flawed resolution process (ii) violation of Section 31(4) of the Code and its proviso by the resolution professional (“RP”) (iii) timelines under the Code and Competition Act, 2003; and (iv) the requirement of obtaining approval from CCI prior to placing the resolution plan before the CoC. The Appellant submitted that the entire process undertaken by the RP was contrary to the statutory requirements under Section 31(4) of the Code. It was contended that while Section 31(4) of the Code clearly stipulates a period of 1 (one) year for obtaining statutory approvals, the proviso creates specific exemption for compliance under Section 5 of the Competition Act from such approvals, thereby signifying the intent of the legislature to secure stricter compliance. The Appellant further argued that the proviso shall be interpreted as mandatory rather than directory in nature, emphasizing the absence of any inconsistency between the timelines prescribed under the Code and Competition Act.

b. Contentions raised by the successful resolution applicant, CoC and RP:

Placing reliance on the long line of precedence of the judgments by NCLAT, Successful Resolution Applicant contended, and the RP concurred, that since the Supreme Court had not altered the view regarding proviso to Section 31(4), its interpretation being directory in nature remains firmly established. The Applicant submitted, seconded by the CoC, that the proviso if interpreted to be mandatory, would render the timelines under the Code nugatory as the approval by CCI itself would require 210 (two hundred and ten) days. It was further argued that the Section suffered from drafting error, claiming that the term ‘CoC’ was meant to be referred to as ‘Adjudicating Authority’. With regards to the locus standi, it was contended that the Appellant being operational creditor, lacked vested rights in the CIRP and thus had no locus standi to challenge the resolution plan.

4. DECISION OF THE COURT:

Mapping out the legal position with regard to Section 31(4) and the legislative intent to install such exception, the Supreme Court, by majority of 2:1, asserted the mandatory nature of the proviso to Section 31(4) of the Code and held that insertion of the proviso through an amendment and the use of the word ‘prior’ therein undeniably echoes the legislature’s intent to ensure that plans proposing combinations obtain approval of the regulatory authority before the same is placed for final consideration of the CoC.

A distinction was drawn by the Court between the timeline required for approvals from the statutory bodies and that from the regulatory authority CCI. Highlighting the average of 21 (twenty-one) days for approval and after reviewing the data on combinations approved and the average time taken to assess them, the Court finally held that the likelihood of cases extending beyond the prescribed timeline under the code remains rare. The Court further emphasized the paramount importance accorded to the ‘commercial wisdom’ of CoC and the powers of CCI for direct modifications to the resolution plan proposing combination. It was thus held that the legislature’s clear intent was to mandate ‘prior’ approval of the CCI.

Further delving into the interpretation of the phrase ‘any person aggrieved’ under Section 62 of the Code and similar terminology under Section 53T of the Competition Act, the Supreme Court observed that the phrase shall attain wider interpretation and does not impose a stringent locus requirement. Thus, any person aggrieved bringing to light a violation of the Competition Act may approach the Court in appeal jurisdiction.

5. AUTHOR`S VIEW:

The ruling by the Supreme Court in the instant case has brought closure to the anomalies created by the various judgments of the NCLAT and has bridged the gap created due to contrary interpretations along with advancing the cause of fair competition within the market at the same time. However, on the other hand, the judgement might give way to the proceedings to be entertained at a stage which may lead to further delays and add challenges to the timelines and complexities to the insolvency process.

In conclusion, the impact of this ruling will ultimately hinge on the efficiency of the CCI’s proceedings, the interplay between the statutes and the degree to which both legislations can complement each other to achieve the objectives of the respective legislations in a timely and efficient manner. 

Please find a copy of the judgement, here.

This update has been contributed by R. Sudhinder (Senior Partner) and Anushka Sharma (Associate).

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