Mandatory Prior CCI Approval in Resolution Plans Containing Combinations: A New Legal Mandate

I. Introduction

The Supreme Court of India, in the case of Independent Sugar Corporation Limited v. Girish Sriram Juneja & Ors. (alongside a batch of other connected matters), has pronounced a landmark judgment clarifying the interpretation of Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) vis-à-vis the requirement for Competition Commission of India (“CCI”) approval for resolution plans containing combination proposals. The case attracted importance not merely because of the interplay between the IBC and the Competition Act, 2002 (“Competition Act”) but also due to its far-reaching implications for corporate restructuring in India.

The Judgment was delivered in the context of competing resolution plans submitted by major players in the glass container industry. One of these players had already secured a “green channel” approval from the CCI, while the other had to seek comprehensive combination clearance. Several intervening appeals were also filed, challenging various facets of the resolution process, including locus standi issues, competition approvals, and timeliness under the IBC.

Ultimately, the Supreme Court reached a sharply divided conclusion. While the majority opinion (by Hrishikesh Roy, J., concurred in by Sudhanshu Dhulia, J.) held that:

The proviso to Section 31(4) of the IBC is mandatory, and prior CCI approval must precede the approval of a resolution plan by the Committee of Creditors (“CoC”).
Because the successful resolution applicant had not obtained CCI approval before CoC approval of its plan, that plan was unsustainable.
All consequent actions undertaken pursuant to such a non-compliant plan had to be nullified.

On the other hand, Bhatti, J. authored a separate opinion disagreeing with the mandatory reading of proviso to Section 31(4). According to him, the proviso operates in a directory sense, permitting resolution applicants to obtain CCI approval before final approval by the Adjudicating Authority (National Company Law Tribunal). This divergence among the learned Judges ignited a legal debate on the mandatory or directory nature of that statutory provision, underscoring that rapid resolution cannot come at the expense of ignoring competition law requirements, or vice versa.

II. Summary of the Judgment

This judgment arises out of multiple appeals involving the Insolvency and Bankruptcy Code, 2016, the Competition Act, 2002, and the interaction of these laws in large-scale corporate insolvency. The background facts revolve around Hindustan National Glass and Industries Limited (“HNGIL”), a major glass container manufacturer, which entered Corporate Insolvency Resolution Process on a petition by a financial creditor. Competing resolution plans were submitted, offering varied outcomes for the stressed “Target Company.”

The principal controversy hinged on Section 31(4) of the IBC, which states:

“Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002, 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.”

One resolution applicant, AGI Greenpac Ltd., obtained CCI approval well after its plan had already been approved by the CoC. Another applicant, Independent Sugar Corporation Limited (“INSCO”), insisted that the law clearly mandates “prior” CCI approval and that non-compliance is fatal to the plan. The National Company Law Appellate Tribunal (“NCLAT”) upheld a prior line of decisions suggesting a directory reading of the proviso. The Supreme Court, in a majority opinion by Hrishikesh Roy, J., reversed this approach, giving the word “prior” a strict literal interpretation, and nullified the resolution plan that was not CCI-approved before CoC consideration.

In addition, important observations were made on:

Combining IBC’s timelines with the Competition Act’s processes: The Court reasoned that meeting the statutory timelines should not override explicit legal provisions that clearly mandate “prior” approval.
Procedural lapses in seeking combination approval: The Court underscored that an entity whose acquisition results in an appreciable adverse effect on competition cannot simply rectify this by applying for combination approval belatedly.
Effect of contradictory external aids: The majority decided that the “Notes on Clauses” and “Memorandum to the Amendment” do not override the plain text of the proviso.
Divergent opinion of Bhatti, J.: This minority view concluded that the object of the IBC to maximize value for all stakeholders might be defeated if prior approval is mandatory. He concluded that the term “prior to CoC approval” is directory, given the overall structure of Sections 30 and 31 of the IBC.

III. Analysis

A. Precedents Cited

The Judgment refers to earlier NCLAT decisions such as Arcelor Mittal India Pvt. Ltd. v. Abhijit Guhathakurta, Makalu Trading Ltd. v. Rajiv Chakraborty, and Vishal Vijay Kalantri v. Shailen Shah. In these precedents:

The NCLAT consistently held that the “prior CCI approval” clause in Section 31(4) of the IBC was “directory” rather than “mandatory.”
The Supreme Court had earlier dismissed special leave petitions challenging these NCLAT holdings, though largely without an in-depth articulation on the precise question at stake.
This made the majority interpretative stance that “mere dismissal of an SLP does not necessarily constitute Supreme Court’s precedent-setting endorsement” especially pertinent.

Further, the Judgment draws upon the Supreme Court’s settled stance in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta regarding the primacy of CoC’s commercial wisdom. The Court clarifies, however, that mandatory statutory provisions in other laws cannot be disregarded under the pretense of “commercial wisdom.”

B. Legal Reasoning

Plain Meaning Rule and Legislative Intent:
The majority opinion by Roy, J. deemed the proviso to Section 31(4) as unambiguously using the phrase “prior to the approval of such resolution plan by the committee of creditors.” Where statutory language is clear, the Court held, it cannot be rewritten to accommodate convenience or perceived legislative error. The Court distinguished between mandatory and directory requirements, concluding that the use of “prior” in a proviso specifically addressing combination approvals must be read strictly.
Reconciliation with IBC Timelines:
Although the NCLAT worried that insisting on prior CCI approval might conflict with the IBC’s strict timeframes (330 days), the Court saw no inherent conflict. The Court pointed out that competition approval, on average, takes much less than 210 days. Additionally, if needed, courts could allow short extensions. Therefore, the time-bound nature of CIRP does not override the plain text requiring ex ante combination clearance.
Procedural Lapses in Competition Approval:
The Court further criticized how the proposed resolution applicant (AGI) and even the Competition Commission of India handled the combination. Among the lapses noted was the failure to issue show-cause notices to the “target,” i.e., HNGIL under Section 29(1) of the Competition Act. This deficiency, while not invalidating the entire arrangement on that score alone, underscored the procedural weaknesses. Ultimately, these weaknesses were overshadowed by the definitive requirement that prior CCI approval is legally mandatory.
Minority Opinion:
Bhatti, J. adopted a purposive approach, finding that the legislature’s greater aim under the IBC “to preserve the corporate debtor as a going concern and maximize recovery to financial and operational creditors” could be unduly hamstrung by forcing prior competition approvals at an earlier stage. He read the word “shall” in Section 31(4) as “may,” concluding the requirement was directory in nature, such that approval from CCI is indeed mandatory before the Adjudicating Authority’s final order, but not necessarily prior to CoC’s approval.

C. Impact

The majority ruling significantly alters the compliance landscape for prospective resolution applicants:

For resolution applicants: Any plan contemplating a “combination” under Section 5 of the Competition Act must secure CCI approval before the CoC can even consider or vote on it. This might limit the pool of credible resolution applicants (especially large industry players needing more extensive scrutiny). However, it also eliminates post-hoc changes that could unsettle CoC calculations.
For the CoC and RPs: They must ensure that resolution plans containing combination proposals are CCI-approved in time, or risk voting on a plan that is eventually declared invalid. Resolution professionals may also be mandated to adopt stricter timelines, inviting all resolution applicants to file their competition notifications far earlier.
For the Competition Commission: Processing of combination notices related to CIRP might accelerate, as affected resolution applicants have a strong incentive to file early. The risk of losing out to a competitor with a simpler “green channel” approval could shape the competition among resolution plans.
Uncertainty for older precedents: The NCLAT’s earlier stance, adopting a directory reading, now stands overturned by this decision’s majority view. A lack of uniformity could arise until the legislature or a larger bench clarifies the precise reading, especially given the presence of a dissenting opinion in this case.

IV. Complex Concepts Simplified

“Combination” under the Competition Act: In competition law, a “combination” typically includes acquisitions, mergers, or amalgamations with certain turnover or asset thresholds. If it is likely to cause an appreciable adverse effect on competition (AAEC), it requires CCI approval.
“Prior Approval” v. “Directory Requirement”: A “mandatory” requirement means parties cannot circumvent it—non-compliance invalidates the subsequent step. If it is “directory,” final approval can still stand despite delayed adherence, unless prejudice or harm is shown. The majority concluded that the language of Section 31(4) IBC is not amenable to a directory reading.
“Green Channel Approval”: This is a simplified, deemed approval mechanism for transactions that evidently do not raise competition concerns (e.g., where the parties have negligible overlaps). An applicant receiving a green channel approval moves quickly through combination clearance. In contrast, Form II is more detailed and scrutinized.
“Commercial Wisdom” of the CoC: Under the IBC, evaluating the economic viability of a resolution plan is entrusted to the CoC. However, courts have consistently held that the CoC’s commercial wisdom must abide by mandatory legal stipulations. It cannot override competition law requirements or other statutory obligations.

V. Conclusion

In this closely contested ruling, the Supreme Court has clarified that prior approval from the CCI is mandatory “before” the CoC decides on a resolution plan containing a combination proposal. The majority’s emphasis on the literal meaning of “prior to the approval ... by the committee of creditors” indicates that legislative intent must be given effect as written. The dissent’s more flexible reading was outweighed by the majority’s conviction that relaxed timelines would defeat the plain words of Section 31(4).

Henceforth, resolution applicants eyeing an insolvency takeover in sectors prone to combination scrutiny must strategize and obtain CCI clearance early in the resolution process. While the dissent warns this approach may dissuade serious bidders and impede value-maximization, the majority believes the statutory language is determinative, and that the Competition Act and IBC timelines can be harmonized. This tightens the interplay between insolvency and competition law in India, marking a major shift in how large distressed acquisitions will unfold.

Overall, the Judgment lays down a significant compliance burden on resolution applicants, ensuring that no resolution plan can bypass the CCI’s vetting when competition law is implicated. It remains to be seen if the legislature will intervene to calibrate timeframes or if future larger Bench decisions will revisit this contested interpretation.