Supreme Court of India order dated 29Jan 2025 in Corporate Insolvency Resolution Process matter of Hindustan National Glass Ltd

 

Supreme Court of India order dated 29Jan 2025 in Corporate Insolvency Resolution Process matter of Hindustan National Glass Ltd under Insolvency and Bankruptcy Code-2016:

Core issues:

1.     When law is plainly worded and unambiguous, Courts must not involve in its interpretation but to be guided by plain and natural meaning as stated in the Statute.

Proviso attached to Sec-31(4) inserted through the amendment dt 06June 2018 states as under:

“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”.

As its decided that the above proviso is well documented by Legislative and without any ambiguity that any resolution plan involving combination must obtain Competition Commission of India (CCI) approval prior to obtaining COC approval, no further interpretation is required to the above law.  

2.  Any plan proposes a combination in terms of Section 5 of Competition Act 2002 (CCI Act), must be approved by CCI prior to putting up the Plan before Committee of Creditors (CoC) for its approval.

 Combination is defined by under Sec-5 of CCI Act as under:

‘as the acquisition of one or more enterprises by one or more persons, or the merger or amalgamation of enterprises, where the transaction exceeds a specified threshold value in terms of assets or turnover, essentially meaning that any large-scale mergers or acquisitions must be notified to the CCI for review to ensure they don't adversely affect competition within the market’ 

 Sec-6 of CCI Act stipulates as under:

“No person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition (AAEC) within the relevant market in India and as such a combination shall be void”.

CCI Act further prescribes the procedure for applying and obtaining approval for any proposed combination from CCI by:

 1.     By giving notice to CCI within 30days of decision taken by Board of Directors of the entities concerning such combination by disclosing details through prescribed formats of such merger OR execution of any agreement or any other document to this effect.

 2.     No such combination shall come into effect until 210 days from the date of said notice given to CCI or the Commission has passed orders on such notice under section 31 of CCI Act, whichever is earlier,

 3.     IBC and Competition Law:

 The compliance of the above law is mandatory for any resolution plan being proposed under IBC for reasons like:

 Any resolution plan shall comply with following IBC provisions under Sec- 30 (2) (d) and (e) of IBC,:    

(d) terms for its implementation and supervision;

(e) plan does not contravene any of the provisions of the law for the time being in force

The above stipulations shall be read in conjunction of Sec-31 (4) of IBC and its proviso (described under 1 above) attached  thereto.

 To ensure that the plan is in compliance of Sec-30 (2) (d) and (e), it is pertinent to ensure the plan to be compliant with Sec-5 and 6 CCI Act. This issue dealt by Hon’ble SC in the Hindustan National Glass as under:

 a.      any plan which is not having CCI approval shall not be put up to COC for its approval and not to be approved by COC as such plan shall not be feasible and implementable and shall remain subject to CCI approval.  

In order to avoid any uncomfortable situation of COC approves a non-compliant, non-feasible, unenforceable / void plan if CCI subsequently does not approve such combination or direct to modify the contours of proposed combination as per extant competition laws, COC shall be empowered to be an informed decision maker while considering feasibility, viability and implementability of the plan while fully knowing the final outcome of proposed combination in terms of CCI regulations, otherwise it may render entire exercise of resolution plan process futile. Therefore, proviso under Sec 31(4) shall be considered as mandatory and not directory.  

b.     CCI approval can be sought by resolution applicant from CCI at initial stages itself when plan is being considered by its Board or before submitting the plan to RP in order to remain compliant with CCI regulations as well IBC timelines. It is noteworthy that recent Competition (Amendment) Act, 2023 which has reduced the timeline for approving combination proposal from 210 days to 150 days and requiring the CCI to give a prima facie opinion on the likelihood of a combination causing an Appreciable Adverse Effect on Competition (AAEC) from 30 days to 15 days, which is considered in consonance of IBC timelines.

4. Supreme Court Decision:

1.     Since, the Plan submitted by AGI  Greenpac found unsustainable as it failed to secure prior approval from the CCI, as mandated under the proviso to Section 31(4) of the IBC. Consequently, the approval granted by the CoC to the Resolution Plan dated 28.10.2022 without the requisite CCI approval, cannot be sustained and is hereby set aside and quashed.

2.     Any action taken on the said Resolution Plan ordered to be nullified

3.     the rights of all stakeholders restored as per status quo ante, prior to the approval of the Resolution Plan by the CoC on 28.10.2022.

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