Timeline for obtaining approval of Resolution Plan by the Competition Commission of India

INTRODUCTION

The case of Soneko Marketing Private Limited v. Girish Sriram Juneja & Ors.ⁱ, pertains to three appeals filed before the National Company Law Appellate Tribunal, Delhi Bench (“NCLAT”) against the impugned order of the National Company Law Tribunal, Kolkata Bench (“NCLT”) in I.A. (IB) No.1497/KB/2022; I.A. (IB) No.628/KB/2023; and I.A. (IB) No.701/KB/2023 in relation to the approval of the resolution plan by the Competition Commission of India (“CCI”) prior to the approval by the Committee of Creditors (“CoC”).

The facts leading to the case are as follows:

• An application was filed by DBS Bank under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC”) against Hindustan National Glass & Industries Limited (“Corporate Debtor”) which was admitted by NCLT vide its order dated October 21, 2021.


• The request for resolution plan contained provision that there was mandatory requirement of CCI approval, prior to approval of a resolution plan by the CoC.


• Subsequently, upon one of the resolution applicants seeking clarification on the requirement of approval of CCI and the timelines for the same due to contradictory clauses in the request for resolution plan, the resolution professional clarified that resolution applicant can procure the CCI approval post the approval of the resolution plan by the CoC but prior to filing of the resolution plan before the adjudicating authority.


• The resolution plan submitted by AGI Greenpac Ltd. (“AGI”) was selected as the successful resolution applicant by the CoC on October 28, 2022. On November 3, 2022, AGI submitted application for CCI’s approval, which was approved on March 15, 2023.


• The resolution professional submitted the CoC approved resolution plan before NCLT for its approval, which was however, challenged by another resolution applicant, Independent Sugar Corporation Ltd.


• On April 28, 2023, NCLT rejected the application filed by Independent Sugar Corporation Ltd. Aggrieved by this order, Independent Sugar Corporation Ltd. (“Appellant No. 1”) filed an appeal before NCLAT.

(Appellant No. 1, and the other appellants under the appeal filed before the NCLAT shall collectively, hereinafter be referred to as “Appellants”)

Whether the approval of a resolution plan by CCI prior to the approval of CoC is ‘mandatory’ as per the proviso to Section 31(4) of IBC.

• The learned counsel for the Appellants contended that the resolution plan submitted by AGI ought to have been rejected, since AGI has failed to obtain mandatory approval of the CCI as required under proviso to Section 31(4) of IBC before the approval of the resolution plan by the CoC. It was further submitted that the said requirement of getting the approval of CCI is ‘mandatory’ in nature, and not ‘discretionary’.


• The counsel relied upon the judgment of Bank of Maharashtra v. Videocon Industries Ltd.ⁱⁱ, wherein the approval of the CCI was not obtained before the approval of the resolution plan by the CoC, and the same was held to be not valid.


• Further, it was submitted that the resolution plan was conditional, and the same could not have been approved by the NCLT. The approval of the CCI was obtained by AGI based on a voluntary undertaking made by them and shall be deemed to be a ‘modification’ under the provisions of the Competition Act.


• It was further contended that upon a clear reading of Section 31(4) of IBC and its proviso, it is evident that the CCI approval ‘shall’ be obtained prior to the approval by the CoC. The usage of the word ‘shall’ clearly indicates the mandatory nature of the provision. Thus, the legislative provision being clear on the interpretation, requires no further aid of interpretation in the present case.


• The counsel further submitted that interpretation of the proviso to Section 31(4) of IBC as ‘directory’ in nature would not only be contrary to the plain intent of the language but would also be contrary to the law laid down by the Apex Court, since the proviso has been drafted to carve out an exception to the main provision.

• The learned counsel for Respondents, while referring to the judgments in Arcelor Mittal India Pvt. Ltd. v. Guhathakurta, Resolution Professional of EPC Constructionⁱⁱⁱ and Vishal Vijay Kalantri v. Shailen Shah^iv, submitted that although Section 31(4) of IBC uses the term ‘shall’, it shall be read as ‘may’, since it does not lay down any consequence or penalty for the non-compliance of the timeline provided therein, making the interpretation of the provision ‘directory’ and not ‘mandatory’ in nature.


• It was submitted that the CCI approval shall be mandatory, however, there is no timeline for the approval and it may be taken prior to the approval by the NCLT. To state the legislative intent behind Section 31(4) and its proviso, the counsel referred to clause (d) of the financial memorandum of the IBC (Second Amendment) Bill, 2018 that seeks to amend Section 31(4) of IBC to bring clarity and indicating that the intent is to obtain the approval of CCI prior to approval of resolution plan prior to the approval by NCLT.


• The counsel for AGI, while making similar submissions as provided above, further submitted that the Appellants do not have the locus to file the instant appeals. Further, it was submitted that as per Regulation 40A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), CoC has only 30 (thirty) days to approve or reject a resolution plan, whereas CCI has 210 (two hundred and ten) days to approve or reject a combination and if it is held that approval of CCI is to be mandatorily obtained prior to the approval of CoC, the timeline under IBC shall render the whole process redundant. Thus, obtaining the approval from CCI is mandatory and not the timeline for obtaining the same.

Upon analysing the submissions of the parties and the provisions and case laws cited therein, the NCLAT observed that the proviso to Section 31(4) of IBC is an independent provision since it acts as an exception to the main provision. It was opined that main provision requires the resolution applicant to obtain the approval of the CCI under the Competition Act prior to the approval of such resolution plan by the CoC in instances where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act. The proviso, being an exception to this main provision, shall not be ‘mandatory’, but shall rather be ‘directory’ in nature.

The NCLAT further accepted the submissions of the Respondents upon analysing the timeline available with the CoC under the CIRP Regulations vis-à-vis, the timeline available with the CCI under the Competition Act.

Further, NCLAT observed that the Hon’ble Supreme Court has dismissed the appeal filed against the judgments in Makalu Trading Ltd.^v and Vishal Vijay Kalantri^vi on the ground that the appeal involves no substantial question of law requiring for the court’s intervention. Thus, this clearly indicates a stability in law for the issue at hand.

Furthermore, the NCLAT, upon analysing several judgments^vii on the principle of statutory interpretations, concluded that the interpretation of a provision shall depend upon the purport and object of the statute. In Kailash v. Nankhu and Ors.^viii, the Apex Court interpreted the word ‘shall’ mentioned in Order 8 Rule 1 of the Code of Civil Procedure, 1908 to be ‘directory’ in nature. Also, in Montreal Street Railway Company v. Normandin^ix Montreal Street Railway Company v. Normandinix, the court held that “statutory provision, which cast a duty on the public authority, on which public in general has no control has to be referred as directory”.

Looking into the provisions and intent of the statute, NCLAT held that “Section 31, sub-section (4) proviso has to be read to mean that though the approval by the CCI is ‘mandatory’, the approval by the CCI prior to approval of CoC is ‘directory’”.

In respect of the locus of the Appellants, it was held that Appellant No. 1 who was involved in the resolution process in respect of which the impugned order was passed, has the locus to challenge and appeal against the order of the NCLT. Thus, since one of the Appellants has the locus to challenge the order, the NCLAT opined that it would not be necessary to enter into the locus of the other Appellants.

In the instant case, NCLAT had brought about some much needed clarity on the issue pertaining to the timeline to be adopted under Section 31(4) of IBC, in cases where the resolution plan involves a combination, vis-à-vis, the timeline requirement under the Competition Act. It had elaborately discussed that the legal position surrounding such a situation, and thereby concluded that obtaining the approval of the CCI shall be mandatory, however, upon interpretation of the provisions and precedents, it may be understood that there is no mandatory timeline for obtaining such approval. Thus, the approval of the CCI may be obtained either before or after the approval of CoC but shall mandatorily be prior to the approval of the adjudicating authority.

ⁱCompany Appeal (AT) (Insolvency) No. 807 of 2023 & I.A. No. 2721 of 2023
ⁱⁱCompany Appeal (AT) (Ins.) No. 503 of 2021.
ⁱⁱⁱ(2019) SCC OnLine NCLAT 920; Company Appeal (AT) (Ins.) No. 524 of 2019.
^iv(2020) SCC OnLine NCLAT 1013.
^v Id.
^viSupra note at (iv).
^viiSharif-Ud-Din v. Abdul Gani Lone, (1980) 1 SCC 403; M. Karunanidhi v. Dr. H.V. Hande and Ors. (1983) 2 SCC 473.
^viii(2005) 4 SCC 480.
^ixAIR 1917 PC 142.