Supreme Court rules CCI approval ‘mandatory’ but ‘directory’ for CoC in CIRP, says ‘failure to obtain CCI approval leads to specific consequence’, Read Judgment

In a recent judgment, the Supreme Court addressed issues surrounding the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), particularly in the context of statutory approvals required under the Competition Act.

The Court emphasized that "the approval by the CCI is ‘mandatory’, the approval by the CCI prior to approval of CoC is ‘directory’," and further highlighted the need for a "literal interpretation" of statutory provisions, noting that "statutory enactment must ordinarily be construed according to its plain meaning." This case sheds light on the importance of compliance with both the Competition Act and the IBC during the resolution process.

The statutory appeals under Section 62 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) challenged the NCLAT judgment of 18.09.2023 regarding the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) of Hindustan National Glass and Industries Ltd. (hereinafter referred to as “HNGIL”) and the approval of its combination with AGI Greenpac. HNGIL, a major player in the glass packaging industry, was admitted into CIRP, with both AGI Greenpac and Independent Sugar Corporation Ltd. (hereinafter referred to as “INSCO”) submitting Resolution Plans. AGI Greenpac's plan faced objections from INSCO due to the lack of prior approval from the Competition Commission of India (hereinafter referred to as “CCI”). Although CCI initially rejected AGI Greenpac’s application, it later approved the combination with conditions. The NCLT and NCLAT upheld AGI Greenpac's plan, with NCLAT ruling that the CCI approval was directory, not mandatory. INSCO challenged these decisions in the present appeals.

INSCO, represented by Dr. Abhishek Manu Singhvi, argued that AGI Greenpac’s Resolution Plan should be invalidated due to non-compliance with the mandatory CCI approval requirement before CoC approval. The petitioner contended that the RP violated Section 31(4) of the IBC by allowing AGI Greenpac's plan to proceed without necessary statutory approvals, bypassing key processes under the Competition Act. They also argued that the divestment of assets by AGI Greenpac was done without CoC approval, rendering the plan legally flawed.

Contentions of the Respondent:

The CoC, represented by Mr. Tushar Mehta, argued that the proviso to Section 31(4) is directory, not mandatory, and that adhering to conflicting timelines would disrupt the IBC's objective of timely resolution. AGI Greenpac, represented by Mr. Mukul Rohatgi, contended that the plan was not conditional and that the appellant lacked standing to challenge it. Both parties emphasized that the RP followed the law, and any issues should be addressed by the NCLT, not the Supreme Court.

The Court emphasized that the term "any person aggrieved" in the IBC should be broadly interpreted, stating that "there being no rigid locus requirements to institute an appeal." Regarding Section 31(4), the Court affirmed that CCI approval is "mandatory" but "directory" prior to CoC approval, quoting NCLAT’s finding that "the approval by the CCI is ‘mandatory’, the approval by the CCI prior to approval of CoC is ‘directory’."

It stressed a literal interpretation of the statute, stating, "when the enactment is grammatically capable of one meaning only, the opposing constructions are likely to contrast an emphasised version of the literal meaning with a strained construction."

The Court applied the "Principle of Plain Meaning," citing Bhavnagar University, reinforcing that "statutory enactment must ordinarily be construed according to its plain meaning." It further ruled that failure to obtain CCI approval before CoC approval "leads to a specific consequence" and that "Approval by CoC to such a deficient Resolution Plan can have no legal implications."

The Court clarified that "Regulation 40A of CIRP Regulations... cannot supersede a statutory provision" and emphasized that "such extreme and unlikely situations cannot and should not influence our interpretative exercise." It also noted that the Resolution Professional must ensure prior CCI approval, stating, "the Resolution Professional should not place any Resolution Plan before the CoC, without the scrutiny of and prior approval by CCI."

Addressing procedural deficiencies, the Court found that CCI's order was "procedurally deficient" and emphasized the need for "transparent and accurate data disclosures." Finally, the Court ruled that AGI Greenpac’s Resolution Plan "without the requisite CCI approval, cannot be sustained and is hereby set aside and quashed."

The Court allowed Civil Appeal No. 6071 of 2023, and the same decision applied to the connected Civil Appeals. All pending applications were also resolved in the same way.