Whether resolution plan can be put to vote without prior permission of the Competition Commission?

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The Bank filed Section 7 IBC against Company-A which is the leader in glass industry. The NCLT admitted the petition and RP invited plans for resolution. The Company-B (2nd largest) and Company-C submitted their plans. The plan of Company-B got approved however on account of proposed combination, it was mandated that approval of CCI must be obtained before filing of application before NCLT. The CCI approval was taken only after plan got approved. Both CCI approval and plan approval was challenged by Company-C before NCLAT.  However, the NCLAT upheld the plan. The Hon’ble Supreme Court in 2:1 held as under[1]:

Shubham Budhiraja[2]

 

Literal interpretation of proviso

 

1.    The introduction of a proviso, specifically addressing those Resolution Plans with provisions for combination, and the use of the term ‘prior’ therein, makes it starkly clear that the intent of the legislature was to create an exception.

 

2.    This ensures that in cases containing combination proposals, the approval of the CCI i.e., the regulatory body designated to ensure fair competition in markets and preventing anti-competitive practices, should first be obtained before the same is approved by the CoC. No other provision of the IBC has been pointed out that might suggest otherwise or cause disharmony between the scheme and intent of the IBC or the said proviso to Section 31(4) of the IBC.

 

3.    The proviso herein creates an exception for those Resolution Plans that contain provisions for combination. The language used therein appears to be clear, precise & straightforward. As such, to understand the legislative intent, the Rule of Plain Reading or literal interpretation should find favour rather than the rule of purposive interpretation as is suggested by the other side.

 

4.    The legislative intent behind inserting the proviso to Section 31(4) of the IBC would suggest that prior approval of the CCI was specifically mandated and it should not be seen as a flexible provision to be ignored in certain exigencies. In fact, a contrary interpretation of the said proviso, i.e., that the prior approval is directory, would distort the objective for which the legislature inserted the proviso, rendering the proviso totally inconsequential.

 

5.    Where a statute requires one to do a certain thing in a certain manner, it must be done in that particular manner or not done at all. The language of the proviso to Section 31(4) of the IBC appears to be clear with no ambiguity and in those situations, all words finding place in the provision must be given their due meaning.

 

6.    To interpret the specific word to mean that such an approval can be obtained even ‘after’ and not necessarily ‘prior’ to the approval by the CoC would amount to reconstructing a statutory provision, which is not permissible.

 

7.    Bearing in mind the fact that the CCI is empowered to approve, reject and/or modify a proposed combination, a Resolution Plan approved by the CCI should only be placed before CoC. The ‘commercial wisdom’ accorded to the CoC being paramount, the legislature in our understanding, intentionally provided for a prior approval of the CCI with respect to Resolution Plans, containing combination proposals.

 

8.    The CCI has also been empowered under Section 31(3) of the Competition Act as well as Regulation 25(1)(A) of the Combination Regulations to direct modifications to the Resolution Plan or a combination proposal. Therefore, the approval from CCI must be obtained before the same is approved by the CoC. Otherwise, an illogical situation may arise since any modifications so directed by the CCI, would be kept out of the scrutiny of the CoC and the CoC would be forced to exercise its commercial wisdom without complete information.

 

9.    When a Resolution Plan containing a provision for a combination that leads to an Appreciable Adverse Effect on Competition (AAEC) is placed before the CoC for approval before securing prior approval from the CCI, the Plan is incapable of being enforced or implemented. Specific consequences in law are provided under the IBC and the Competition Act for the same. As is clear, such a major omission cannot be cured at a later stage. Therefore, approval by CoC to such a deficient Resolution Plan can have no legal implications.

 

 

On disharmony of timelines between IBC & Competition Act

 

10. On the aspect of a possible disharmony between the stipulated timeline to be followed under the IBC and the Competition Act, the NCLAT in the impugned order has held the proviso to Section 31(4) of the IBC, to be directory in nature since mandatory prior approval of the CoC, would lead to disruption in the CIRP timeline, as stipulated under the IBC.

 

11. However, it must be noted that the model timelines prescribed under any regulations, i.e., in the current case, Regulation 40A of CIRP Regulations, cannot by any stretch, supersede a statutory provision i.e., the proviso to Section 31(4) of the IBC. In fact, the subordinate legislation must be interpreted in a manner that conforms to the statute, and not the other way around, as was unacceptably rationalised by the NCLAT.

 

12. The attempt must therefore be to conclude the entire process of insolvency, ‘ordinarily’ within 330 days but in rare circumstances, the same can be elongated, particularly when the delay cannot be ascribed to the applicants or parties involved but the tardy process of the Tribunal or the Adjudicating Authority.

 

13. However, if notice for the proposed combination under Section 6(2) of the Competition Act has been given within the stipulated time and no dilatory tactics have been employed, the parties should not be held responsible for any delay on the part of the CCI, in examining the combination.

 

RP to ensure plan does not violate any law

 

14. Even if the proviso to Section 31(4) of the IBC is kept aside, by virtue of the provisions incorporated under Sections 30(2)(e), 30(3) and 31(1) of the IBC, the Resolution Professional has the legal obligation to examine each Resolution Plan and determine whether it contravenes any provisions of law for the time being in force.

 

15. Any Resolution Plan containing provisions for a combination that results in an Appreciable Adverse Effect on Competition would therefore be not compliant with the provisions of the Competition Act. In that light, the Competition Act mandates that a notice of combination be given to the CCI and approval obtained at the earliest.

 

16. Only those Resolution Plans which meet the requisite lawful criteria, can be placed before the CoC, by the Resolution Professional. Further, the Competition Act bestows upon the CCI the power to reject or modify a combination proposal.

 

17. The Resolution Professional, not being an adjudicating authority, could not have mandated that the requirement of obtaining prior approval of the CCI before placing the Resolution Plan before the NCLT, can be relaxed. Granting such relaxation on a whim, oddly enough through an e-mail in the present case, was in our opinion beyond, the scope of the Resolution Professional’s powers.

 

 


[1] Independent Sugar Corporation v. Girish Sriram Juneja, Civil Appeal No. 6071 of 2023

[2] Advocate, Delhi High Court [LLB, ACS, BCOM(H)], Budhirajalawchambers@g,ail.com , +91-9654055315

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