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2025 (2) TMI 19 - SC - IBCInterpretation and application of the proviso to Section 31(4) of the Insolvency and Bankruptcy Code (IBC) - whether the requirement for obtaining the Competition Commission of India (CCI) approval prior to the approval of a resolution plan by the Committee of Creditors (CoC) is mandatory or directory? - Locus standi of the appellants - adequacy of data presented for regulatory approvals. As per Hrishikesh Roy J. and Sudhanshu Dhulia J. Locus standi - HELD THAT - Once the CIRP is initiated the nature of proceedings are no longer in personam but rather become in rem. In light of the same the expression any person aggrieved in the context of the IBC has been held to be indicative of there being no rigid locus requirements to institute an appeal challenging an order of the NCLT before the NCLAT or an order of the NCLAT before this Court - In the present case the Appellant as an unsuccessful resolution applicant whose Resolution Plan could have otherwise been approved by the CoC satisfies the requirement of being aggrieved. This preliminary locus standi objection vis- -vis the Appellant therefore does not merit acceptance. Proviso to Section 31(4) IBC - HELD THAT - 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. 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 - The above provision makes it abundantly clear that 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. Undertaking Interpretation Why Literal and not Purposive? - HELD THAT - The so-called spirit of the law is an indeterminate construct whose nature renders it subjective and susceptible to varied interpretations depending on the personal predilections of those tasked with interpreting it. Therefore it is almost unattainable as a definitive guide especially in the face of or when put in opposition to the unambiguous clear and plain language used in a particular provision as is presently the case - Therefore it is almost necessary for the courts to interpret the provision in its natural sense as it is through the words used in a provision that legislature expresses its intention. When the language is unambiguous as in the present matter the courts must respect its ordinary and natural meaning instead of wandering into the realm of speculation and unintended overreach invoking the so-called spirit of the law . Principle of Plain Meaning - HELD THAT - In the present case the use of the word prior at the appropriate place in the proviso besides being direct clear and unambiguous also does not lead to any absurd consequences. The proviso to Section 31(4) of IBC mentions that the approval to the Resolution Plan from CCI shall be obtained prior to its approval by the CoC - 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. Different Threshold for Combinations - HELD THAT - The statute provided a different threshold for the CCI s approval as compared to approvals to be received from other statutory and regulatory bodies. Such arrangement appears to be deliberate as the Competition Act contains both specific restrictions with respect to combinations that may lead to an Appreciable Adverse Effect on Competition (AAEC) in the relevant market as well as a detailed procedure of enquiry and scrutiny of such combinations to prevent such AAEC. Based on the same the CCI is empowered to either approve reject or modify such a combination or to mould it in a manner that is in consonance with the scheme of the Competition Act. Harmony between Stipulated Timelines - HELD THAT - In the present case even though dilatory tactics are said to have been adopted in the submission of notice under the Combination Regulations with Form II submitted on 03.11.2022 the combination was approved on 15.03.2023 i.e. within 132 days. The recent Competition (Amendment) Act 2023 which 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 is indicative of the more realistic and shorter timelines that the CCI ordinarily requires for its analysis and decision-making pertaining to such combination proposals - it is difficult to interpret the provisions disjunctively as has been done by the NCLAT in the impugned order dated 18.09.2023. Procedural Lapses under the Competition Act - HELD THAT - The failure to issue a SCN under Section 29(1) to the Target Company/Corporate Debtor constitutes a major procedural lapse with significant consequence. The statutory scheme of the Competition Act as well as the synergistic framework of the IBC demands that all parties to the combination are afforded a fair opportunity to participate in the decision - making process particularly when the proposed measures bear a direct and material impact on their interests. The absence of such notice undermines the procedural sanctity of the modification process and renders the resultant approval susceptible to bona fide challenge - The issuance of SCN to both the acquirer and the target under Section 29(1) of the Competition Act in our opinion is a non negotiable procedural imperative. The interplay between the provisions of the Competition Act and the IBC necessitates a careful balancing of competing interests underscoring the indispensability of procedural compliance. The lack of participation by the Target in the voluntary modification process especially where the modification entails the divestment of their assets vitiates the approval granted by the CCI and warrants remedial intervention by this Court. Discrepancies in Data - HELD THAT - Transparent and accurate data disclosures are fundamental to the regulatory mechanism. The identified discrepancies compromise the very basis of the CCI s decision-making process. It is imperative to therefore underscore that discrepancies in operational capacity data would strike at the very root of the regulatory mechanism. While we do not intend to embark on a fact-finding expedition afresh the prima facie inconsistencies in the submitted data ought to have been examined with greater care by the NCLAT. But this was not done. Consequently the conditional approval should have been revoked especially in light of the CCI s express mention in its order (dated 15.03.2023) that the order may be revoked if the information provided by the acquirer is found to be incorrect at any particular time. The CoC shall reconsider the Appellant s Resolution Plan and any other Resolution Plans which possessed the requisite CCI approval as on 28.10.2022 i.e. the date on which the CoC voted upon the submitted Resolution Plans. As per S.V.N. Bhatti J. Since it is the commercial wisdom of the CoC that is to decide on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan the provisions of the Code and the Regulations outline in detail the importance of setting-up of such Committee and leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion. Thus section 21(2) of the IBC mandates that the CoC shall comprise of financial creditors of the corporate debtor - The CoC consists of financial creditors who are in the business of money lending and the commercial angle of CIRP is within the domain of the CoC. Thus when the CoC exercises its commercial wisdom the adjudicating authority cannot interfere on merits with the commercial decisions taken by the CoC. This Court also held that there is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and the feasibility of the proposed resolution plan. They act on the basis of a thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting as per voting shares is a collective business decision. The legislature consciously has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority and is made nonjusticiable. The jurisdiction bestowed upon NCLAT is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in section 61(3) of the IBC which is limited to matters other than enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus the prescribed authorities (the Adjudicating Authority/NCLAT) have been endowed with clearly demarcated jurisdiction as specified in the IBC and are not to act as a court of equity or exercise plenary powers. The proviso to sub-section (4) of section 31 is directory and would be compliant with IBC and the Competition Act. Hence the combination approval of CCI at the stage of consideration of the resolution plan by the Adjudicating Authority under section 31(1) would be proper and legal. Such interpretation keeps the operations of the successful resolution applicant as a going concern without deviating from the rigour of the Competition Act and simultaneously a one-year window is granted to obtain licenses permissions consents and other regulatory approvals envisaged by a host of laws. Therefore the proviso is interpreted purposively and held that the approval of a combination of CCI at the stage of consideration by CoC is directory and not mandatory. By operation of section 31(2) of the IBC to avoid rejection of a fully compliant and voted resolution plan the Adjudicating Authority confirms that the approval of the combination is available before implementing the resolution plan. At best the use of the words prior to is a temporal expression whose mandatory or directory nature is to be determined from the context surrounding section 31. The view taken by the NCLAT on the question of whether the requirement of proviso to sub-section (4) of section 31 of IBC is mandatory or directory is correct. Thus the appeals fail. Conclusion - As per HRISHIKESH ROY SUDHANSHU DHULIA i) The AGI Greenpac s Resolution Plan is 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. ii) the CoC shall reconsider the Appellant s Resolution Plan and any other Resolution Plans which possessed the requisite CCI approval as on 28.10.2022 i.e. the date on which the CoC voted upon the submitted Resolution Plans. As per S.V.N. BHATTI i) The object of IBC is to provide the institutional framework for theoretical resolution without considering liquidation as the first option. The buoyant economy needs absorption mechanisms to prevent collateral and cascading impact on the investors depositors and financial creditors. Therefore the idea of the IBC is to let the financial markets work. ii) The view taken by the NCLAT on the question of whether the requirement of proviso to sub-section (4) of section 31 of IBC is mandatory or directory is correct. Thus the appeals fail. A common conclusion cound not be reached. Such differences must be understood as useful steps towards the evolution of jurisprudence in the field of Insolvency and Bankruptcy Code 2016 and the Competition Act 2002.
ISSUES PRESENTED and CONSIDERED
The core issues considered in this judgment revolve around the interpretation and application of the proviso to Section 31(4) of the Insolvency and Bankruptcy Code (IBC), particularly whether the requirement for obtaining the Competition Commission of India (CCI) approval prior to the approval of a resolution plan by the Committee of Creditors (CoC) is mandatory or directory. Additionally, the procedural compliance under the Competition Act, 2002, concerning the issuance of show cause notices and the investigation process for combinations was also evaluated. The locus standi of the appellants and the adequacy of data presented for regulatory approvals were also key issues. ISSUE-WISE DETAILED ANALYSIS Proviso to Section 31(4) IBC The primary issue was whether the CCI's approval of a proposed combination must mandatorily precede the CoC's approval of the resolution plan. The Court analyzed the language of the proviso, which mandates prior approval from CCI for combinations. The Court emphasized the plain meaning rule, concluding that the language was clear and unambiguous, thus requiring a literal interpretation. The Court rejected the argument for a purposive interpretation, noting that the statutory language did not lead to any absurdity or inconsistency with the rest of the IBC. The Court highlighted that the legislative intent was to ensure that combinations that could have an Appreciable Adverse Effect on Competition (AAEC) are scrutinized by the CCI before the CoC's approval, thereby preserving the commercial wisdom of the CoC. Procedural Lapses under the Competition Act The procedural compliance under the Competition Act was scrutinized, particularly the requirement to issue a show cause notice to all parties involved in a combination. The Court found that the CCI failed to issue the mandatory notice to the target company, HNGIL, which constituted a significant procedural lapse. The Court emphasized the necessity of adhering to procedural safeguards to ensure fairness and transparency in the regulatory process. Different Threshold for Combinations The Court noted that the legislative framework provided a distinct threshold for obtaining CCI approval compared to other statutory approvals, reflecting the importance of addressing potential anti-competitive effects. The Court underscored that the CCI's role is crucial in ensuring that combinations do not adversely affect market competition. Discrepancies in Data The Court addressed the discrepancies in operational capacity data submitted by AGI Greenpac and HNGIL, which raised concerns about the accuracy and reliability of the information used for regulatory approvals. The Court stressed the importance of transparent and accurate data disclosures in maintaining the integrity of the regulatory process. Practical Challenges with Conditional Approvals The Court discussed the challenges associated with conditional approvals, particularly the enforcement of compliance with prescribed conditions. The Court highlighted the risks of non-compliance and the potential for regulatory conditions to be circumvented, emphasizing the need for robust enforcement mechanisms. SIGNIFICANT HOLDINGS The Court held that the requirement for obtaining CCI approval prior to the CoC's approval of a resolution plan is mandatory, as per the proviso to Section 31(4) of the IBC. This interpretation aligns with the legislative intent and ensures that the CoC's commercial wisdom is exercised with complete information. The Court found that the procedural lapses under the Competition Act, particularly the failure to issue a show cause notice to the target company, undermined the fairness and completeness of the investigative process. Consequently, the CCI's conditional approval was deemed procedurally deficient. The Court emphasized the importance of adhering to procedural propriety and the principle of rule of law, reinforcing the integrity and credibility of the legal framework. The judgment concluded with the following orders:
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