Prior CCI Approval under IBC

**Pushpendra

Introduction

The Apex Court has recently delivered a judgment in Independent Sugar Corporation Ltd. v. Girish Sriram Juneja (‘Independent Sugar’) regarding the interpretation of the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’). Ordinarily, necessary approvals required under any law are to be obtained within one year of the approval of a resolution plan. However, as an exception to this, any resolution plan providing for a ‘combination’ (as per Section 5 of the Competition Act, 2002 (‘the Act’) needs to be approved by the Competition Commission of India (‘CCI’) prior to being approved by the committee of creditors (‘CoC’). This exception came in force vide an amendment to Section 31(4) of the IBC, which inserted a proviso providing this exception.  

Despite this, orders rendered by National Company Law Tribunals (‘NCLT’) and the National Company Law Appellate Tribunal (‘NCLAT’) held that the proviso was merely directory in nature. According to these orders, the CCI approval can be obtained even after the CoC has already approved a resolution plan, but prior to it being presented to the NCLT for approval. These judgments are elaborated upon in a subsequent section on purposive interpretation.

Independent Sugar has reversed this legal position by holding that the proviso to Section 31(4) is mandatory in nature and that a resolution plan must be approved by CCI prior to its approval by the CoC. Accordingly, this blog piece has two principal objectives. First, it aims to critically examine whether the current legal position aligns with the established rules for interpretation. Second, it aims to evaluate the ramifications of the judgment on the efficiency and expediency of the Corporate Insolvency Resolution Process (‘CIRP’), as prescribed under the IBC.

Insolvency Law Committee Recommendations

The Parliament established the Insolvency Law Committee on November 16, 2017 to address the issues arising in the implementation of the IBC. Notably, the report treated the approval from the CCI separately, and noted an agreement with the CCI whereby CCI would provide approvals within a thirty-day limit. This report played a substantial role in the enactment of the 2018 amendment to the IBC, which provided that the resolution plan must be approved by CCI prior to its presentation before the CoC.

Purposive Interpretation by NCLAT

After the 2018 amendment, the proviso to Section 31(4) categorically provides for prior approval of CCI. However, decisions by the NCLT and the NCLAT up till Independent Sugar had effectively rendered this procedural stipulation merely directory in nature.

The foremost case in this regard is Arcelor Mittal India Pvt. Ltd. v. Abhijit Guhathakurta, where the CCI approval was obtained after the CoC had approved the resolution plan. The NCLAT held that the proviso to Section 31(4) is merely directory in nature, meaning that the CoC can approve the plan even in the absence of CCI approval. This stance had further been endorsed by both the NCLAT and the Supreme Court in appeals, as demonstrated in landmark cases such as Vishal Vijay Kalantri v. Shailen Shah Vishal and Makalu Trading Ltd. v. Rajiv Chakraborty.

The NCLT and NCLAT have construed the requirement of prior approval from the CCI considering its adverse implications for the CIRP, particularly the effect of prior CCI approval on the time-bound nature of the IBC. Therefore, it can be stated that the two tribunals have preferred a purposive interpretation over a strictly literal one, despite the definitive language of the proviso to Section 31(4).

Independent Sugar and the Shift to Literal Interpretation

The Apex Court stated in Independent Sugar that the principle of literal interpretation ought to be employed when the language of a statute is clear and unambiguous, as seen in the proviso to Section 31(4) of the IBC. Here, the term ‘prior’ has a plain, ordinary meaning which must be respected, as the words used by the legislature are presumed to be purposeful and intentional until proven otherwise. The court also referred to the Latin principal casus omissus (‘an omitted case’), which essentially warns the courts against filling in perceived gaps or altering the language of the statute. This principle underscores the idea that when a legislature has not explicitly addressed a specific issue, it is not the court’s role to assume that the omission represents an oversight or to insert additional provisions that were intentionally not crafted by the lawmakers. Instead, the judiciary must adhere strictly to the written text of the statute.

This approach precludes a purposive interpretation that would amount to judicial lawmaking and ensures that even if the literal application results in outcomes that might seem harsh or inconvenient, the statutory directive remains unaltered. Consequently, the court mandated that approval from CCI must be obtained before placing the plan for approval of CoC, thereby upholding the separation of powers by strictly interpreting the expressed language and refraining from transgressing into the legislative domain.

While the Court’s primary approach was the literal interpretation of the statutory language, it further solidified its interpretation by referring to external aids of interpretation, specifically, the Insolvency Law Committee Reports, and the Notes on Clauses which clarify legislative intent by providing precise explanations and contextual guidance.

Timelines under IBC and Competition Act in Tandem

The principal apprehension regarding the proviso to Section 31(4) of the IBC is that it would lead to disruption in the CIRP timeline, as stipulated under the IBC. The premise of this apprehension is that the CCI has a time-limit of 150 days (after the 2023 amendment) for granting its approval to the proposed combination under the Competition Act, 2002 and delayed approvals to combination proposals enshrined under the resolution plan would prevent the CIRP from culminating within the 330-day period as provided under Section 12 of the IBC. The two timelines under the IBC and the Act do not generally cause any disharmony. This is evident from the Annual General Report (2023–2024) of the CCI which reveals that combination applications are, on an average, processed in 16 working days, with no proposal ever taking more than 30 days for approval. As per this report, all 101 proposals were approved within a 30-day period, ensuring that even if a combination proposal is submitted for CCI approval at the time of handing it over to the Resolution Professional (‘RP’), the overall procedure remains well within the IBC’s 330-day limit and that no undue delay is attributable to the time taken by CCI.

While there may be exceptional cases where the approval of the CCI may take longer than average, such rare instances do not justify the above-noted apprehension as they are squarely covered by the judgment of the Apex Court in the case of Committee of Creditors of Essar vs. Satish Kumar Gupta wherein the court has recognised the need for flexibility. The Apex Court held that while the CIRP is ordinarily required to be completed within a 330-day period (including any extensions and legal proceedings), the law permits further extensions when delays are attributable not to the parties involved, but to the inefficiencies inherent in the institutional processes of the NCLT, NCLAT, or any other statutory authority. Pertinently, the Court noted that imposing a strict 330-day deadline without exception may violate constitutional rights, constituting an undue interference with a litigant’s fundamental right to non-arbitrary treatment under Article 14, as well as an excessive, arbitrary, and therefore unreasonable restriction on the right to conduct business under Article 19(1)(g) of the Constitution of India.

Therefore, it may be conclusively stated that requiring prior approval from the CCI does not undermine the integrity of the CIRP timeline. Hence, any concerns about potential disruptions in the CIRP timeline are misguided.

Prior CCI Approval for Seamless CIRP

In case the CCI determines that the combination is either unacceptable or only acceptable under certain conditions, then any objections or changes made at an advanced stage would not leave adequate time for the CoC to consider alternative options given that the 330-day time limit is in place. This would derail the entire CIRP process leading to value destruction and reduction in recovery rate. 

Moreover, the Supreme Court has held that Section 31(1) of the IBC mandates that once a plan is approved by the CoC, it cannot be modified.  Ergo, it becomes crucial to seek prior approval of CCI and then the RP can integrate decisions of CCI into the process before going to the CoC. 

Early CCI approval prevents the approval of non-compliant plans. It also ensures that the CoC benefits from the expertise and wisdom of the CCI. This guidance would enable the CoC to fulfil its mandate of maximising value while strictly adhering to the CIRP timeline. Concomitantly, the prior approval approach ensures that the CIRP is in conformity with the suspensory regime enshrined under Section 6 of the Act, thereby upholding the mandate of the Act as well as that of IBC.

Therefore, it can be stated that the NCLT and NCLAT engaged in a misguided purposive interpretation exercise, thereby diluting the clear legislative intent of the proviso to Section 31(4) without any evident objective. In contrast, the Supreme Court’s decision in Independent Sugar has rectified this erroneous interpretation while ensuring that the CIRP remains uncompromised.

Conclusion

The Apex Court’s judgment not only aligns with the established rules of interpretation but also ensures seamless consummation of the CIRP. Crucially, the judgment preserves the mandate of both the legislations, thereby laying the foundation for a healthy competitive insolvency landscape. The Apex Court is charting a progressive legal course; however, it is now incumbent upon the legislature to provide further directional clarity on this issue. One promising avenue would be to build on the exemplary practice of CCI pertaining to the completion of combination evaluations within 30 days in all the cases. Accordingly, a statutory duty should be imposed on the CCI to complete its assessment within 30 days, failing which approval would automatically be deemed granted. Concomitantly, the said period should also be exempted from the computation of 330-day period under the IBC.

**Pushpendra is a third-year law student at Hidayatullah National Law University (HNLU), Raipur, with a deep-seated interest in the Insolvency and Bankruptcy Code (IBC) and its intersection with other legal domains such as competition law. He acknowledges the valuable input of Ravi Rajpurohit K, a fellow third-year student at HNLU. Beyond commercial law, he is equally drawn to policy matters that span both socio-legal and strictly legal issues ranging from organised crime to regulatory reforms. Through internships, research projects, and academic writing, he continues to refine his understanding of how the legal frameworks play an instrumental role in advancing effective public policy reforms. He aspires to contribute to directed legal reforms, especially in areas where statutory regimes converge. Lastly, he believes that the meticulous review process undertaken by the editorial team at Vidhi has played an integral role in making this blog piece a reality.

**Disclaimer: The views expressed in this blog do not necessarily align with the views of the Vidhi Centre for Legal Policy.