NCLAT New Delhi: Approval By CCI Prior To Approval Of Resolution Plan By CoC Is Directory In Nature

The Appellate Tribunal held that Section 31(4) of the Code has to be read to mean that though the approval by the CCI is ‘mandatory’, the approval by the CCI prior to the approval of the CoC is ‘directory’.

Background Facts:

On 21.10.2021, the Corporate Insolvency Resolution Process (‘CIRP’) was initiated against Hindustan National Glass & Industries Ltd. (Corporate Debtor). Independent Sugar Corporation Ltd. and AGI Greenpac Ltd. submitted their Resolution Plans to the Resolution Professional (‘RP’) agreeing that CCI approval was mandatory before the Committee of Creditors (‘CoC’) approval of the Plan.

The RP clarified that Resolution Applicants could obtain CCI approval after CoC approval but before filing the Resolution Plan with the NCLT. AGI Greenpac Ltd. submitted an Application to CCI on 27.09.2022, for approval. On 30.09.2022, Independent Sugar Corporation Ltd. received CCI approval, while AGI Greenpac Ltd.'s application was declared invalid on 22.10.2022. CoC approved AGI Greenpac Ltd.'s Resolution Plan with a 98% vote share on 28.10.2022 and Independent Sugar Corporation Ltd. received 88% votes. AGI Greenpac Ltd. submitted an Application in Form-II to CCI for approval on 03.11.2022.

In November 2022, RP filed an application before the NCLT Kolkata, for Resolution Plan approval under Section 30(6) of the Code, and Independent Sugar Corporation Ltd. filed an application seeking to overturn the selection of AGI Greenpac Ltd.'s Resolution Plan. On 15.03.2023, CCI approved AGI Greenpac Ltd.'s combination proposal, and the RP presented the order to the Adjudicating Authority. The Application filed by Independent Sugar Corporation Ltd was rejected by NCLT Kolkata.

NCLAT Verdict:

The NCLAT allowed the appeal and held that Section 31(4) of the Code has to be read to mean that though the approval by the CCI is ‘mandatory’, the approval by the CCI prior to the approval of the CoC is ‘directory’.

The Tribunal interpreted the proviso to Section 31(4) of the Code which reads as follows in two parts, firstly, it refers to combination under the Competition Act, 2002 wherein approval is mandatory prior to the approval of the Plan by CoC to take care of the adverse effect on the competition and the second part is as to whether the requirement of approval by the CCI prior to the approval of such Plan by the CoC is ‘mandatory’ or ‘directory’.

Section 31: Approval of resolution plan

(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later.

Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.

The Tribunal observed that as per the timelines of the Competition Act and that of CIRP, Resolution Plan submission, and CoC approval in the Code, it is not in the hands of the Resolution Plan when CCI will grant the approval. The CCI has to act as per statutory provisions of the Competition Act and it has been given 210 days to take a decision. It pointed out that if it holds that prior approval of the CCI is mandatory prior to the approval of the Plan by the CoC, it will lead to incongruous results, the CIRP cannot be frozen or cannot be put on halt because an application is submitted before the CCI leading to an adverse effect on the CIRP.

It considered that even if the requirement i.e. prior to approval by the CoC is held to be ‘directory’, means that provision of Section 31(4) is complied with. The Tribunal held that it cannot be held that since the provision is there, approval by CCI has to be obtained prior to approval of the Plan by the NCLT. Various NCLAT judgments lay down that approval by CCI, prior to approval by the CoC is ‘directory’ as there are no consequences provided for its non-compliance.

The Tribunal concluded that in this case, RFRP provided that CCI’s approval has to be obtained prior to approval of the Plan by the CoC, which RFRP was in accordance with Section 31(4). Although, the RP subsequently clarified that approval can be obtained even after the approval by the CoC, which was in accordance with the prevalent legal position as settled by the NCLAT in Arcelor Mittal and other cases. Further, Independent Sugar Corporation Ltd. has every locus to challenge the order of the NCLT.

Case Title: Soneko Marketing Pvt. Ltd. vs. Girish Sriram Juneja & Ors.

Case No.: Company Appeal (AT) (Insolvency) No. 807 of 2023

Counsel for the : Mr. Abhijeet Sinha and Ms. Aastha Vishwakarma, Advocates.

Counsel for the Liquidator: Mr. Vikram Nankani, Sr. Advocate, Mr. Vikram Wadhera, Ms. Smriti Churiwal, Mr. Sourabh Tandon, Advocates for R-1 (RP). Mr. Abhinav Vashisht, Sr. Advocate, Ms. Priya Seth, Mr. Siddhant Kant, Ms. Moulshree Shukla, Mr. Yugal, Advocates for CoC/R-2. Mr. Mukul Rohatgi, Sr. Advocate, Mr. Arun Kathpalia and Mr. Krishnendu Datta, Sr. Advocates with Mr. Sanjeev Sharma, Mr. Vaibhav Gaggar, Ms. Sanya Sud, Mr. Udai Khanna, Ms. Vaishali Goyal, Ms. Threcy Lawrence, Ms. Vaishnavi Bansal, Ms. Kokila Kumar, Ms. Praniti Ganjoo, Mr. Aditya Arora, Mr. Ketan Saraf, Ms. Diksha Gupta, Mr. Rajat Sinha and Mr. Ankit Vashisht, Advocates for AGI Greenpac

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